NorthCoast ETF Retirement Portfolios Benefit From Conviction

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Holdings in NorthCoast Asset Management's ETF retirement portfolios in April stayed largely unchanged from March, and the commitment paid off. The S&P 500 recovered from a midmonth pullback as earnings season peaked. Overseas, European and emerging-market plays benefited from improving fortunes in those regions.

Here are highlights from the month:

Yield Considerations

The Tactical Income portfolio saw widespread gains in April.IShares International Select Dividend ETF ( IDV ) in particular was a cut above. "It uses a methodology that selects stocks not only on dividend yield but also on dividend growth rate, maximum payout ratio and liquidity," said Patrick Jamin, chief investment officer for NorthCoast. "We believe this combination of characteristics to be a superior approach to dividend investing rather than simply screening for high dividends, especially in an environment where rising interest rates becomes a more pressing risk."

Shares of IDV climbed 3% during the month.

IShares iBoxx $ High Yield Corporate Bond ETF ( HYG ) held on to the top slot for Tactical Income. Jamin has an eye on valuation risk with yields near all-time lows. "This bull market can continue with tighter spreads as high yield still provides better yields than alternatives," he said. "However, more volatility should be expected as there is less margin of safety at these spread levels."

HYG currently pays a yield of 5.9%.

IShares Core S&P 500 ETF ( IVV ) has been a mainstay holding in three of the four portfolios. In April, it was able to shake off a mixed bag of earnings results. "Companies meeting expectations experienced a mild uptick, while misses were severely punished," Jamin said. "This effect partially explained a noticeable rotation out of momentum and small caps, and into value and large caps."

Shares of IVV ended the month up 1%.

International Reemergence

Promising trends across the pond have boosted returns of ETFs with heavy exposure to Europe. "The eurozone remains attractive," Jamin said. "The weakening of the euro vs. the dollar is helping rebalance the economic competitiveness of the eurozone. Also, minutes from the Bank of England's monetary-policy committee meeting this month did not show any signs of tightening, boding well for risky assets."

In April, iShares MSCI EAFE ETF ( EFA ) and iShares Europe ETF ( IEV ) notched respective gains of 2% and 3%.

Jamin says that leaders in Europe will continue to battle the risk of deflation in the near term. "Thankfully, this threat has been well identified by European policymakers," he said. "They are focusing on generating inflation and stimulating the economy with lenient monetary policies."

IShares MSCI Emerging Markets ETF (EEM) held on to most of its gain from March. The holding has staged an impressive comeback against strong head winds. "EEM has almost fully recovered from an 11% trough this year," Jamin said. "This has happened despite currency volatility in Turkey and Argentina, a potential slowdown in China and political instability in Russia. Our main point of comfort has been a very attractive valuation multiple entry point."

Jamin expects the path ahead to be anything but easy. He notes that rising tension in Ukraine and political turmoil in Thailand and Slovenia may add to investor anxiety. Jamin is also monitoring growth concerns in China. "Recent economic releases out of China have been disappointing," he said. "There is some evidence of slowdown and lower inflation."

A 1% return in April now leaves EEM only 1% in the red for the year.



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: IDV , HYG , IVV , EFA , IEV

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