SET Portfolio Update November 2016

What’s Next? 

For a week now, the markets have been digesting election results.

When we look at how the incoming Trump administration policies may impact different sectors, the general consensus is that pharma, energy, and finance stocks will emerge as winners.

Losers?  The lineup includes hospitals, and just about all the sectors where business is sensitive to interest rates.  There has already been a selloff, which has dragged down most REITs and electric utilities.

The reason why… a rise in the yield on 10-year Treasuries, which were up 0.4% to 2.12%.

When you review our portfolio updates, you will see that we are advising a hold for the Utilities Select Sector SPDR $XLU.

Alongside utilities, we are not convinced that the softness we’ve seen with REITs will continue.  The declines could represent a future buying opportunity.  The same holds true for the Consumer Staples sector, which has given up ground this past week.

No Safe Assumptions

A closer examination of sectors that will win or lose in the world of new, and uncertain, economic and taxation policies reminds us of the dangers of getting ahead of ourselves.

Just because there is talk of repealing or rolling back certain provisions of the Dodd Frank Act, which may ease the requirement on banks to maintain strong capital reserves, there are no definitive indications this will happen.

Many of President-elect Trump’s supporters are populists.  They live in a world where bankers aren’t viewed as buddies.  It may be politically difficult for the new administration to go deep and dismantle many of the regulatory elements of Dodd Frank that would benefit banks. 

Drowned Out By All The Election Noise

No matter who’s in the White House, corporate earnings still matter.

Just before Election Day, we looked at third-quarter earnings.  With 85% of the companies in the S&P 500 index reporting, 71% beat earnings-per-share estimates.

Third-quarter per-share earnings growth is currently 2.7%, which can turn out to be the first quarterly increase since March 2015.

PORTFOLIO UPDATES

. . . . PowerShares Dividend Achievers (PFM) – BUY 

There’s been a modest uptrend since Election Day, but there has been little movement over the past few weeks.  The yield has now edged up to 2.26%. 

. . . . First Trust ISE Global Engineering & Construction $FLM – BUY 

This ETF is a major beneficiary of the Trump election, and anticipated increases in infrastructure spending. The yield has held steady and stands at 2.01%.

We recommended the ETF last month at $48.17.  Today, it closed at $49.14. 

. . . . Vanguard High Dividend Yield ETF $VYM – BUY

This remains a long-term hold and a solid source of income.  Current yield is 3.00%.

We recommended the ETF in September at $73.47.  Today, it closed at $73.54. 

. . . . iShares Edge MSCI Minimum Volatility Emerging Mkts $EEMV – BUY

The ETF is fighting a strong trend… a selloff in global stocks and a flight to U.S. markets.  We do not expect this trend to maintain its recent pace for long. Current yield is 2.42%.

We recommended the ETF earlier this month at $54.02.  Today, it closed at $53.50.

. . . . Vanguard Information Technology ETF $VGT – HOLD 

The tech sector has stumbled over the past week, and has been widely identified as one that will not do well under the Trump administration.  We disagree.  This ETF remains a solid, long-term holding.

We recommended the ETF earlier this summer at $106.29.  Today, it closed at $118.69.

. . . . First Trust ISE-Revere Natural Gas Index Fund $FCG – BUY

We recommended the ETF in June at $25.90.  Today, it closed at $25.42.

We are still anticipating price increases through the fall and winter. The yield is 2.27%.

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

The outlook for small energy firms remains favorable.  We recommended the ETF at $15.66 in May.  Today, it closed at $18.36.

. . . . Aberdeen Chile Fund $CH – HOLD

We recommended the ETF at $5.73 earlier this year.  Today, it closed at $6.21.

There have been no significant developments over the past two weeks on the Chilean markets.

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

Nothing puts pressure on utility stocks like the expectation of rising interest rates.

Our outlook for this ETF remains the same. This ETF is a long-term hold, and we’re happy to collect the 3.32% dividend yield.

Action to Take

• None at this time.

Category: SET Portfolio Updates