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NorthCoast ETF Portfolios Helped By Rally In International ETF

By: Investor's Business Daily
Posted: 9/30/2013 8:37:00 PM
Referenced Stocks: EEM;EFA;IJH;IJR;IVV

NorthCoast Asset Management's ETF retirement portfolios closed September on a high note. A recovery by foreign stocks fueled gains. Domestic holdings also enjoyed healthy advances in what has been a banner year at home.

Here are some highlights from the portfolios for the month:

Big Moves Across the Pond

The Diversified Core portfolio prospered in September as its largest position rallied 7.8%.IShares MSCI EAFE ( EFA ) was guided higher by resilient showings from Japanese and European equities.

There may be more room to run in the months ahead. "We have a positive outlook for European stocks," said Patrick Jamin, chief investment officer for NorthCoast. "Since Feb. 28, 2008, the S&P Europe 350 Index is down 3%, while the S&P 500 index is up 37%, leaving a lot of upside potential."

EFA is also the top holding of the Diversified Growth portfolio. Jamin noted that bargain hunters have come knocking on EFA's door. "Its upside has recently attracted some investors who noticed more compelling valuations than in the U.S.," he said. "The Shiller P/E is close to an all-time low vs. the U.S."

IShares Core S&P Small-Cap ( IJR ) and iShares Core S&P Mid-Cap ( IJH ) resumed upward trajectories during September for Diversified Growth. IJR and IJH appreciated 5.9% and 7.1% respectively. The funds are up 28% and 23.4% year-to-date.

Push To Record Heights

The Tactical Growth portfolio benefited last month from the ascent of its major positions in iShares Core S&P 500 ( IVV ) and EFA. A decision by the Federal Reserve to not start tapering asset purchases helped push the S&P 500 to hit a record high. IVV tacked on a 5.9% gain in September and now sits 27.8% above where it began the year.

The spotlight will remain on IVV in October, as its components get ready to announce quarterly results. NorthCoast has its focus on more than just earnings though. "The ETF portfolios are managed systematically according to our market outlook," Jamin said. "We don't try to predict next quarter's earnings. Instead we look at more than 40 relevant variables grouped in four different dimensions to quantify our market outlook: technical, sentiment, macroeconomic and valuation."


The gains by IVV and EFA were contagious for Tactical Growth during September. The portfolio witnessed a 7.2% jump by iShares MSCI Emerging Markets ( EEM ). "Emerging markets have underperformed this year on concerns of slower growth," Jamin said. "Even after adjusting for subdued growth, the valuation metrics of emerging markets look reasonably attractive."

IShares International Developed Property (WPS) and iShares International Select Dividend (IDV) posted outsized returns for the Tactical Income portfolio last month. Respective advances of 8% and 6.5% led Jamin and his team to rebalance. "We trimmed back our position in IDV to keep the exposure in line with the risk tolerance of the portfolio," he said.

Some of the profits from IDV were reinvested in the iShares Intermediate Credit Bond (CIU). "With an effective duration of 4.22, the risk/reward ratio is attractive enough in this environment," Jamin said.

Shares of CIU, which yield 2.9%, saw a 0.7% uptick during the month.

The target weightings in all the other portfolios remained unchanged in the month.