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 (NYSEARCA:EEM) has roughly tracked the S&P 500 after bottoming out in early February. European shares, measured by the iShares Europe ETF (NYSEARCA: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 (NYSEARCA:VIG) and added a new allocation to the Cambria Shareholder Yield ETF (NYSEARCA: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.
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