3 min read

Portfolio Update

Portfolio Update

Some people might wonder why I chose this particular time to launch a newsletter devoted to dividend-growth companies.

Simply put, I believe that investors never needed assistance in navigating the markets more than they do today.

The tailwinds of the past 40-plus years; disinflation, falling interest rates, reasonable valuations, and favorable demographics are no longer existent.

The Federal Reserve's "too easy for far too long" monetary experiment has put everyone between the proverbial "rock and a hard place".  

Keep rates too low and inflation will continue to run rampant. Tighten as they have, and well...things begin to break as we are seeing with SVB.  

But inflation is far from tamed...so this is problematic!  

Now, before we conclude that this is a SVB problem because it was mismanaged (and it was!) here are a couple of troubling graphics.

The top 4 banks currently are sitting with $210B in losses.  

When interest rates go up, bond prices go down. And it's happening at banks everywhere.

Not all banks were as leveraged and un-hedged as SVB was, but the risk is not isolated to SVB.

And we will ignore for the moment that what is happening with commercial banks is also happening with the Fed's balance sheet as well.

Chart courtesy of Crescat Capital. 

If you are a dividend investor, this news is troubling.

The financial sector has always been a large component of the "dividend stock universe".

The Vanguard Dividend Appreciation ETF (VIG) benchmarks to the S&P U.S. Dividend Growers Index which has a 15.60% target weight to the Financial Sector.

Invesco Dividend Achievers™ ETF (PFM) has a 13.01% allocation to the financial sector.

Even our own Dynamic Dividend stock list shows a significant presence of financial names.

The following charts show the performance of the S&P 500 SPDR (SPY) vs. the S&P Financial Sector (XLF), the Regional Banking Index (KRE), along with VIG and PFM.  

As this shows, the financials are displaying extreme weakness with KRE currently down over 20%.  

The two dividend-focused ETFs displayed are actually down more than the general market.  

That is why sector considerations are so important and sector strength is part of the overall portfolio approach.

Here are my thoughts on portfolio positioning as we await tomorrow's CPI numbers.

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