Dow high-yield rank rotation as a testable portfolio procedure

Two annual Dow constructions

The case study compares two annual Dow constructions: the ten highest-yielding members and the five lowest-priced names among those ten. Each list is held in equal dollar amounts for one year and then re-sorted.

Rank rotation is the shared rule. The sleeve is rebuilt from the new ranks at the annual reset.

Out-of-favor blue chips

The review extends the lookback of those high-yield constructions to 1957. It frames the names as out-of-favor blue-chip selections that collect an above-average dividend while waiting for mean reversion.

Editorial reading: this is Value investing stated as a screen. The yield sort and the price-among-yields cut define the sleeve before any later comparison is made.

The 1957 to 1996 comparison

Over the 1957-1996 window, a year-end 1956 stake of $10,000 grew to $3,687,220 in the five-stock version, $2,408,320 in the ten-stock version, and $550,141 in the Dow industrials. The comparison excludes commissions and intra-year dividend interest.

Why the sample window matters

The author argues that shorter backtests concentrated in the post-1982 bull market overstate what later users should expect, even though the longer sample still looks favorable versus the index.

Year-end crowding as Seasonal trading

A year-end crowding effect around the popular screens is presented as a Seasonal trading overlay. The overlay compares options or stock entries in mid-December with the last session and exits on the first session of the new year.

Cornerstone sleeves and a working benchmark

The article treats the high-yield rotations as low-maintenance cornerstone sleeves and as a risk-adjusted benchmark against which more active systems can be judged.