SET Portfolio Update March 2016

| March 15, 2016

portfolio update

Last month, we raised what we believe are the two key questions sector ETF traders should ask.

“Where’s the real problem?  In the financial markets or in the global economy?”


“Are we going into a recession, even a mild one?”

After 30 days of promise and rising prices on global markets, we’re not much closer to a sense of actually knowing the answers.

China remains its usual enigma.  Political uncertainties ripple across the electoral landscape from Cologne to Cleveland.

What can sector ETF traders take away from all this?

The Road Ahead For Sector ETFs

Strange as it sounds, we can’t help notice that there’s even a lot of volatility in volatility.

Calm seas are suddenly replaced by sudden storms.  Then the high seas subside… this has been the pattern we’ve seen for the past few months.

Look at what’s been happening with $VIX, the volatility index that tracks the sentiments of S&P 500 index options traders.


The VIX is as good a way as any to take the temperature of the market’s expectation of volatility over the next 30 days.

We are forecasting the VIX to trade within a higher than normal range for at least the next few months.  The two primary reasons lead us back to the two questions on our mind… in particular, the uncertainties surrounding China’s slowing growth rate and oil prices.

Something else to consider… a lot of equities are still considered expensive.  But there has been a shift.  Take tech, for instance, where prices have been battered down to fall more in line with the overall market.

The Vanguard Information Technology ETF $VGT trades at a P/E of 18, the same P/E ratio as the SPDR S&P 500 ETF $SPY.

Still, it’s not hard to find an expensive, high P/E sector.  Gaming, Biotech, Oil Equipment and Services… each sector trades above the overall market.

Just because the VIX has fallen to a 2016 low doesn’t mean there’s smooth sailing ahead.

But when there’s a 2.3% increase in the S&P 500 for the first two weeks of March, on top of lost ground made up for in February, we’re encouraged.

Now onto the updates…

. . . . Aberdeen Chile Fund $CH – HOLD

Shortly after our recommendation earlier this month, the fund announced a quarterly distribution of $0.14 a share to all shareholders of record as of March 18th.  The yield is 10.94%.

The price target is $6.25.  Continue holding.

. . . . SPDR S&P Homebuilders $XHB – HOLD

Mortgage rates are stable.  We’re moving into a busy time of year for home sales.  Foreclosures are falling.  It’s a good time to own $XHB.

Analysts forecast existing home sales to hit 5.36 million units in Q1 and 5.40 million units in Q2… all good for the companies tracked by the SPDR S&P Homebuilders ETF.

The price target is $50.00.  Continue holding. 

. . . . Consumer Staples Select Sector SPDR $XLP – SELL

There has been another two weeks of growth for the ETF which started the month at $51.41.

Consumer Staples remains a solid defensive sector to be in against the broader market.  We see solid performance fueled by lower commodity costs and continued growth in retail spending.

Overall, retail sales have been weak this year. They fell by a seasonally adjusted 0.1% in February.  And the Commerce Department revised the January numbers to reflect a 0.4% decline instead of the previously reported 0.2% gain.

Despite the softness of the sector, the ETF has done well and has surpassed our price target.  We are advising a sell.

The price target was $52.00.  Sell.

. . . . Market Vectors Retail ETF $RTH – HOLD

Look at the top three holdings of $RTH and you get three different stories…

Amazon $AMZN and Home Depot $HD are both down.  Wal-Mart $WMT is up.  The benefits of diversification within the sector are helping $RTH lessen the impact of the drag of Amazon, the ETF’s #1 stock, down almost 15% YTD.

The price target is $90.00.  Continue holding.

. . . . Utilities Select Sector SPDR $XLU – HOLD

After taking a bit of a breather at the end of February, XLU continues to do well with double-digit YTD growth.

The price target is $50.00.  Continue holding.

. . . . iShares Medical Devices ETF $IHI – HOLD

$IHI has staged a strong comeback since hitting a low of $108.95 in early February.  The rebound reflects overall market conditions, but is being held back by sluggish performance from the top holding, Abbott Laboratories $ABT.

The price target is $140.00. Continue holding.

Action to Take

  • Sell Consumer Staples Select Sector SPDR $XLP

Category: SET Portfolio Updates

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