Kotok: For now, stick with what worked last year


David Kotok's Cumberland Advisors is sticking with a strategy that served well in 2013 - remaining fully invested in five ETFs which all outperformed the SPY last year. The five:

The PowerShares Dynamic Market Portfolio (PWC), the Guggenheim S&P 500 Equal Weight ETF (RSP), the Russell 2000 Growth ETF (IWO), the Guggenheim S&P 500 Pure Value ETF (RPV), and the RevenueShares Small Cap ETF (RWJ).

Other than picking the funds, Kotok's team tries to add alpha by adjusting the weighting of holdings as the contents of the ETFs change. "We start the year with these proven and promising core positions, but they may change at any time."

This year, he notes, starts out with the same barely visible rates at the short end of the curve, but the long end is sharply higher - a steeper yield curve suggesting faster economic growth.

The biggest risk to the benign outlook, he says, is D.C. dysfunctionality. "Markets seem to be pricing in a docile political environment, one unperturbed by a government shutdown, a debt-ceiling fight or an external shock from some geopolitical event—North Korea? Iran?—or some other politically induced catastrophe."

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