SET Portfolio Update May 2016

| May 17, 2016

portfolio update

There is a new batch of uncomfortable rumblings in the retail sector, and they’re prompting us to recommend selling our Market Vectors Retail ETF $RTH. 

More on this coming up in the updates below.  Let’s take a closer look at what’s going on in the retail side of the economy, what this might mean, and how it may impact some of the other ETFs in our portfolio.

Retail sales are usually a good indication of how we feel about things.  We might tell a political pollster that the country is racing toward destruction, then go out and buy a $200 pair of shoes.  Money talks.

Automotive sales have been in the fast lane for the past two years.  Last month, April, was the strongest month for Chevrolet sales since 2006.  At Ford, April van sales were the strongest they’ve been since 1978.

Does more money being spent at the car dealers’ showrooms mean less money being spent at the malls?

The story of Macy’s problems is not new.  But what’s happening right now is worse than Wall Street’s gloomiest retail analysts’ forecast.  Macy’s has now cut its 2016 financial forecasts.  For Q1, revenue was down 7.4% and same store sales slumped by 6.1%.

Don’t be surprised to see Macy’s sell off its real estate assets to try and make a financial go of it.

And don’t be surprised to see more rough going ahead for the entire retail sector.

What’s wrong?  We’re seeing less money from international tourists.  Clothing sales are off across the board… Gap is hurting, and could be shuttering some Old Navy and Banana Republic stores overseas.

All in all, it’s been a rugged 2016 so far for retail.  And as retail scuffs along, there’s an overall yawn elsewhere…

The Big Picture 

Stock market performance and economic performance are clearly two different things, and there is rarely movement in lockstep.

But the economy never completely ignores the market and vice versa.

So when you see anemic GDP growth, the performance of the markets comes into focus.

In Q1, the GDP was up 0.5%. That’s the slowest pace in two years.

We’re seeing less corporate investment, lower exports, and a slowdown in consumer spending growth.  There’s a cautious mood.  Very few Fed watchers expect an interest rate hike anytime soon.

So our ETF portfolio remains defensively positioned.  Let’s take a look at it…

. . . . PowerShares S&P SmallCap Energy ETF $PSCE – BUY

We recommended the ETF at $15.66 earlier this month.  Today, it closed at $15.89.

Expect some turbulence.  But we’re starting to see what could be a firming up of energy prices, for both crude oil and natural gas.

The price target is $27.00.  Buy up to $17.50.

. . . .  First Trust NASDAQ Community Bank Index Fund $QABA – BUY

We recommended this ETF in April at $35.87.  It took off and ran up past our buy up to price of $38.00.  Now, the First Trust NASDAQ Community Bank Index Fund has given back some gains… It closed today at $37.43.

The overall financial sector remains weak, and we believe that for now, community banks present one of the rare opportunities.

The price target is $46.00.  Buy up to $38.00.

. . . . Aberdeen Chile Fund $CH – BUY

The ETF has given back more of its early gains.

Political uncertainties in Brazil have not done Latin markets any favors.  But trouble in Brazil has little or nothing to do with the underpinnings of Chile’s economy, which is largely driven by the export of copper to China.

We see good times ahead for this little-known ETF.

The price target is $11.00.  The price has fallen below our buy up to price of $6.25.  This ETF is once again a buy. 

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

The pace of new home sales has been shaky.  Monthly numbers are coming in below forecast.

Sales of new single-family houses in March 2016 were at a seasonally adjusted annual rate of 511,000.  This is 1.5% lower than the revised February rate of 519,000, but up 5.4% from the March 2015 figure of 485,000.

This month-to-month volatility is par for the course.  Numbers bounce around, and the real story is told in a 12-month rolling average.  This number is up 8.9% year-over-year.

The price target is $50.00.  Continue holding. 

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

As we noted, the performance of the retail sector has now been impacted by some disturbing trends.  This is a good time to play it safe, take profits, and sell.

Sell at market price.

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

$IHI is doing well.  YTD the ETF is up 5%.

Key holdings driving the performance… Medtronic and Thermo Fisher Scientific.

Just as our focus on community banks has zeroed in on a strong niche within the financial sector, the same is happening with medical devices.  Overall, the Health sector has not been doing well this year:  health care stocks overall are down 2.71%.

The price target is $140.00. Continue holding.

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

Utilities stocks have continued to be a safe harbor in an uncertain market.  They’re one of the sought after destinations where there’s a flight to safety.

What a difference a year makes.  2015 was challenging for utility stocks because of unanswered questions regarding the future of interest rate hikes.

XLU is up 14.2% year-to-date.

The price target is $50.00. Continue holding.

Action to Take

  • SELL Market Vectors Retail ETF $RTH
  • Move Aberdeen Chile Fund $CH to BUY
  • Move First Trust NASDAQ Community Bank Index Fund $QABA to BUY

Category: SET Portfolio Updates

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