SET Portfolio Update January 2013

January 2, 2013

Dear Sector ETF Trader Reader,

Happy New Year!

And it is a happy one after Congress approved a fiscal cliff compromise late Tuesday night.  Investors everywhere are breathing a sigh of relief today.

The plan extends the Bush era tax cuts for individuals making less than $400,000 per year and couples earning less than $450,000.  If you make more than that, your taxes are going up from 35% to 39.6% this year.

It also increases taxes on dividends from 15% to 20% for those earning more than $400,000 or $450,000 if married.  The good news is the increase is much less than President Obama had called for initially and the threshold is higher ($400,000 instead of $250,000).

In short, that’s great news for dividend paying stocks.

However, the bill failed to address the important issue of spending cuts.  It simply extends unemployment insurance and delayed the automatic cuts in federal spending two months.

Now we get another deadline for Congress to deal with the spending cuts.  If they hold true to form, the vote will likely come down to the last minute in February and once again create unneeded uncertainty in the market.

For now, crisis has been averted.  Investors are quickly turning their attention toward 4th quarter earnings season that will begin next week.

As far as earnings season goes, I’m expecting a mixed bag.  Some sectors will outperform while others will fail to live up to expectations.  I believe we’re well positioned in sector and industry ETFs with a high probability of outperforming analyst estimates.

Now onto the updates…

. . . . SPDR S&P Bank ETF (KBE) – Buy up to $21.00

Bank stocks are basically unchanged since we recommended them last month.  But the resolution to the fiscal cliff should help spark a rally across the sector.  What’s more, I’m expecting a strong 4th quarter performance from the sector.  Grab your shares of KBE up to $21.00.

. . . . Guggenheim Timber ETF (CUT) – Buy up to $24.50

The continued improvement in the housing market, coupled with a resolution to the fiscal cliff, bodes well for homebuilders.  The more houses they build translates directly into increased demand for timber.  Grab your shares of CUT up to $24.50.

. . . . Consumer Staples Select Sector SPDR (XLP) – Buy up to $36.00

XLP has had an impressive run over the last few months.  In addition, XLP recently paid a sizeable 39.8 cent per share dividend.  XLP should be helped by the less dramatic rise in dividend taxes Congress passed in the bill to avoid the fiscal cliff.  Grab your shares of XLP up to $36.00.

. . . . First Trust NYSE Arca Biotech Index (FBT) – Buy up to $47.00

2013 is looking like a promising year for takeovers and acquisitions in the biotech industry. And FBT holds many of the top takeover targets in the industry.  If we see one or two of the stocks in FBT get bought out, it will send shares of FBT soaring.  Grab your shares of FBT up to $47.00.

. . . . iShares FTSE NAREIT Residential Plus Capped Index Fund (REZ) – Buy up to $48.25

REZ continues to build on its bullish momentum off the November low.  It recently crossed over our $48.25 buy up to price.  So we’re moving REZ to a hold.  Like our other dividend paying ETFs, REZ recently paid a 37.8 cent per share dividend.  Continue holding for bigger gains.

. . . . First Trust Internet Index Fund (FDN) – Buy up to $39.50

FDN is moving higher in the broad uptrend.  Just today, FDN shot up to a new high after the US avoided the fiscal cliff.  If you haven’t already done so, grab your shares of FDN up $39.50.

. . . . iShares Dow Jones US Basic Materials (IYM) – Buy up to $70.00

After a slow start, IYM has come roaring back lately.  It also paid a 50 cent per share dividend in December.  One of the biggest drags on IYM over the last few years has been slowing Chinese growth.  When China’s economy is growing, they consume massive amounts of raw materials.  So the recent upturn of economic data out of China bodes well for IYM in 2013.  Grab your shares of IYM up to $70.00.

. . . . SPDR S&P Oil & Gas Equipment & Services (XES) – Buy up to $36.00

The rally in oil services stocks over the last few months has lagged behind the broad market.  But the fiscal cliff deal and the upturn in China bode well for oil demand in 2013. If oil prices start to rise, the amount of drilling will increase and could spark a big rally in XES in the months ahead.  Grab your shares of XES up $36.00.

. . . . iShares Dow Jones US Pharmaceuticals (IHE) – Buy up to $90.00

Pharmaceutical stocks fell out of favor with investors leading up to the fiscal cliff.  But the deal to avoid the cliff should help to revive investor interest in the sector.  What’s more, IHE was widely sold after investors were paid a 40 cent per share dividend on December 19th.  At this point, the long term uptrend stretching back to August of 2011 is a strong level of support for IHE.  As long as this support holds, we should see IHE move higher in the weeks ahead.  Grab your shares of IHE up to $90.00.

. . . . Market Vectors Agribusiness ETF (MOO) – Hold

MOO recently paid a 97.2 cent per share dividend.  That’s a yield of 1.9% on our original buy price of $49.19.  What’s more, MOO is extending its gains today.  Continue holding for bigger gains ahead.

. . . . ALPS Alerian MLP ETF (AMLP) – Hold

AMLP has seen a considerable amount of volatility over the last few months due to the uncertainty of the fiscal cliff.  So it’s not a surprise to see a deal to avoid the cliff spark a rally in the stock.  The biggest thing holding back AMLP was how dividends would be taxed going forward.  Obviously, the decision to only raise taxes on dividends by 5% and only for people making over $400,000 is a big boost for AMLP.  Continue holding AMLP for bigger gains ahead.

Action To Take

• None at this time.

 

Category: SET Portfolio Updates