After the S&P 500's strong rally of 10% so far this year
and 23% from its June low, stock investors must turn defensive
and brace for an eventual pullback, say three ETF investing
We asked them to share their outlooks for the stock market and
their best ETF ideas for the second quarter.
Matthew McCall, president of Penn Financial Group in New York
with $150 million assets under management.
With the market near all-time highs to end the first quarter,
I am looking to keep exposure to equities with some downside
protection.Global X SuperDividend (
) is an equally weighted basket of 100 of the highest
dividend-paying stocks in the world with a 12-month yield of
It offers access to the U.S., Australia, the U.K. and
Singapore with heavy sector concentration in real estate
investment trusts (REITs), telecommunications and financials.
REITs remain strong as demand for housing, both residential
and commercial, continues to increase and inventories fall. A
large portion of the telecoms in the ETF are based outside the
U.S. and are looking to take advantage of the continued growth of
wireless usage in emerging markets. Financials are poised to
continue their rebound in the second quarter as the health of the
overall banking sector improves after a few years of
The biggest risk for SDIV is a global market sell-off. The
likelihood of this is not too high and will only occur if a macro
event occurs such as a European Union country needing a bailout
or missiles flying in the Middle East.
SDIV's 8.3% yield combined with great demand for high
dividends in a low-yield environment will lighten the blow during
Oliver Pursche, president of Gary Goldberg & Co.,
co-portfolio manager of GMG Defensive Beta in Suffern, N.Y., with
$650 million in AUM.
Over the past few years the second quarter has been
challenging for investors. With rising turmoil in Europe, the
ongoing budget battles in Washington D.C., and after the market
gaining over 8% in Q1, I expect a repeat performance.
I expect the current bull run to pause. Of course, there are
outside forces at play, most notably the manipulation exerted by
policy makers. So selling out and going into cash is unlikely to
IShares S&P U.S. Preferred Stock Index (
) invests in preferred stocks primarily issued by large U.S.
companies, mainly financials, which I believe should continue to
perform well over the next few months.
Nearly 65% of the ETF is invested in diversified financials
and banks, with another 18% invested in real estate and
insurance. Holdings includeWells Fargo (
),Black Rock (
) andCitigroup (
). The largest holding, a General Motors (GM) preferred stock,
only makes up 2.46% of the portfolio.
More importantly, companies in the ETF have strong,
high-quality balance sheets. That's paramount to a more
conservative investment approach. In the event of a short-term
pull back, PFF's dividend, which currently stands at just under
6%, should help cushion the blow.
If markets continue to rally, some price appreciation along
with the dividend could make for a handsome return.
Simon Maierhofer, founder of iSpyETF in San Diego, Calif.
Based on the market's recent modus operandi, the second
quarter of 2013 will be a tale of two markets. The first part of
the quarter should see rising equity prices, the second part
should see falling prices. If you print out a five-year chart of
the S&P 500 and draw a vertical line on every May 1, you'll
see the following pattern every single year since 2008: The
S&P sprints into a May high and takes a breather or collapses
The exact day of the high varies, but the S&P declined at
least 10% from its May 1st level in 2008, 2010, 2011 and
It may have to do with the Federal Reserve's quantitative
easing programs flow. And it may be just plain old "sell in May
and go away" seasonality, but ultimately we don't know and we
don't need to know.
The same pattern has happened four out of the last five years.
Patterns come and patterns go and past history doesn't mean it
will return like Groundhog Day this year. However, most of my
indicators are lining up to suggest that 2013 will rhyme with
At this point, the upside potential seems limited compared to
the downside risk. We all know about the follies of investing in
an extended market -- both long and short.
Considering that the S&P 500 will run into stiff technical
resistance around 1,590, there are two low-risk ways to safely
play the "sell in May and go away" pattern:
1) BuyProShares Short S&P 500 (SH) when the S&P 500 is
at 1,590 with a stop-loss just above 1,600. The potential risk is
1%. The potential gain is around 10%.
2) Buy SH once the S&P moves above and closes below