DTRS Mission: Providing data-driven investment options with above-average total return for an affordable fee.
FREE SUBSCRIPTION: All 7 Model Portfolios for 2020 are now free for Personal Use to new subscribers. For your free Model Portfolios, send requests to DTRS.Portfolios@gmail.com.
The 10YR-2YR Yield Curve briefly touched zero in late August before rising back into positive territory. Linear regression of the trend line puts the Yield Curve at +0.11% as of October 25, 2019. The trend line also has the Yield Curve falling at a rate of 0.129%/year which would result in the trend line crossing zero in September of 2020. The actual Yield Curve may cross below zero multiple times before the trend line crosses below zero. Visitors interested in our Yield Curve & Recession Watch feature, scroll to the lower half of this page.
Enjoy your life…let your money work for you.
The Dividend Total Return Strategy was developed using over 40 years of public data and is a modified Dogs-of-the-Dow methodology. Our semi-passive approach to investing involves yearly positioning following any of our 7 model equity portfolios. Investors can reduce short-term capital gains by holding individual equity positions for 1 year or more. Also, investors can often reduce the fees paid for traditional investment options. DTRS provides suggested equity blending and is not an ETF, mutual fund or market index fund. EG Financial, LLC does not receive any compensation from the equities it promotes.
What is DTRS (Dividend Total Return Strategy)?
DTRS is a proprietary data-driven equity selection process utilizing 5 to 6 criteria for screening.
Our 7 suggested DTRS model portfolios show positioning in approximately 1 to 10 stocks and are constructed using a data-driven, semi-passive approach, based on over 40 years of public company data. The investment methodology is similar to Dogs-of-the-Dow method with added criteria for the DTRS method. The portfolio holdings are adjusted each year such that each stock is typically held for 1 to 3 years. We only select equities from well-known large-cap U.S. companies that provide above-average dividend yields. These equities typically generate annual total returns on investment (taking into account dividends paid and share appreciation) that have historically beaten both the Dow Jones Industrial Average (DJIA) and S&P 500 Index annual total returns.
Choose a DTRS model portfolio equity blend based upon your diversification preference or add one of the equity blends to provide income-producing stocks to your current portfolio. Although we can’t guarantee future results, our DTRS model portfolios have provided the following historic returns:
Dividends and the DJIA:
In the 1992 book “Beating the DOW”, Michael B. O’Higgins offers “Historically, dividends have accounted for 40 to 50 percent of the total return on the Dow stocks as a group…The fact that dividends are the driving force in the blue chip segment of the market and that there tends to be a high level of consistency to dividend payments by such companies explains why our yield strategies are not only singularly effective but quite conservative.”
Using this premise, selecting stocks based upon higher yields should result in more consistent long-term returns. Now consider the 30 DOW stocks. These stocks tend to be mature stocks offering dividend yields that are typically higher than the market averages. Also, many of the DOW stocks have a history of consistent dividend increases. Since the price of these stocks are, in large part, based upon the dividend yields, fluctuating stock earnings should (theoretically) have less of an effect on the stock price. Our Dividend Total Return Strategy builds upon Michael B. O’Higgins’ Dogs-of-the-Dow methodology to offer our proprietary, data-driven approach for long-term investing.
How does DTRS differ from Dogs-of-the-Dow?
The standard Dogs-of-the-Dow method screens 10 stocks based upon 2 criteria. First, the Dogs must be among the 30 stocks contained in the Dow Jones Industrial Average. Second, the Dogs must be among the 10 highest-yielding stocks in that index. This method was developed using 18 years of data from 1973 to 1990 and appeared to work well before 1996. Unfortunately, this standard method struggled to beat the total returns of the DJIA and S&P 500 indices over the 20-year period following 1995.
Our proprietary Dividend Total Return Strategy utilizes up to 6 different selection criteria to develop model portfolios containing 1 to 10 stocks. These additional selection criteria provide better capital appreciation and more balance to the performance as indicated by over 40 years of back-testing. This back-testing demonstrated that the model portfolios beat the DJIA and S&P 500 annual returns approximately 60% to 75% of the time. Over the 46 years from 1973 to 2018 the DTRS model portfolios also yielded 5% to 11% greater annual total returns. Investors should note that the DTRS approach does not beat the market indices every year. That is why this method is designed to be used as a multi-year equity investment approach.
Who should invest using DTRS?
The Dividend Total Return Strategy is intended for Do-It-Yourself Investors:
- with trading experience and access to self-directed trading platforms.
