Morningstar - Q2 2021 - 16

Dispatches

Global Briefs

A Downturn is a decline in the stock market
from its month-end peak by 20% or more.

An Expansion runs from the end of a recovery until
the next month-end peak before a 20% decline.

A Recovery runs from the month-end bottom to
when the market returns to its previous peak.

TRENDS

The Long-TermDownturn
Investment Case for Dividend StocksExpansion
Dividend stocks are often thought of as dull
but reliable, lagging in bull markets but holding
up better in tough times. But in 2020, they
lived up to only part of the bargain. As the
COVID-19 pandemic roiled the market in February
92.5 92.3
Yield
and March, the MSCI USA High Dividend
87.8
GR Index 78.8
dropped81.0
32.6%,83.1
nearly matching the S&P
500's loss. Dividend stocks suffered partly
because scores of companies either reduced or
suspended dividends in 2020.

A look at rolling five-year returns over the past
45 years, however, makes the case for higherdividend stocks. They do tend to lag during more
ebullient markets, such as 1995-99 and 2016-
2020, and during periods of rising interest
95.9 rates.
92.6
Even so, higher-dividend
stocks outpaced the
88.3
87.5
about 60% of the time. They've
broader market79.5
70.5
typically
fared best during periods of slow
economic growth and sluggish market returns,
such as the early part of the decade in the 1980s,

Recovery

when stagflation dragged down market returns,
as well as the 2000s, when the market struggled
following the technology-driven downdraft.
Such showings have helped dividend stocks pull
ahead of the broader market for the trailing
20-year period ended in 2020, with an annualized
return of 7.9% versus 7.5% for the S&P 500.
Amy C. Arnott, CFA, is a portfolio strategist at Morningstar.

High-Dividend Stocks Versus the S&P 500

Five-Year Rolling Returns of the MSCI USA High Dividend Yield GR Index Relative to the S&P 500 TR Index

Relative Return
12%

6

0

-6
-12
11/30/1980

11/30/1985

11/30/1990

11/30/1995

11/30/2000

11/30/2005

11/30/2010

02/28/2021

Source: Morningstar Direct. Data from 11/01/1980-02/28/2021.

U.S. Managers
Navigate China

of aiding the Chinese military. Within its borders,
China intervened in Ant Group's highly anticipated
$37 billion IPO at the eleventh hour and ramped
up antitrust scrutiny on the country's dominant
tech names, most notably Alibaba BABA and
AMERICAS
Tencent TCEHY. All this comes as the country tries
United States
exert more
12-Month OrganictoGrowth
Rate control over Hong Kong,
Fund Family
0%
250
500
1000 withFund
Family
skirmishes
over borders
India,
and persecutes
End Date
Chinese
Uyghurs in its western provinces.
ARK
ETF markets
Trust have given active equity1/31/21
Dodge & Cox
managers a lot to think about recently. Rocky trade
Metropolitan West Funds
Invesco
4/30/15
relations between the United States and China
But China can't be ignored by international
Janus
Henderson
T. Rowe
7/31/00
have grabbed
headlines and tied up global
investors, as it is an increasingly
largePrice
stake in
supply
chains.
A
recent
executive
order
blocked
major
benchmarks.
Morningstar's
manager
SPDR State Street Global Advisors
JPMorgan
2/28/09
U.S. investment in 31 companies suspected
research analysts recently asked of the fund
Schwab ETFs
Vanguard
7/31/18
Pimco
16

Morningstar Q2 2021

IShares

6/30/10

Dimensional Fund Advisors

11/30/17

Fidelity Investments

managers they regularly interview, " Do recent
events make you more hesitant to invest in
Chinese companies, and if yes, have you taken
specific action? " Though the managers polled
remained steadfast in their pursuit of new
opportunities in China, tit-for-tat trade restrictions
have irritated
investorsOrganic
and changed
how
12-Month
Growth Rate
0%
250
500
1000
some of them
view
risk.
End Date
3/31/15
Managers' attitudes toward Chinese firms haven't
12/31/00
changed, even though investing there can
8/31/07
be complicated.
The New York Stock Exchange,
after balking 1/31/21
numerous times, agreed in
January to delist three major Chinese telecom
10/31/17
1/31/18
12/31/19
Morningstar - Q2 2021

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