It’s a safe assumption that when Bob Dylan sang “the first one now will later be last,” he didn’t have financial markets in mind. And yet, that line—from the iconic “The Times They Are a-Changing”—neatly sums up the importance of a dynamic, flexible approach to investing.
To see why, look back two years ago. On August 19, 2020, the tech-heavy Nasdaq 100 was up 30% for the year—while dividend-stock investors saw their shares slump nearly 18% (Dow Jones US Select Dividend Index).
In stark contrast, the story on August 19 this year was flipped. Dividend stocks were solidly in the black in 2022, while the Nasdaq 100 (down 18% year-to-date) is trying to avoid dipping back into bear market territory.
The gap between Nasdaq’s 2020 return and its 2022 return is a whopping 48 percentage points.
The upshot: Major market events and pullbacks are not all built the same. In 2020, tech stocks benefited from (among other factors) Covid lockdowns and restrictions that prompted greater tech usage, while uncertainty about the pandemic’s ultimate impact put a damper on dividend payers. Fast forward to today, and investors are seeking the relative safety of dividend-paying stocks in the wake of rising inflation and interest rates while eschewing high-flying tech stocks that depend heavily on strong future growth and discount rate assumptions.
Navigating dynamic markets like these will likely require more than naively doing what worked in the past. We believe employing a robust multi-disciplined process that utilizes quantitative and qualitative assessments of macro-level developments to guide investment decisions may be helpful.
This commentary is written by Horizon Investments’ asset management team.
The Nasdaq 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange. The Dow Jones US Select Dividend Index represents the country’s leading stocks by dividend yield.
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