Dogs of Bursa did not outrun the Bull

On December 26 last year, I posted on an investment strategy known as the Dogs of the Dow (go here). The strategy proposes that an investor annually selects for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price. As dividend payouts are fairly constant through good time & bad time, a follower of the Dogs of the Dow will end up investing in the ten most attractively-priced components of the Dow. Applying the same approach to the Malaysian stock market, one would be looking at the components of FBM30, i.e. the top 30 stocks on Bursa and select the ten top dividend-yielding stocks. As at December 26, these stocks were Digi.com, Maybank, Public Bank, YTLPower, KLKepong, Sime Darby, Berjaya Sport Toto, BAT, Tanjong & Petronas Dagang. Today- six months later- we shall examine how well these stocks have fared. The short answer: Not very well.

The top ten stocks are highlighted in green & blue; the next ten stocks in white & yellow; and the last ten stocks in brown & pink. From this, we can observed the following:

1) The top ten stocks did not provide outstanding return when compared to the other 20 stocks;
2) Three stocks provided outstanding performance- MMC (100%), Genting (58%) and Commerce (56%); and
3) The under-performers are YTLCorp (-2%), Petronas Gas (0%), MISC (2%) and BAT (2%);
4) The top 30 stocks provide an average return of 24.1% over the past six months. Not surprisingly, this return coincided with the 23.9% gain in KLCI & 23.6% gained in FBM30, during the same period. For KLCI movement, see Chart 1 below. The chart of FBM30 is not appended as there is an error on that chart.

Note: Maybank & Axiata's closing prices as at Dec 26, 2008 have been adjusted to reflected the recently completed Rights Issue.
Table: FBM30 stocks & their return over 6-month period (Dec 26, 2008 to Jun 25, 2009)


Chart 1: KLCI's daily chart as at 20090626_12.14noon (Source: Quickcharts)

From the above, one would be better off investing in an index-linked funds with low management fee. This can be a mutual funds or an ETF. The value of a mutual funds is based on the underlying value of the investment held while the ETF is determined by the market. There is an ETF based on FBM30 & it's called FB30ETF (see Chart 2 below). As at Dec 26, 2008, FB30ETF closed at RM5.71, while its NAV per unit RM5.7042. As at Jun 25, 2009, FB30ETF closed at RM6.79, while its NAV per unit RM6.9623. Between Dec 26, 2008 & Jun 25, 2009, the FB30ETF paid out an income of 6 sen. As such, a person investing in this ETF would gain a return of 20% (based on increase in price from RM5.71 to RM6.79 & an income of 6 sen). On the other hand, if the FB30ETF is a mutual funds, the increase in value is about 23% (based on increase in NAV per unit from RM5.7042 to RM6.9623 plus income distribution of 6 sen). Mutual funds tend to have higher management fee than ETFs.


Chart 2: FB30ETF's daily chart as at 20090626_12.30noon (Source: Quickcharts)