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A May-Jor Realignment

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  • Seasonality should be factored into our decisions on when and what to buy.
  • The too-glib "sell in May and go away" until Halloween, however, only works because when it works, it can be huge.
  • It works about 50% of the time, no better than the flip of a coin.  In the old pre-AC days, it worked more frequently.
  • This year I believe we will still see a good market during the summer doldrums, but I believe the sector rotations will be more intense.

I do not want to be out of the market over the coming 6 months. However, I recognize that some companies, industries and sectors that have been flying high are now priced very close to perfection based upon their "current" revenues, earnings and cash flows.

It may take them a quarter or two to demonstrate their continued growth power as measured by such metrics -- during which time I think they may languish.

I'm talking to you, Big Tech and even you, Cap-weighted S&P. And SPACulation, as well.

On the other hand, I think Consumer Discretionary and, to a lesser degree, Consumer Staples, have plenty of room to grow even in a so-so market for the more popular indexes. I feel the same about Health Care, where I am currently looking for firms in the niche that provide home health care services.

In Energy, I believe most of the profits will be in renewables -- with the caveat that if oil and gas producing nations, especially the US, were to make it immediately undesirable to be in the energy business, the price of oil and gas would surge. It would not last long because less strident (or less principled, depending upon one's perspective) nations like Russia, Saudi Arabia, and Iran would simply pump more. Supply x + demand x = pricing equilibrium.

But Energy will still be part of my larger Industrials and Materials sectors themes of infrastructure, materials and renewables, specifically in the electrochemical (mostly today Li -- lithium ion) battery industry.

Even our few Real Estate Sector holdings dovetail nicely with my interest in Consumer Discretionary (re-opening) going forward. Vici benefits from any increase in gambling, Forestar any continued increase in homebuilding and both Stag and Store from warehousing and logistics that speak to continued retail activity.

I am uninterested in most SPACs / blind pools.  There will be the occasional SPAC I like and will buy, perhaps like Bill Ackman's Pershing Square Tontine Holdings if it falls back closer to its $20 per share offering price. Why this one?

Reason 1: I remember Pershing's first foray into SPAC-World. Back in 2011 Pershing was a partner in the SPAC Justice Holdings, which later bought a 29% stake in Burger King Worldwide Holdings, which subsequently merged with Tim Hortons to create Restaurant Brands International (QSR). QSR has returned more than 20% per year compounded since then.

Reason 2: Pershing has promised investors that their purchase will not be diluted by "founders' shares." This is the 20% haircut that most SPACs endure wherein the Big Money gets to buy shares for pennies, or less, on the dollar. If the merger choice is a good one, with Pershing, all investors will share in the rewards.

I  am also adding a little more income to the defensive portion of the Investors Edge Portfolio.   The Strategy Shares NASDAQ 7 HANDL Index ETF (HNDL) is a fund of funds that strives to provide a steady income no matter what the rest of the market is doing. The ETF "shoots for" a 7% annual yield. However, before that begins to get your blood racing, they also, as a fund of funds, charge a 1.2% expense fee, meaning your return might be more on the order of 5.8% -- though it has been better than that thus far.

How do they plan to be successful? They split their portfolio into two pieces. The first follows a tactical allocation index called the Dorsey Wright Explore Portfolio. It holds big, liquid ETFs in 12 categories: dividend stocks, preferred dividend stocks, utility stocks, growth & income equities, covered calls, active fixed income, intermediate-term corporate bonds, mortgage-backed securities, high-yield bonds, master limited partnerships, real estate investment trusts, REITs and taxable municipal bonds (yes, there is a category of muni bonds that are taxable.)

The other part is the Core Portfolio, which is invested in long-term exposure to the U.S. fixed-income and equity markets with allocations fixed at 70% bonds and 30% stocks. HNDL also boosts returns by allowing leverage equal to 23% of the portfolio. In total, the index HNDL follows contains 19 ETFs representing an estimated 20,000 individual underlying securities.

Just three years old, over this time frame HNDL has provided an average annual return of 8.2%. (Before expenses, which brings it to 7% after expenses.) And a portion of this might be return of capital whenever the winds of change do not allow a steady payout in the target range. Still, I believe HNDL is ideal for the defensive portion of our portfolio.

Good investing,


I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Unless you are a client of Stanford Wealth Management, I do not know your personal financial situation. Therefore, I offer my opinions above for your due diligence and not as advice to buy or sell specific securities.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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