NorthCoast Asset Management stood pat on its ETF retirement
portfolios in November.
An unexpected interest rate cut by the European Central Bank
brought its benchmark rate to a record low. The S&P 500
witnessed new heights as Federal Reserve chair nominee Janet
Yellen defended the central bank's easy-money policies.
These events were at center stage as ETF retirement portfolios
of NorthCoast maintained sizable stakes in U.S. and European
The Tactical Income portfolio stayed in position to weather
the impact of an end to quantitative easing.
"There will be several stages with still undetermined
horizons," Patrick Jamin, NorthCoast's chief investment officer,
said of the potential for a tapering of the Fed's bond-buying
program and the higher interest rates that's expected to bring.
"It is difficult to envision a scenario where traditional fixed
income fares well, especially long-duration Treasuries. This is
why our portfolios are positioned away from those holdings."
IShares iBoxx $ High Yield Corporate Bond (
) remained the top holding of the portfolio in November. HYG
notched a 0.5% gain during the month. Its dividend yield sits at
IShares Core S&P 500 (
) rose 2.9% in November as the S&P 500 hit a new record high.
The NorthCoast team expects the
to climb at a slower pace in the months ahead. "Our methodology
relies not only on valuation metrics, which are currently
indicating an overvalued market, but also on technicals,
sentiment and macroeconomic data," Jamin said. "Once we
incorporate those other metrics, we can make a more supportive
case for the equity markets."
Small- and midcap plays also continued to climb higher last
month.IShares Core S&P Small-Cap (
) andiShares Core S&P Mid-Cap (
) gained 4.5% and 1.5% respectively. The funds are up 39.4% and
29.6% so far this year.
IShares MSCI EAFE (
) held on to its top billing in three of the four portfolios. EFA
ticked up by 0.5% in November.
More Upside Seen
Jamin sees more upside potential. "The eurozone can be
qualified as being in overvalued territory, but to a lesser
extent than its U.S. brethren," he said. "Again here, we assess
the prospects of the international equity markets by relying on
data with a similar methodology as in the U.S. Overall, our
assessment points to more appreciation ahead and more than in the
The NorthCoast team kept a significant position iniShares MSCI
Emerging Markets (EEM) for its Tactical Growth portfolio. Shares
of EEM slid 0.3% during the month.
Jamin says emerging market stocks are priced cheaper than the
S&P 500. "Valuation metrics tend to favor China and the
emerging markets, but we have to account for other factors which
justify some of that premium," he said. "There is more perceived
risk in those markets. After accounting for those risks we see
emerging markets on par with other equity regions and China as
offering a slightly better risk-reward."
The portfolios have been designed to keep risk in check and
hold up under varying conditions. "We rely on data to obtain a
market outlook and select holdings that are the most appropriate
for the environment," Jamin said. "Because alternative scenarios
can develop, we take into account the most likely scenario, but
also the smaller probability of some more extreme scenarios when
building a portfolio."