Q2 2019 Review: U.S. Equity ETF

by: David Kotok
Summary

Some sectors we hold in our US ETF portfolios did relatively well.

The weakest sector we hold is energy, represented by domestic US companies in two ETF selections.

The gold miner ETF remains in our portfolio as a holding, as the gold price seems to be firming in response to trade-war effects and prospective Fed easing.

As the second quarter of 2019 comes to a close, we continue to maintain a cash reserve in our US ETF portfolios and are not fully invested.

Market volatility in Q2 of 2019 was driven by three distinct elements: (1) trade war and tariffs with China, on and off with Mexico, deferred temporarily with Europe, and festering with others; (2) economic indicators like details in the employment report pointing to a slowdown in growth; and (3) questions about what the Fed will do or not do, and when, including futures markets pricing in several cuts before year-end.

Some sectors we hold in our US ETF portfolios did relatively well. The Defense sector and healthcare sector ETFs are among them. We hold three healthcare ETFs.

The weakest sector we hold is energy, represented by domestic US companies in two ETF selections. We may rebalance and add to that position at any time.

The gold miner ETF remains in our portfolio as a holding, as the gold price seems to be firming in response to trade-war effects and prospective Fed easing. Markets are pricing lower Fed policy rates, which implies markets are expecting a weakening US dollar. That trend is thought to be bullish for gold.

Trade-war effects have made forecasts difficult, as the trade and tariffs policy of the United States seems to fluctuate rapidly and inconsistently. For a portfolio manager, this adds to uncertainty premia.

As the second quarter of 2019 comes to a close, we continue to maintain a cash reserve in our US ETF portfolios and are not fully invested. Of course, that strategy could change at any time.

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.