S&P500 Returns vs. S&P 500 With Dividends Reinvested Returns: Chart

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The returns of the S&P 500 Index often published by the media and others is the price return. However for investors the correct return that matters for the index is the returns including dividends reinvested. This is because S&P 500 firms pay dividends and most long-term investors reinvest them. Currently the dividend yield on the S&P 500 is 1.80%.

The difference in returns between returns not including dividends and returns with dividends reinvested is significant as shown in the following chart:

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Source: HOW’D THE MARKET DO? THAT’S HARDER TO ANSWER THAN YOU THINK by Morgan Housel, Betterment

The Compound Average Annual Return from 1993 to 2017 for S&P 500 is 7.7%. When dividends reinvestments are included the figure jumps to 9.7% according to Morgan Housel.

He also calculates the real return for an investors which takes into account inflation and taxes. Based on this measure the S&P 500 with dividends reinvested declines to just 6.8% for the period noted.

Related ETFs:

  • SPDR S&P 500 ETF (SPY)

Disclosure: No Positions

U.S. Outstanding Student Loan Debt Mountain Reached $1.5 Trillion

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Student loan debt is the largest debt in the US after mortgages. According to the Federal Reserve, the outstanding US student loan debt reached an astonishing $1.5 Trillion at the end of first quarter, 2018. This debt mountain is so huge that it is bigger than even outstanding credit card loans and auto loans.

From an investment impact perspective, investors need not fear a student loan debt crisis. This is because unlike mortgages most of the student loans is held by Uncle Sam and there are always ways the state can help students if they fail to replay. Outright cancellations of debt, debt forgiveness for students working in the civil service, postponement of debt repayments, etc. are some of the options. So though $1.5 Trillions for most investors it simply means nothing.

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Source: Texas Gold Investors Just Got Their Own Fort Knox by Frank Holmes, U.S. Global Investors

Earlier:

MSCI Emerging Markets Index Country Weights Jan 1988 vs. March 2018: Chart

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The MSCI Emerging Markets Index is the most popular index that tracks the performance of emerging market equities. The composition of the index has changed dramatically over the years.

The following chart shows the composition of the index by country weights at inception in 1988 vs. the composition in March, 2018:

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Source: The Evolution of The Chinese Equity Market (Part 1), MorningStar Malaysia

When MSCI created the index in January 1988, China was not included in the index. Finally when it was added to the index September 1996, China accounted for a tiny 0.46% of the total. China has steadily growth since then and as of March the weightage has soared to nearly 30%. In addition while Malaysia was the largest constituent at inception, today China is top constituent.

China’s weight in the index has increased so much that it is higher than the weights of the next three countries of South Korea, Taiwan and India.

Related ETFs:

  • Vanguard MSCI Emerging Markets ETF (VWO)
  • iShares MSCI Emerging Markets ETF (EEM)

Disclosure: No Positions

Aerospace and Defense Stocks Have Outperformed The S&P 500 Based On Total Returns

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The Aerospace and Defense sector is one of the hottest sectors in the US equity market. Stocks in this sector have rewarded investors with stable and consistent growth in the past few years. A basket of stocks in the S&P index for this sector has outperformed the S&P in terms of total returns (capital returns+dividend returns) from 2009 thru May 2018 as shown in the chart below:

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Source: S&P Indices

In the past 10 years the annualized returns for the index is an excellent 13.85%. The 5-year annualized return is even better at 21%.

It is not possible to directly invest in an index. So how can an investor gain exposure to the Aerospace and Defense sector?

A simple and easy way to own stocks in the sector is via an ETF such as the SPDR® S&P® Aerospace & Defense ETF(XAR). This ETF aims to track the performance of the underlying S&P sector index. With total holdings of 35 companies the fund has a market cap of over $24 billion and an expense ratio of 0.35%.

Why are defense stocks an attractive investment for the long-term?

Some of the reasons that make the defense sector attractive for long-term investment are listed below:

  • As the world’s only super-power the US needs plenty of weapons and related resources to maintain the edge over other countries including the perennial enemy Russia.
  • Similar to consumer staples sector in the civilian world, defense and aerospace is a staple sector for the state. Billions of dollars allocated each year in the budget have to find a place somewhere and defense manufacturers are the top beneficiaries of the allocations.
  • Due to ongoing military and war operations and to defend against future threats, defense companies always have a solid backlog of projects to execute.
  • Unlike other countries, profit margins in the sector are extremely high due to the technology involved in the production of various defense systems.
  • The US is one of the top global exporter of weapons. Increasing demand for sophisticated weapon systems from allies tend to keep American arms makers in growth mode.

Some of the companies operating in the sector include:

  • Lockheed Martin Corporation (LMT)
  • Boeing Co (BA)
  • Raytheon Company (RTN)
  • Northrop Grumman Corporation (NOC)
  • General Dynamics Corporation (GD)
  • United Technologies Corporation (UTX)
  • Level 3 Communications, Inc (LVLT)

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Disclosure: No Positions