Dogs of the Dow Reviewed

The DoD strategy is a popular one.  I talk about it here from time to time but don't actively practice it.  It's one of those things that's simply on my radar.  It does have a knack for outperforming the broader Dow index most of the time, but as of late, it has not.  In a previous Dogs of the Dow post, I outlined that the small dogs are nothing more than volatile stocks in the Dow.  As the market has surged upward over the last couple of months, I wanted to see if the DoD responded in kind. Let's compare the DIA vs. DoD and see. 

(click to enlarge)

This chart slightly resembles leveraged funds where the dips are pretty deep and the recovery fairly swift, but when all is said and done, it's still underperfoming a bit.  The point here is that volatility is most likely the reason for the DoD's outperformance in some years.  You're taking on more risk to get more gain.  If that's all it is, maybe you're better off diversifying using small or mid cap indexes instead.  So let's not be fooled into thinking that there's some sort of magic going on with the Dogs of Dow.  It's simply a more volatile sampling of stocks within an index, not the work of superior stock picking.