28 BARRON’S October 21, 2019
Market View
A Sampling of Advisory Opinion
Flex-Workspace Economics
Special Commentary
byWells Fargo Securities Economics Group
wellsfargo.com
Oct. 17: The next recession may not be
particularlykindtotheco-workingspace
model.Duringthepriortworecessions,
employmentin“officeusing”sectorsfell
relatively further than overall employ-
ment,reflectingthedeepcutbacksinthe
tech sector following the long 1990s
expansion and massive job losses in
financial services following the housing
bust.Co-workingtenantspredominantly
include categories of workers that tend
to feel the negative impacts of a reces-
sionearly,suchasstart-ups,freelancers,
and entrepreneurs. A downturn would
alsohaltthevastamountofventurecapi-
tal flowing into start-ups, which would
evaporate the primary wellspring of
funding on which they depend.
Still, even if the flex office model
bendsduringthenextrecession,itprob-
ablywon’tbreak.WhileWeWorkandRe-
gus rank as two of the largest co-work-
ingcompanies,thereareover200other
small and midsize operators such as
Impact Hub, Convene, and Knotel. Co-
working space provides just-in-time
officespace,whichenablesbothnewand
established firms to gain efficiencies by
acquiring workstations and meeting
rooms on an as-needed basis. Addition-
ally,theaveragespaceperchairinaflex
office is estimated to be 60 square feet,
considerablysmallerthanthe194square
feet in the traditional office layout.
—MARKVITNER,CHARLIEDOUGHERTY,
MATTHEWHONNOLD
A Poor Investment Tradition
Invest With an Edge
byDynamic Performance Publishing
investwithanedge.com
Oct. 16: FiddlerontheRoof isoneofthe
mostenduringmusicalswritten....Oneof
the most important songs in the show is
the opening number, “Tradition.” It sets
up the conflict present throughout the
remainderoftheproduction—thevillagers
trying to maintain their traditional ap-
proachestolife,marriage,andfamilyver-
susthemoremodernwayofdoingthings.
Spoiler alert: Modern (mostly) wins.
Inmyownfieldofassetmanagement,
theconflictcontinues.YetIbelievethere
are many reasons why traditional asset
allocation does not work....Traditional
asset allocation ignores its historical
returnandriskcharacteristics.Itunder-
appreciates the impact of those real-
world results on investor decision-mak-
ing. It ignores the financial behavior of
investorsandisinsensitivetotheirnatu-
ral tendencies. Finally, it is sold [using]
overall risk and return numbers that
havelittleconnectiontowhatisactually
important to investors as they weather
daily life and financial storms.
Investing can be as precarious as a
fiddler on a roof—and just as solitary.
Relyingonlyontraditionfrom“sunrise”
to “sunset” may not be the best way to
becominga“richman.”Rather,employ-
ingallofthetoolsthatmoderninvesting
can—“miracleofmiracles”—bringtothe
fore is a better way. “To life!”
—JERRYWAGNER
Bill Gross Likes Dividends
Investment Outlook
byWilliam “Bill” H. Gross
williamhgross.com
Oct. 15: In the absence of substantial
fiscalstimulation,theeconomicandasset
boostfromnegativeinterest-rateyields
may have reached an end. Prepare for
slow economic growth globally and an
endtodouble-digitmarketpricegainsof
months and years past. High-yielding,
secure-dividend stocks are what an
astute investor should begin to own.
—BILLGROSS
Tobeconsideredforthissection,material,
withtheauthor’snameandaddress,should
”Investing can be as precarious as a fiddler on a roof—
and just as solitary.” —JERRYWAGNER,InvestWithanEdge
FACTORS n By Evie Liu
Can Value’s Boom Last?
The high-dividend comeback may be near an end
HIGH-DIVIDEND STOCKS HAVE BEEN PER-
formingstronglysinceSeptember,lifted
by the recent rebound of the market’s
cheaplypricedvaluegroup.Butincome-
seekinginvestorsshouldn’tcelebratetoo
early,asitremainsunclearhowlongthe
rotationintocheapstockscanlast.Add-
ingsomehedgestoyourincomeportfolio
is probably a wise move.
Treasury yields have continued to
drop throughout 2019, as the outlook for
U.S. economic growth moderates and
the Federal Reserve turns more dovish.
Since the beginning of the year, yields
on 10-year Treasury notes have slipped
from 2.68% to 1.71%, as of Tuesday.
At the same time, dividend payments
from U.S. companies have remained
quite steady, even as cash flow has
dropped and buyback spending has
been scaled back. In the third quarter,
companies in the S&P 500 index paid
out $128.6 billion in dividends—nearly
5% higher than the year-ago period and
largely in line with the previous two
quarters.
More than half of S&P 500 compa-
nies now yield more than 10-year Trea-
suries, making them—to some—a more
attractive bond alternative. In the third
quarter alone, investors have poured
$4.5 billion of new money into dividend-
focused exchange-traded funds,accord-
ing to Todd Rosenbluth at CFRA.
But dividend payers haven’t been
performing all that well for most of the
year. From Jan. 1, 2019, to the end of
August—as the S&P 500 generated a
total return of 18.3%, including rein-
vested dividends—the $26 billion Van-
guard High Dividend Yield ETF
(ticker: VYM) returned only 12.1% due
to the limited price appreciation of high-
dividend stocks.
The group’s heavy weighting in value
stocks was one of the main drags during
that period, explains Dennis DeBus-
schere, macro research analyst at Ever-
core ISI.
Thewaydividendyieldiscalculated—
asastock’sdividendpaymentdividedby
its share price—means that the lower a
stock’spricerelativetopeerswithsimi-
lar level of payments, the more likely it
willbeselectedaspartofthe“highdivi-
dendyield”group.AsoflateAugust,the
average valuation of stocks in the Van-
guard High Dividend Yield ETF was
only13.5timesforwardearnings,versus
the S&P 500’s 16.7 times. As cheap
stocks stayed out of favor, high-yield
names suffered, as well.
Since early September, however,
value stocks have staged a sharp come-
back, as trade-related uncertainties
turned quieter for a while. Many high-
dividend stocks were lifted higher, too.
The Vanguard High Dividend Yield
ETF returned about 2.7% since the
beginning of September, while the S&P
500 delivered 1.6%.
But income investors shouldn’t feel
complacent now, says DeBusschere.
“With the trade war still unsettled and
implied volatility priced to remain high
throughyearend,morefactorrotations
are likely over the coming months,” he
wrote in a recent research note.
Already,thevaluestocksintheS&P
500—afteroutrunningtheirmore-expen-
sive growth peers by more than three
percentage points in September—have
startedtoseethatmomentumwane.As
of Tuesday’s close, the two groups have
returned virtually the same during the
month of October.
High exposure to the value factor—
while beneficial for the past weeks—
could leave dividend-focused strategies
at risk if the value rotation is reversed
again.Andthat’snotsomethinginvestors
want from an income portfolio, which is
usually bought for its steady cash re-
turnsandpricestability,ratherthanfor
a roller-coaster experience.
Evercore’s DeBusschere suggests
that income-seeking investors look be-
yond dividend-paying stocks’ cheaper
valuation and also take a company’s
growth outlook and price momentum
into consideration.
Some of the stocks he recommends
right now include Marathon Petroleum
(MPC), with a 3.4% dividend yield;
Wynn Resorts (WYNN), with a 3.2%
yield; Phillips 66 (PSX), with a 3.3%
yield; Home Depot (HD), with a 2.2%
yield; and Texas Instruments (TXN),
with a 2.4% yield.