Author: Tom Yorke, Oceanic Capital
Covestor model: Global Diversified Moderate, Global Diversified Aggressive, Global Diversified Conservative
Disclosures: Long WMT, GIS, EPP, UUP
Having just rebalanced on the heels of some significant trends, we are likely to keep any further adjustments for the immediate future in abeyance. Gold (NYSE: GLD) has had a very nice run and the pull backs seemed elusive or too short term; we felt the best strategy was to let some of the position go and use a bit of cash to round things out a bit more. We basically increased exposure to assets that were out of favor: International equities, Real Estate and the US Dollar. We also broadened our Domestic Equity a bit, adding some Wal-Mart (NYSE: WMT), and then bought some General Mills (NYSE: GIS) to hit the commodity box. We don’t like the commodity ETFs, as they are trapped in the futures markets, often wrestling with contango (the natural erosion of prices over time in certain futures markets) and have well-known or robotic trading patterns. Certainly no one takes advantage of that situation.
Internationally we added the iShares MSCI Pacific ex-Japan fund (NYSE: EPP) as we believe it’s only a matter of time before the realities of Japan’s aging population and the attendant spending rather than saving will adversely affect Japan. The recent natural disasters and their disruptions certainly will not help things either, so adding Asia withoutJapanfits.
PowerShares DB US Dollar Index Bullish (NYSE: UUP), a dollar bullish trade, is positioning us to take advantage of a trend reversal and a black swan event as well. Everyone is seldom right, and all appear to be on the same side of the boat here, so with UUP we get a hedge against the unknown and a position that seems poised to rebound anyway.
Our main addition to the Domestic equity front has been Wal-Mart. They have been increasing dividends, buying back stock, and are clearly a category killer. They fit our profile and were recently the lead article in Grants Interest Rate Observer, a well respected publication, identifying WMT as value stock!
Going forward, we believe company balance sheets will continue to improve; there will be continued reluctance to commit to new hires until some of the smoke clears. The jobless recovery will continue and the longer term health of the economy will be held hostage by political posturing, which looks like it will last until the elections in 2012.
Proper asset allocation should enable one to ride out the ups and downs of this and future shaky periods, while remaining invested in global economic recovery.
