NorthCoast ETF Portfolios End Year On A High Note


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 markets.

"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 rates."

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 yield."

IShares iBoxx $ High Yield Corporate Bond ETF ( HYG ), 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 accompanying table).

Expansion In East Asia

IShares MSCI EAFE ETF ( EFA ) 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 country.

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 ( EWJ ) andiShares Europe ETF ( IEV ). EWJ rose about 1% in December, while IEV gained 2.4%.

Jamin held on to sizable stakes iniShares Core S&P 500 ETF ( IVV ) 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 the growth."

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: EFA , EWJ , HYG , IEV , IVV

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