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Dogs of the ETF Universe

This page details the experiments I have been running using a Dogs of the ETF Universe type of strategy. It's loosely based on the popular Dogs of the Dow strategy. With the Dogs of the Dow, the 10 highest yielding stocks are bought each year, and held for a year. Generally speaking the 10 highest yielding stocks will have suffered a price collapse before they're bought (hence the high dividend yield). The strategy seeks to capitalise on the share price recovering in the year after it has been bought.

My Dogs of the ETF Universe strategy I present here is somewhat different to the original strategy. Due to the abundance of high yielding ETFs it makes ETF selection on yield more difficult. An alternative strategy I have employed is simply to buy the year's worst performing ETFs and hold them for a year.

An additional change is that instead of buying 10 ETFs, I just buy the 3 worst performers. Since ETFs are generally quite diversified this strategy still offers much more diversification than the original Dogs of the Down strategy.

If you want to investigate this strategy for yourself then this is the current table of the 5 worst performing ETFs in the year to date:

trending_down ETF Losers - 2024 YTD
US Natural Gas arrow_drop_down -36.21
Solar Energy arrow_drop_down -34.52
Hydrogen Energy arrow_drop_down -33.24
KPOP Music arrow_drop_down -30.56
Rare Earth Metals arrow_drop_down -25.74

There's also an interactive dogs of the ETF universe tool that allows you to backtest various different buying strategies for the dogs.

I also backtested the strategy from 2010 to 2023 - see the table of the results here.

Historical Performance

Here's the performance of the Dogs of the ETF Universe over the current decade. I'll try and obtain more data so I can backtest it prior to 2021. The strategy I used was to buy $1000 worth of each of the 3 worst performing ETFs over 2021, and then hold them through 2022. On the first trading day of 2023 I switched into 2022's losers, then repeated this for 2023 and 2024. Note that the data for 2024 is provisional and includes data up to mid-October.

The results are in the table below. For comparison I've also calculated the return for $3000 of VOO, which aims to replicate the performance of the S&P500. To keep the calculations straightforward I've excluded dividends from the calculations.

trending_up Dogs of the ETF Universe Performance 2021 - 2024 (YTD)
S&P 500 Dogs
Year Value Performance (Year) Performance (Total) Value Performance (Year) Performance (Total)
2022 $2406.90 arrow_drop_down 19.77% arrow_drop_down 19.77% $3577.30 arrow_drop_up 19.23% arrow_drop_up 19.23%
2023 $2976.85 arrow_drop_up 23.68% arrow_drop_down 0.77% $4714.99 arrow_drop_up 31.80% arrow_drop_up 57.17%
2024 $3654.68 arrow_drop_up 21.82% arrow_drop_up 21.82% $5227.03 arrow_drop_up 10.86% arrow_drop_up 74.23%

Buying summary:

After calculating some of this table by hand I built this interactive dogs of the ETF universe tool. Check this out if you want to see what the previous performance would have been with a different number of dogs and a subset of the ETFs listed on this site.

What can I say? 2024's buys included Hong Kong and China. These medium-term dogs of the investment world turned in a stunning performance in the Autumn as a massive China stimulus package set Chinese stocks soaring and hedge funds scrambling to unwind their short China strategies. Sadly rare earth metals are still lagging but their continued poor performance was more than compensated by rocketship performance of Far East markets.

As I'm writing this there are still a few more weeks left of 2024. At this stage for 2025 it looks like we will continue to hodl rare earths, and we'll swap China and Hong Kong for Brazil and Mexico. Interestingly I did a couple of profitable swing trades on a Brazil as well as a Latin American ETF. I also noticed one of the major finance YouTubers I follow made a video about how Mexican stocks looked extremely undervalued.

Buying weak stocks/ETFs with poor momentum is definitely a long term investment strategy. As I demonstrated on the ETF rotation strategy overview page, buying the losing sector ETF each month and then just holding it for another month was a disastrous investment strategy. It lead to a significant underperformance of the wider market. In contrast, buying the winning sector lead to a modest outperformance of the broader market itself.

It's also important to bear in mind that no investment strategy is 100% effective. Even the original Dogs of the Dow has many years in which it failed to outperform the Dow itself.

Inverse Dogs

As a fun experiment I turned my data table upside down and ran a backtest on buying the 3 best performing ETFs each year (a.k.a. Inverse Dogs Strategy). This resulted in a 24.3% gain over the almost 3 years it ran for. This is the same as the S&P500 over the same time period, and it severely underperformed the genuine dogs.

Buying summary:

The inverse dogs were let down by 2023, in which all 3 picks lost an average of 7.1%. By contrast 2024's picks have done very well indeed (up 18.62%) and 2022 returned 12.8%.