Balance Between Growth and Dividend: Dividend & Growth Allocation (DGA)

14 Pages Posted: 30 Nov 2023 Last revised: 3 Jan 2024

Date Written: November 20, 2023

Abstract

Since the inflationary environment with rising interest rates in 2022, many asset allocation strategies fail to perform as both equity and bond markets collapse in the face of higher rising correlation. Investors are largely disappointed and are looking for a less risky but consistently performing asset allocation strategy. As a result, there is a growing demand for low-risk/high-return portfolios. In this paper, we look at the combination of growth and dividend stocks, as the combination of the two also seems to be a good pairing as 1) growth stocks tend to outperform when the market is strong and 2) dividend stocks tend to outperform (defend) when the market is weak. Our objective is quite simple and is to develop an aggressive tactical asset allocation strategy using only stocks as offensive assets (Nasdaq 100 & Dow Jones U.S. Dividend 100 Index). Our offensive asset selection is based on relative momentum. However, we apply a 'canary' approach for crash protection (DAA, Keller 2018) and use a single canary asset to protect the model in an inflationary environment (HAA, Keller 2023). In addition, we also apply a new crash protection to our model by using market data (S&P500 dividend yield & 10-year/3-month inverted yield curve) to avoid equity market volatility. We will call this simple and new strategy "Dividend & Growth Allocation" (DGA).

Keywords: Absolute and Relative Momentum, Crash Protection, Inflation, Canary Universe, Dividend Yield, Inverted Yield Curve, Static Allocaion, Backtesting, 60/40

JEL Classification: C00, C10, C22, G00, G10, G11

Suggested Citation

Choi, Paul, Balance Between Growth and Dividend: Dividend & Growth Allocation (DGA) (November 20, 2023). Available at SSRN: https://ssrn.com/abstract=4633601 or http://dx.doi.org/10.2139/ssrn.4633601

Paul Choi (Contact Author)

Triple Double ( email )

20, Gukjegeumyung-ro, Yeongdeungpo-gu
Seoul, Seoul 07327
Korea, Republic of (South Korea)

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