On the horizon we will be adding a third strategy to SmartDividend Funds focused on Environmental, Social and Governance (ESG). We will overlay our universe with all of the ESG qualifed stocks and offer another great strategy/index for socially responsible investors. Currently, 70% of the stocks in our universe qualify under the ESG criteria. The strategy will be implemented via single managed accounts and customizable.
The Low Vol strategy has been exceeding expectations by outperforming the SPY in Q1. However, this trend probably won't continue all year. Rarely will Low Vol and our Falgship Strategy move in lock step and that's why we offer two non correlated strategies. Thus, I'm hopeful the Flagship strategy will start making a move. Currently most of our highest discounted stocks haven't moved yet.
In Q1 the Flagship strategy had three holdings that were responsible for 4% underperformance. We got caught off guard with 2 instances of 10-k delays. Its extremely frustrating but we have made the necessary adjustments and removed the exposures. Its extremely rare to have these situations with the company screens we have in place. Also, the markets focus has been on high growth stocks YTD instead of high quality dividend rising companies. After the Q2 rebalance we are still tilted conservatively. With tensions escalating in Syria, North Korea and tax reform having to pass the risk of drawdowns are increasing.
Looking forward the low volatility environment of the SPY moving 0-20bps is tough. When concentrated (equally wtd) it only takes two holdings moving against the SPY to make a daily impact. After returning over 24% last year we were certain to experience some weakness. The majority of the S&P500 2017 gains have come from a handful of stocks and the technology sector - three articles below outline the scenario
Unfortunatley, most of these stocks are not in our dividend rising universe. However, we were able to capitalize on the rally Phillip Morris (+20%) had in Q1. In the trenches of the S&P500 it's a daily bloodbath in any given sector. Without additional sector leadership I believe there is a drawdown on the horizon. Also, P/E ratios are close to historic highs as it's tough to have a portfolio under a 20 P/E. Currently, we have had a good May with some dormant stocks starting to move. The environment won't last forever and we are extremely confident looking forward. Our value added is the strategy and when the tide turns we will be ready.