NorthCoast Asset Management put the final touches on an
exceptional year for clients invested in its ETF Retirement
Portfolios in December.
Appetite for risk remained healthy as U.S. and European equity
ETFs pushed higher. Gains were cemented by growth prospects that
outweighed concerns of tapering.
Here are more highlights from the month:
End Of An Era
The Federal Reserve said it will begin to dial back bond
buying in January. Patrick Jamin, chief investment officer for
NorthCoast, noted the decision provided clarity for global
"An important part of the announcement was the stronger
forward guidance," he said. "The Fed also mentioned that it
considers an unemployment rate of 6.5% to be a necessary, but not
sufficient threshold to cross before considering raising
Jamin plans to monitor future rounds of tapering for the
Tactical Income portfolio. "The tapering schedule will most
likely create some instances of volatility," he said. "The Fed's
forward guidance is stronger and removes some of the uncertainty
about the path of tapering. We are currently positioned to avoid
long-duration bonds, staying overweight in credit and high
IShares iBoxx $ High Yield Corporate Bond ETF (
), taking a 16% allocation, retained its top billing for Tactical
Income in December. The ETF gained 0.34% for the month through
Dec. 30. Since a position was started in the respective
portfolios, the ETF has produced a gain of 8.4% for Tactical
Income and 5.8% for Diversified Core and Diversified Growth. (see
Expansion In East Asia
IShares MSCI EAFE ETF (
) finished the year as the top holding of the Diversified Core,
Diversified Growth and Tactical Growth portfolios. EFA is heavily
weighted with Japanese equities that have been subject to efforts
by Prime Minister Shinzo Abe to spur an economic recovery in the
The clock is now ticking for Abe's stimulus spending measures.
"In the absence of results from his aggressive policies, the
likelihood of a fiscal surplus by 2020 will fade away," Jamin
said of Abenomics. "Creditors would then become more wary of
seeing debt appropriately serviced."
Shares of EFA rose about 2% in December, adding to the
portfolios' gains. Related holdings that the portfolios held
during the month includediShares MSCI Japan ETF (
) andiShares Europe ETF (
). EWJ rose about 1% in December, while IEV gained 2.4%.
Jamin held on to sizable stakes iniShares Core S&P 500 ETF
) at year-end. He currently has a positive outlook for the
holding, but says profit growth for companies may be harder to
come by in 2014.
"The earnings growth is most likely due to cost controls," he
said of bottom-line gains seen by S&P 500 companies in 2013.
"On one hand, this trend highlights the added value of
management, but on the other hand the less repeatable nature of
IVV rose 2% in December.
Emerging Market Allure
Bets on developing markets were represented in three
portfolios byiShares MSCI Emerging Markets ETF (EEM). Reform in
China and compelling valuation metrics in Asia-Pacific countries
are both themes that appeal to Jamin. "EEM is a good all-in-one
vehicle to implement this trade," he said. "Forty-five percent of
its holdings are in China, Taiwan and South Korea, while only 13%
are in Mexico and South Africa."
Shares of EEM saw a 1% decline in December, but the three
portfolios that hold it are showings gains of 3.5% their
positions in the ETF.