S&P Rally Bolsters Returns for NorthCoast Retirement Portfolios


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NorthCoast Asset Management's ETF retirement portfolios continued their ascent in October. Once again, domestic and European stocks did much of the heavy lifting.

Once the government shutdown and debt ceiling scare were removed by mid-month, investor enthusiasm returned and sent the S&P500 into record territory. Here are highlights from the month:

Strong Rally

The Tactical Growth portfolio benefited from the rally by U.S. stocks. Corporate earnings were strong enough to keep the drive going in October. More than two-thirds of S&P 500 companies that reported earnings surpassed analysts' estimates. "So far it looks like a decent quarter, maybe a little weaker than the previous one, albeit within noise," said Patrick Jamin, chief investment officer for NorthCoast.

IShares Core S&P 500 ETF ( IVV ) spiked 5% during the month and sits 24% above where it began the year.

Recovery Across The Pond

IShares MSCI EAFE ( EFA ) remained the top holding for both the Diversified Core and Diversified Growth portfolios. The ETF advanced 3.3% in October for a 16% cumulative return this year.

EFA is heavily concentrated in Japanese and European stocks. "Regarding Japan, our outlook is still positive, but a bit more nuanced," Jamin said. "The aggressive stimulative policies of Prime Minister Abe have been well-received and have shown some results and increased optimism for local businesses. The introduction of a consumption tax increase without much detail about an accompanying stimulus package to match that growth offset is mitigating our enthusiasm on Japan, however."

Jamin has noted a combination of trends that bode favorably for European equities. The Markit Eurozone Purchasing Manager Index has improved lately, he said. "It stands at 51.1, which has historically been followed by improvements in corporate profitability," Jamin said. "Political uncertainty is also decreasing with (German Chancellor) Angela Merkel's re-election and (European Central Bank President) Mario Draghi's announcement to support long-term financing for European banks."

This sentiment led Jamin to add iShares Europe ( IEV ) positions to three of the ETF portfolios. Shares of IEV rose 4% last month and are up 17% year-to-date.

Resolute Income Portfolio

The Tactical Income portfolio climbed higher during October.IShares International Select Dividend ( IDV ) and iShares iBoxx $ High Yield Corporate Bond ( HYG ) posted gains of 5% and 2%, respectively. Shares of HYG currently yield 6.4%.

"That in itself is compelling enough to take a closer look," Jamin said. "Shares of HYG can also appreciate if the state of the economy improves, or companies improve their credit ratings."

Jamin closed a position in iShares Global Infrastructure (IGF). "The net present value of its dividends and cash flows is associated with a negative sensitivity to interest rates as we saw in May and June this year," he said. "The recent announcement of a tapering delay provided a good opportunity to exit the holding. We will incorporate it in our portfolio again when the conditions line up."

Tactical Income has stayed friendly to retiree investors looking to preserve their capital. "It has held its ground and appreciated despite strong head winds," Jamin said.

Jamin points out that the portfolio has an expected yield of close to 5% and is up 3.1% so far this year vs. a negative 2.9% return from iShares Core Total U.S. Bond Market (AGG).

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

This article appears in: Investing ETFs
Referenced Stocks: EFA , HYG , IDV , IEV , IVV

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