- familiar with methodologies like the Dogs-of-the-Dow.
- looking for a semi-passive, multi-year investing approach.
- looking for above-average historical total returns (capital appreciation plus dividends).
- interested in U.S. equities with dividend income.
- wanting to reduce short-term capital gains.
- wanting to avoid costly management fees.
Investors can choose the level of diversification by using one of the 7 DTRS model portfolios. The 7 model portfolios are designed to contain approximately 1.4, 2.2, 3.4, 5.7, 7.3, 8.3 or 9.4 stock holdings. Investors seeking lower risk tolerance may choose to blend the suggested equity positioning with their other investment holdings.
Investors will notice that the smaller DTRS model portfolios (P-1.4, P-2.2 & P-3.4) historically have generated greater total returns. Theoretically, these model portfolios may also carry higher risk due to the fewer number of equity holdings. For this reason, prospective investors should review their risk tolerance before selecting a DTRS model portfolio. Performance charts are available for each of the 7 model portfolios from 1973 to the most recent completed year under Annual Performance.
Though the DTRS Model Portfolios contain many fewer equities than both the DJIA and S&P500 Index, their risk-adjusted returns (Sharpe Ratio) using historic data have typically been higher than those for both market indices:
Risk-Adjusted Returns for the DTRS Model Portfolios:
In order to evaluate the relative risk associated with the DTRS Model Portfolios, Sharpe Ratios were calculated for each portfolio over various periods using historical total return data. These values were then compared to the Sharpe Ratios for the DJIA and S&P500 Indices over the same periods. With the exception of the 1-year period for 2018, the risk-adjusted returns for the DTRS Model Portfolios typically exceeded those of both market indices over the same periods. For calculation purposes, the risk-free return was assumed to be the 10-year Treasury rate. In order to adjust for the wide range in interest rates over the last 46 years, excess returns were calculated annually relative to the average 10-year Treasury rate for each year. Specifically, the Sharpe Ratios were calculated as follows:
Sharpe Ratio = Average (%ROR – Risk free rate) / Std. Dev. (%ROR – Risk free rate)
Mid-year entry using DTRS:
When considering mid-year entry using the Dividend Total Return Strategy:
- Look at the latest YTD returns for the DJIA and each DTRS model portfolio (See YTD performance below).
- compare YTD model portfolio returns to the historical average model portfolio returns (See chart above).
- This information is intended for public use in order to evaluate if it is too late in the year to subscribe to DTRS.
- Investors may want to invest in model portfolios with YTD returns at a discount to the DJIA YTD returns.
- Investors may want to select model portfolios with higher residual returns assuming an average performance year.
- Investors should also consider the volatility and diversification of each model portfolio (See Annual Performance).
2019 DTRS Basic Portfolio Performance (as of 08-02-2019):
+32.35% for DTRS P-1.4 (1 to 2 stocks)
+30.71% for DTRS P-2.2 (1 to 3 stocks)
+24.97% for DTRS P-3.4 (1 to 5 stocks)
+11.87% for DTRS P-5.7 (2 to 8 stocks)
+11.96% for DTRS P-7.3 (3 to 10 stocks)
+12.58% for DTRS P-8.3 (4 to 10 stocks)
+11.85% for DTRS P-9.4 (6 to 10 stocks)
+15.10% for DJIA (Price appreciation plus average dividend yield)
+14.15% for Dow Dogs (Calculated using DTRS data)
+ 7.36% for Dow 5 (Calculated using DTRS data)
Yield Curve & Recession Watch
With the cessation of monetary easing and with the Fed now actively raising rates, the yield curve has been flattening. Actually, the yield curve has been flattening since the beginning of 2014. Why is the yield curve important to investors? The answer is that many of the past recessions have been linked to a preceding inverted yield curve. Recessions typically lead to significant declines in the stock market. Both the 2001 and 2008 recessions were preceded by inverted yield curves.
An inverted yield curve occurs when short-term interest rates exceed long-term interest rates. The recession connection is simply because banks tend to borrow using short-term rates and lend using long-term rates. With an inverted yield curve, it is difficult for banks to make money so lending tightens. A tightening of capital lending makes economic expansion more difficult.
