A sound and consistent strategy has been paying dividends for Patrick Jamin. The chief investment officer for NorthCoast Asset Management guided the firm’s ETF retirement portfolios higher in April. Jamin increased exposure to U.S. large caps while taking profits on other positions that have excelled in 2016. Here are some highlights for the month:
NorthCoast ramped up holdings of iShares Core S&P 500 ETF (IVV), making it the top holding in three portfolios. “We added to the position as we have seen better technical and sentiment signals for the U.S. economy from our models, where the strategic allocation also favors this holding, so it is a natural buy,” Jamin said.
IVV got a bump from bank stocks, which topped consensus earnings estimates. “The earnings were not overwhelmingly positive, but expectations were even lower,” Jamin said. “The sector will be closely linked to Federal Reserve adjustments, so we expect continued volatility in the sector.”
Shares of IVV rose 0.9% in April.
Another U.S.-focused ETF that is among Jamin’s favored holdings is iShares Core S&P Mid-Cap ETF (IJH). The position gained 1.7% during the month. “Valuation and technical signals for IJH are relatively strong compared to other equities in our universe, so we are still bullish on it,” he said. “We have seen robust market data in the U.S. with reviving wage growth, low jobless claims and improving PMI.”
Yielding to Bonds
On the fixed-income front, iShares 10+ Year Credit Bond ETF (CLY) held onto the top slot for NorthCoast's Tactical Income Portfolio. “It has an attractive yield of 4.2%,” Jamin said. “We believe if you are a retiree, you would be satisfied to get a 4% return instead of taking the risk of an equity downturn or just sitting on cash and earning nothing. We also think long-term credit risk is worth taking at the moment because the U.S. economy is relatively stable and the equity markets might pause or slightly correct, while bonds would be less at risk in this scenario.”
Another bond holding that appeals to Jamin for his retiree clients is iShares Intermediate Credit Bond ETF (CIU). “You’ll see it in our portfolios, like Tactical Income, that are more heavily allocated to bonds,” he said. “CIU has a little less duration risk than CLY. You are getting a solid 2.5% yield, which maybe doesn’t clear the bar for an equity oriented portfolio, but it is certainly attractive for a portfolio like Tactical Income where there is a focus on generating yield.”
Cashing In
IcnShares Global Infrastructure (IGF) has proved to be a formidable holding for Tactical Income thus far in 2016. The ETF advanced 2.0% in April and is up 10.9% for the year. Jamin moved to lock in some of the gains during the month. “Our outlook for global equity markets is quite positive right now, but with IGF’s appreciation, its valuation and technical signals from our models are slightly weaker so we have trimmed the holding,” he said.
After a monster start to the year, NorthCoast decided to call it a day on its position in iShares MSCI Canada ETF (EWC) in April. EWC had benefited in recent weeks from a bounce back by the energy sector. “We’ve seen appreciation in the oil markets, which Canada is very sensitive to,” Jamin said. “The valuation of EWC was at a level that no longer justified us holding it. We closed the position as valuation and macro indicators went into negative territory.”
Shares of EWC spiked 6.5% in April and are up 17.5% year-to-date.
