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The bull lives. 2014 got off to a rocky start due to a combination of lackluster American economic data and, more significantly, emerging market volatility. But after bottoming in early February, the S&P 500 has clawed back to its all-time highs. Emerging markets equities have rebounded as well; the iShares Emerging Markets ETF (EEM) has roughly tracked the S&P 500 after bottoming out in early February. European shares, measured by the iShares Europe ETF (IEV) continue to outperform both U.S. and emerging market equities.

Through February 25, my Tactical ETF portfolio is pacing the S&P 500. The aggressive allocation to mortgage REITs has been the best-performing portfolio position, followed by our allocation to Spanish equities. The gains have been roughly neutralized by weak performance in Chinese stocks, where the portfolio is overweighted. I continue to expect Chinese equities to outperform this year, but they are getting off to a slow start, along with most emerging market indices.

My Dividend Growth portfolio is off to a fantastic start this year, up 3.8% vs. 0.1% for the S&P 500 through February 25. As bond yields have moderated, yield-sensitive investments have enjoyed a nice rebound. In a prolonged period of lower-than-usual market yields, I expect Dividend Growth’s strategy of combining a high current yield with expected growth in the dividend payout to be a strong performer. Within this sphere, I see the best values among conservative retail and industrial REITs, and I expect this subsector to be a major focus throughout 2014, market conditions warranting.

I also made one significant change to my Strategic Growth Allocation. I reduced my allocation to the Vanguard Dividend Appreciation ETF (VIG) and added a new allocation to the Cambria Shareholder Yield ETF (SYLD). While I am still a big believer in VIG’s long-term strategy of investing in companies with a history of raising their dividend payouts, I consider SYLD’s approach of combining dividend growth with share repurchases to be a worthwhile enhancement. I seldom make changes to the Strategic Growth Allocation, as it is designed to be a passive “buy and hold” allocation. But I consider SYLD’s approach to be an enhancement that was significant enough to warrant a portfolio shakeup.

Meanwhile, I continue to maintain an overall bullish stance. Consistent with my comments of recent months, I intend to maintain an overweighted allocation to income and emerging market stocks and to European stocks.

Disclosure: Sizemore is long VIG and SYLD.

Disclaimer: This site is for informational purposes only and should not be considered specific investment advice or as a solicitation to buy or sell any securities. Sizemore Capital personnel and clients will often have an interest in the securities mentioned. There is risk in any investment in traded securities, and all Sizemore Capital investment strategies have the possibility of loss. Past performance is no guarantee of future results.

Source: March 2014 Portfolio Outlook