Dividend Select Commentary – 2Q17
Following an amazing five year period for high dividend stocks, the second quarter and first half of 2017 is now behind us and the Argent Dividend Select ended the first half up 3.3% (net of fees), behind both the S&P 500® and Russell 1000® Value indices. We are okay with this. After all, given the current run in the markets, it is unreasonable to always expect double digit returns. Instead, the goal of the Argent Dividend Select strategy is to provide consistent, well-diversified, risk-adjusted returns and, most importantly, give an alternative to fixed-income investments for those clients searching for yield. With this in mind, the strategy currently maintains a 3.1% yield, well ahead of 2.0% for the S&P 500 and 2.4% for the Russell 1000 Value.
You may ask, what exactly happened during the quarter? The short answer is a lot. However, the easiest way for us to explain is that the markets continue to experience a transition phase. In essence, value stocks have given way to growth stocks, and value names (which outperformed most peers in 2016) underperformed, relatively, across the board. The ebb and flow of value versus growth is a never-ending stock market story. Our value strategy, Dividend Select, leverages our more growth-oriented large cap process in order to identify higher yielding names. However, each company selected for investment must still meet the criteria of our underlying change-based approach to investing – focusing on finding undervalued companies with strong growth potential at a reasonable valuation.
The Argent Dividend Select strategy is selective, and we will be patient and not attempt to play short-term market momentum. Over the duration of the second quarter we believe our patience paid off, as we were able to add Bristol-Meyers Squibb Company (BMY) to the portfolio. BMY is a best-in-breed biopharmaceutical company which recently came under pressure as excitement surrounding its leading cancer therapy waned somewhat on competitive concerns. Investor worry led to potential opportunity for Argent clients, and resulted in a stock that we believe is now attractively valued, yet possessing one of the most impressive cancer treatment programs in the health care industry. Additionally, BMY has a strong core business which provides stable cash flows with, of course, a high dividend yield – currently 2.8%.
Going forward, we will stay patient, particularly given the potential for more interest rate increases by the Fed, which may open additional opportunities to diversify sources of yield. In addition, weakness in value names always creates more opportunity for those with discipline. It is always better to buy on weakness than strength.
We appreciate your support of Argent, and hope you will be encouraged to refer us to a friend or colleague. We have three very successful equity strategies – Large Cap U.S., Small Cap U.S. and Dividend Select. A brief overview of performance information on all three is attached to this email for your reference and knowledge. If you have questions on any of these please call us.
Scott Harrison, Portfolio Manager
Performance results are net of fees. This is supplied as supplemental information to the composite disclosures presented later in this document. Past performance is no guarantee of future results. The information provided in this report should not be considered a recommendation to purchase or sell any particular security. You should not assume that investments in any securities were or will be profitable. A list of stocks recommended by Argent in the previous year is available upon request. Views expressed herein represent the opinion of the portfolio manager as of the date above and are subject to change.