In early April, we at DTRS started tracking the trend in the 10-year/2-year yield curve. Looking at the 5-year macro, 2.5-year local & 12-month recent trends, the rate curve trend appears to be bottoming. This bottoming has resulted in the projected inversion date extending further into the future. Here is our latest projection:
Earliest Predicted Inversion Date: 08/30/2019 (when the Yield Curve last crossed zero)
Trend Line Inversion Date: 09/05/2020 (using 12-Month Average Trend Line)
Latest Predicted Inversion Date: TBD (using 12-Month Upper Bound Trend Line)
Historical data shows that the S&P500 typically peaks some time after the rate curve inverts. This lag time ranged between 6 and 16 months for the 2001 and 2008 recessions, respectively. Our observations indicate that the lag time is likely related to the depth of the rate curve inversion. We at DTRS will continue to follow the progression of the yield curve trends. Once the 10YR-2YR curve inverts our focus will then turn to timing the market top.
Question: What is the service you are offering?
Answer: Our website offers an annual subscription which provides a list of 7 DTRS model portfolios ranging in size from 1 to 10 U.S. equities with above-average yield. Each portfolio suggests the proportioning of these equities within the portfolio.
Question: Does the subscription provide a given set of equity recommendations for the year?
Question: Once the portfolio list is received, will there be any updates during the year?
Answer: Currently, we only offer an annual selection of stocks. This is similar to the basic Dogs-of-the-Dow approach. In the future, we may offer intra-year adjustments but only if back-testing demonstrates a positive effect on performance.
Question: Do you change the holdings during the year if they do not perform per plan?
Question: Are equities selected based on fundamentals or technical analysis or any other method?
Answer: The selection is largely based upon the Dogs-of-the-Dow methodology with proprietary DTRS enhancements based upon 45 years of back-tested data analysis. For weighting purposes, we do consider certain fundamentals such as price and yield but do not provide in-depth analysis of a company’s financials. We also consider our own trending criteria for a given stock. Like the basic Dogs-of-the-Dow approach, our stock weighting is essentially formula-driven.
Question: Can you provide more detail as to the investment strategy?
Answer: The exact selection process is part of the DTRS intellectual property. We offer an alternative investment strategy to U.S. equities based upon the foundation built by Michael O’Higgins with his Dogs-of-the-Dow approach. Like many of Michael O’Higgins’ suggested enhancements, our specific DTRS enhancements are intended to improve the capital appreciation based upon the results of our own historical analysis.
The DTRS equity selection and proportioning is based upon applying 3 to 4 additional selection criteria on top of the basic Dogs-of-the-Dow methodology. Our 45 years of back-testing have demonstrated that by applying these additional selection criteria the DTRS model portfolios have beaten the market 60% to 75% (depending upon the selected model portfolio). This means that the DTRS model portfolios also under-performed the market 25% to 40% of the time.
These added selection criteria have improved upon the long-term performance of the basic Dogs-of-the-Dow methodology by 5% to 11% annually. The DTRS methodology is intended as a multi-year investment approach and is not intended for short-duration investing.
We understand that there may be reluctance to use an investment approach that has portions which are proprietary. Prospective investors can follow the information and results published for public viewing. We plan to publish the actual model portfolio holdings late each year so non-subscribers are able to verify the previously-published monthly performance results. Investors may also find the published weekly or monthly performance information useful in timing for mid-year entry.
Question: Do you have a team of experts doing the selection or these stocks?
Answer: No and we are not financial advisors either. The model portfolios were formulated through back-testing 45 years of DJIA performance and equity data. At the end of each year, we plan to re-evaluate the selection criteria. No adjustments were made following 2017.
Question: Are there any other payment methods?
Answer: Not at this time.
Question: Is this designed for Canadian investors?
Answer: Yes, if you already have an account which allows you to buy & sell U.S. equities. Considering that Canadian markets represent only a few percent of the world markets, diversifying beyond the Canadian border makes sense. The U.S. markets represent approximately 60% of the world markets, so that is where most of the opportunity lies. Before trading in foreign markets, become familiar with the tax implications and foreign tax withholding.
Question: Do I have to open an account to trade in USD?
Answer: Most Canadian brokerage houses should allow trading in U.S. equities. Before opening an account, review the trading restrictions including trading in USD or Canadian dollars. The DTRS model portfolios are not ETF’s or Mutual funds and you are not buying the equities through us. The DTRS model portfolios are listings of suggested holdings proportioned according to the DTRS selection criteria. You essentially buy the equities in proportion to one or more of the model portfolios (proportion by cost not shares).
You can fill out the Contact Us form or order the DTRS model portfolios by visiting the Subscription Details page. Help us make this website better by sending comments to: firstname.lastname@example.org