Author: CJ Brott & Karen Burns – Capital Ideas
Disclaimer: In its Covestor Macro Plus Income and ETF Only models, Capital Ideas owns F, MFB, MHR, SWN, SIRO, JNK, PCEF, HAO, EWZ, and BRF as of July 26, 2010.
July 26, 2010: On July 7, 2010 we offered our opinion that the May/June lows for the equity market would hold and that the US dollar rally had abated. So far those predictions look accurate. Between January 1, 2010 and July 26, 2010, 1035 has held as the low for the S&P 500 (Yahoo Finance), and 88.58 has been the high for the US dollar index (Marketwatch). Looking forward we expect to stay relatively fully invested and intend to increase certain positions on pullbacks while monitoring others. The potential for market volatility and investment appreciation will determine whether we add income or growth oriented securities to the portfolio.
The investment policy for this account provides for growth with income. The account is managed to comprise three types of investment methodology. They are growth, growth with income, and income. Conceptually blending these styles should smooth out returns and minimize portfolio volatility. The proportion of funds invested in each style will vary as we attempt to predict future market conditions. The style best suited to foreseeable conditions will be most heavily weighted.
Currently the account contains 17 separate securities. Some are common stocks and some are ETFs. More aggressive growth oriented investments in the portfolio are common stocks. The stocks include Ford (NYSE:F), MaidenForm (NYSE:MFB), Magnum Hunter resources (NASDAQ:MHR), Southwestern Energy (NYSE:SWN), and Sirona Dental (NASDAQ:SIRO). None of these securities pays a meaningful dividend and all profits will be based on price appreciation. Currently we own the SPDR Barclays High Yield Bond Fund (NYSE:JNK), yield 12.15% as of July 27, 2010 (Yahoo Finance), and the PowerShares Income CEF ETF (NYSE:PCEF). We continue to expect interest rates to stay low for an extended period of time. As long as that is the case we will continue to own JNK. The attraction of PCEF is its discount from net asset value. We like the concept of buying closed ended funds at discounts but do not like the lack of liquidity in most closed ended funds. The PCEF solves this problem for us while allowing us to collect large dividend payouts.
Other securities we own represent mixed exposure to income and growth ideas, many of which have overseas exposure. That is why we own ETFs such as the Claymore/AlphaShares China small cap fund (NYSE:HAO) and the iShares Brazil Index (NYSE:EWZ). Recently we acquired the Market Vectors Brazil Small Cap Fund (NYSE:BRF). These three funds represent core or long term holdings for the portfolio. While this is not a complete listing of current holdings it gives some insight into our investment methodology. While we expect to add to certain current holdings or purchase other new ideas that fit this investment style shortly, we will probably wait for a pullback in the market before doing so.
