In the first day of trading after Hurricane Sandy pounded New York, the S&P 500 Index (SPX) had its best trading day in seven weeks.
I’m not one to assign a lot of significance to a single day’s trading, but I did find it encouraging. It suggests that the damage left behind was less severe than the Street feared. Life is already returning to normal in Manhattan, and power and transport are being restored bit by bit.
The damage tally will not be small, and the disruption will likely take a bite out of fourth quarter GDP. But we believe the rebuilding efforts should create a nice jolt in economic activity leading into the new year.
Stocks have been stuck in a sideways pattern for the better part of the past two months, as a string of disappointing earnings releases and economic data kept a lid on investor enthusiasm. But with the bad news now mostly digested—and with the Fed, the European Central Bank and the rest of the world’s major central banks still maintaining a very loose monetary policy —I expect the animal spirits to return for the last two months of the year.
Sizemore Capital has been pleased with the performance of our Dividend Growth and Sizemore Investment Letter models at Covestor. In a year like 2012, when so much is determined by macro and political risks outside of the control of company managements, we believe an income-focused strategy is the only strategy that makes sense.
Within the Dividend Growth portfolio, we are focusing most heavily on mid-stream oil and gas partnerships and conservative triple-net retail REITS. In our view, these sectors are attractively priced and throw off healthy amounts of cash. These are investments we would be happy to hold for the next 1-5 years, come bull or bear market.
Given the current pricing of bonds and other mainstream income investments, we expect these partnership and REIT investments to outperform by a wide margin with very little risk of principal loss. Through November 19th, the average dividend yield of the stocks held in these models is 4.90% and 3.57%, respectively.
The Sizemore Investment Letter portfolio is slightly more speculative and is not limited to a pure income focus (strong dividend growth is one of many investment criteria covered). In this portfolio, we see the greatest opportunities in European blue chips with substantial operations in emerging markets such as Spain.
As the European Union slowly congeals into a more “American” style federal system, we see investor risk appetites for European stocks returning. And in the meantime, we hope to get access to high emerging-market growth rates and a steady stream of dividends.
You can view our Covestor profile here.
Certain information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. The manager believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
