Ilan Moscovitz reviews the current bind we are in - consumer spending driven by a market where there is debt and unemployment - doesn't make for a sunny outlook. With that backdrop, what should investors do to protect and grow their portfolios?
Here are Ilan's 10 top opportunities.
- Utilities and utility-like stocks are popular in slow-growth periods because they provide essential products and services. Southern Company (NYSE: SO) and Waste Management (NYSE: WM) produce stable earnings that are relatively sheltered from economic conditions, and they pay dividends of 4.8% and 4.4%, respectively.
- The increase in the spread between short- and long-term interest rates is a boon to mortgage REITs such as Annaly Capital (NYSE: NLY) and Annaly-managed Chimera (NYSE: CIM) and Crexus, (NYSE: CXS) which make money on the difference.
- Income inequality has been growing -- 5% take home 40% of the national income and own 60% of national wealth. New kid on the block Pebblebrook Hotel Trust (NYSE: PEB) , buys luxury hotels at fire-sale prices. Luxury handbag maker Coach (NYSE: COH) continues to do well.
- Companies that earn a large percentage from outside of the U.S. and Europe provide added protection against the economic slowdown in those regions: Intel (Nasdaq: INTC), British Alcohol and Tobacco a proxy for Philip Morris (NYSE: PM) and good old Coca-Cola (NYSE: KO).
If nothing else, this is a diversified set of companies with interests both domestically and internationally. It will be interesting to see how well this group performs.
The purpose of this article is to swallow that premise but then measure the returns against a benchmark set of dividend ETFs which are more steady. The comparison set is:
|Asset||Fund in this portfolio|
|REAL ESTATE||ICF (iShares Cohen & Steers Realty Majors)|
|FIXED INCOME||TIP (iShares Barclays TIPS Bond)|
|EMERGING MARKET||VWO (Vanguard Emerging Markets Stock ETF)|
|US EQUITY||DVY (iShares Dow Jones Select Dividend Index)|
|US EQUITY||VIG (Vanguard Dividend Appreciation ETF)|
|INTERNATIONAL EQUITY||IDV (iShares Dow Jones Intl Select Div Idx)|
|HIGH YIELD BOND||HYG (iShares iBoxx $ High Yield Corporate Bd)|
|INTERNATIONAL BONDS||EMB (iShares JPMorgan USD Emerg Markets Bond)|
- 10 Outstanding Dividend Stocks to Buy in This Crazy Market -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
|Portfolio/Fund Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||7%||81%||10%||88%||10%||71%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||7%||67%||4%||17%||3%||16%|
|10 Outstanding Dividend Stocks to Buy in This Crazy Market||-1%||-5%|
We only have a short history on this portfolio because of PEB but the short term results aren't very encouraging.
Click charts to enlarge
For now, I'm sticking with the diversified set of ETFs.
Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.