Author: Leif Eriksen
Covestor model: Performance With Protection, Global Growth Brands
It has been three months since I’ve written and much has come to pass. The market started the year off with a strong quarter (who could have guessed – certainly not most of the experts) and appears to be taking a breather. Or is it the end of the bull market? I don’t believe so.
It would be odd for a bull market to end just as the economy is getting some wind at its back. And, despite the strong quarter, the market hardly feels like it’s in the grips of any mania or irrational exuberance.
I’ve made a number of changes but the most significant one is that I’ve revamped the Performance with Protection portfolio and made ETFs the core holding. The ETFs I currently own reflect my continued commitment to the value of investing in technology–two examples are the iShares S&P North American Technology-Software Index Fund (IGV) and PowerShares QQQ Trust Series 1 (QQQ)–as well as my sense that the developed world’s aging populations will favor dividend paying stocks such as Vanguard Dividend Appreciation (VIG) SPDR S&P Dividend (SDY).
I also want some exposure to emerging market growth with such stocks as the Wisdom Tree Emerging Markets Equity (DEM) and Vanguard MSCI Emerging Markets (VWO) as well as mid-cap growth Guggenheim S&P Midcap 400 Pure Growth (RFG). I believe the global demand for petroleum products will continue to grow so I like the iShares Trust S&P Global Energy Sector Index Fund (IXC) and Occidental Petroleum Corp. (OXY), even if the price of oil is flat or pulls back over the coming year. Finally, I believe that insiders are a good indication of the value of a company’s stock – at least over the long run, so I added the Guggenheim Insider Sentiment ETF (NFO) .
I do want to use a bit of my update this quarter to talk about my position in ProShares UltraShort Euro Fund (EUO). The EUO is an ETF which “seeks to provide daily investment results (before fees and expenses) that correspond to twice (200%) the inverse (opposite) of the daily performance of the U.S. Dollar price of the Euro.” I am using EUO to hedge against the impact of further economic decline in Europe on global stock markets. I will sell it if, and when, the situation in Europe turns around – not a scenario I anticipate anytime soon.
I have not stopped investing in individual securities but I am focusing my efforts on only those stocks with strong franchises and for which I have a high degree of conviction about their success. For the most part, that means technology companies with reasonable valuations such as (AAPL), Google (GOOG), Intel (INTC) and Qualcomm (QCOM).
Other individual securities held include a market leading energy producer Occidental (OXY) and Ashford Hospitality Trust (AHT), an attractively valued holder of upscale hotel properties which also pays a healthy dividend. Individual securities currently represent just over a third of the EPWP portfolio. The proportion may change based on new opportunities found and/or changes in valuation of existing positions.
None of the changes made reflects any change in the fundamental philosophy behind the EPWP portfolio which is to pursue a “top-down, macroeconomic approach utilizing ETFs as well as individual stocks.” The goal remains to “outperform the market over the long run while protecting capital” and to use “trends such as globalization, aging populations, and the adoption of technology” to determine the portfolio balance.
Now, I’ll give a brief update on the Global Growth Brand model. This portfolio continues to do well even with a significant cash position (currently about 35%). There is no guarantee that I can continue to maintain that outperformance but it is certainly my goal. I have trimmed my position in Constant Contact (CTCT) after a strong run up following quarterly results. I sold Royal Caribbean Cruises (RCL) after a healthy run-up and concerns about the impact of recent events on the cruise industry.
I also sold Hanesbrands (HBI) after a run-up and concerns about margins. And I bought GHM based on valuation and anticipation of continued investment in global industrial infrastructure. Finally, I bought and sold Tripadvisor (TRIP) over the course of month for a small profit.