Image alt tag

Error!

There was a problem contacting the server. Please try after sometime.

Sorry, we are unable to process your request.

Error!

We're sorry, but the Insights and Intelligence Tool is temporarily unavailable

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Error!

We're sorry, but the Literature Center checkout function is temporarily unavailable.

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Tracked Funds

You have 0 funds on your mutual fund watch list.

Begin by selecting funds to create a personalized watch list.

(as of 12/05/2015)

Pending Orders

You have 0 items in your cart.

Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business.

Reset Your Password

Financial Professionals*

Your password must be a minimum of characters.

Confirmation Message

Your LordAbbett.com password was successully updated. This page will be refreshed after 3 seconds.

OK

 

Market View

Instead of jumping in and out of stocks, investors may be better served by understanding the types of equities that historically have performed relatively well during bouts of market volatility.

 

In Brief

  • Retail investors pulled nearly $20 billion out of equities in December 2018, missing out on the best January in U.S. equities in 30 years.
  • Investors were responding to an uptick in volatility and concerns of an end to the long-running bull market.
  • Investors would have been better served by investing in dividend growers, which historically have performed relatively well during bouts of market volatility.

 

After a December that marked the worst month for U.S. equities since the Great Depression, the U.S. equity market (as measured by the S&P 500® Index) experienced a robust rebound in January 2019, returning 8.01%—its strongest month since October 2015 and only the sixth time that U.S. equities have returned more than 8% in a month since the market bottom in March 2009 (out of 119 months), according to Standard & Poor’s.

Unfortunately, many investors missed out on the best January in 30 years. Retail investors pulled nearly $20 billion out of equities (mutual funds and ETFs) in the month of December, according to Morningstar (the ninth largest month of equity outflows since the market bottom in March 2009).

As we discussed recently, it is no secret that market timing is an inherently difficult task for investors at all levels of sophistication, yet many still find themselves susceptible to the market timing trap and its potentially severe repercussions. Just missing the 10 best days in the market over the past 25 calendar years would have reduced returns by more than 50%. Missing the 20 best days was even worse, reducing returns by 69%, while being absent for the 30 best days would have cost a staggering 80%, according to Morningstar.

With the uptick in volatility over the past year, and driven by fears that the nearly decade-long bull market is nearing its end, it has become common for investors to treat bouts of volatility as an imminent sign of a prolonged bear-market (while fundamentals may still suggest otherwise). Instead, investors may be wise to remember that intra-year market pullbacks are not uncommon; in fact they happen almost every year as shown in Chart 1.

 

Chart 1. Short-Term Market Declines are Normal
Annual total returns versus maximum price declines (as of December 31, 2018)

Source: Morningstar. 
The historical data are for illustrative purposes only, do not represent the performance of a specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. 
Past performance is not a reliable indicator or guarantee of future results.

 

Despite the regularity of intra-year market pullbacks, it is important to remember that equities still managed to finish higher in most of the past 90 years and have delivered returns greater than 12% nearly three-quarters of the time.

 

Chart 2. Since 1926, Positive Annual Returns have Outnumbered Negative Returns, 68 to 25.
Annual total returns for the S&P 500 Index, 1926-2018

Source: Morningstar, S&P Dow Jones Indices, and Lord Abbett.
The historical data are for illustrative purposes only, do not represent the performance of a specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results.  Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Past performance is not a reliable indicator or guarantee of future results.

 

So what does this mean for investors who are nervous about increased volatility in the market? For those who lack clairvoyance, the historical return profile of the market suggests that moving to the sidelines in expectation of a drawdown—even if perfectly timed—may simply put an investor’s long-term results at risk by missing a subsequent recovery.

Instead of jumping in and out of stocks, investors may be better served by understanding the types of equities that have, historically, performed relatively well during bouts of market volatility. One such type is a company that has a historical track record of consistent dividend growth. As shown in Table 1, stocks of such companies have tended to outperform amid market declines, capturing just 87% of market downside on average during each of the largest drawdowns over the past 10 years.

 

Table 1. Historically, Dividend Growers Have Outperformed in Market Declines
Maximum intra-year declines over the last 10 years, start dates inclusive, and downside capture 

1Dividend growers are defined as companies in the S&P 500® Index or S&P 400® Index that have paid a dividend and increased their yearly dividend payout for 10 consecutive years.
Source: FactSet. 
The historical data are for illustrative purposes only, do not represent the performance of a specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Past performance is not a reliable indicator or guarantee of future results.

 

Summing Up
For investors concerned about a potential market pullback, a steady allocation to dividend-growth stocks might help improve outcomes compared with precipitous, and previously futile, efforts to time market tops and bottoms. In this regard, dividend growers could offer a less stressful alternative during periods of market volatility. In particular, investors may wish to consider portfolios from active managers with deep experience in evaluating and selecting stocks with a strong dividend-growth pedigree— and the potential for continued dividend increases over the long term.

 

A Note about Risk: The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. While growth stocks are subject to the daily ups and downs of the stock market, their long-term potential as well as their volatility can be substantial. Value investing involves the risk that the market may not recognize that securities are undervalued, and they may not appreciate as anticipated. Smaller companies tend to be more volatile and less liquid than larger companies. Small cap companies may also have more limited product lines, markets, or financial resources and typically experience a higher risk of failure than large cap companies. The value of an investment in fixed-income securities will change as interest rates fluctuate and in response to market movements. As interest rates fall, the prices of debt securities tend to rise. As rates rise, prices tend to fall.

No investing strategy can overcome all market volatility or guarantee future results. 

Forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

This article may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that markets will perform in a similar manner under similar conditions in the future.

Dividends are not guaranteed and may be increased, decreased, or suspended altogether at the discretion of the issuing company.

Dividend yield is equal to the dividend divided by the stock price. Dividend yield is one measure of a stock's value. A high dividend yield may indicate that a stock is relatively inexpensive.

Dividend policy: A stock is classified as a dividend payer if it paid a cash dividend any time during the previous 12 months, a dividend grower if it initiated or raised its cash dividend at any time during the previous 12 months, and non-dividend payer if it did not pay a cash dividend at any time during the previous 12 months.

Downside capture: The downside capture ratio measures a manager’s performance in down markets relative to a particular benchmark. A down market is one in which the market’s quarterly (or monthly) return is less than zero. For example, a ratio of 50% means that the portfolio’s value fell half as much as its benchmark index during down markets.

The S&P 500® Index is widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries. 

Indexes are unmanaged, do not reflect deduction of fees and expenses and are not available for direct investment. 

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

The opinions in Market View are as of the date of publication, are subject to change based on subsequent developments, and may not reflect the views of the firm as a whole. The material is not intended to be relied upon as a forecast, research, or investment advice, is not a recommendation or offer to buy or sell any securities or to adopt any investment strategy, and is not intended to predict or depict the performance of any investment. Readers should not assume that investments in companies, securities, sectors, and/or markets described were or will be profitable. Investing involves risk, including possible loss of principal. This document is prepared based on the information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.

MARKET VIEW PDFs


  Market View
  U.S. Market Monitor

CONTRIBUTING STRATEGIST

SEEKING A SMOOTHER RIDE?
The Calibrated Dividend Growth Fund invests primarily in stocks of large U.S. companies that have a history of increasing their dividends. Learn more.
image

Please confirm your literature shipping address

Please review the address information below and make any necessary changes.

All literature orders will be shipped to the address that you enter below. This information can be edited at any time.

Current Literature Shipping Address

* Required field