NorthCoast ETF Portfolios Mount Successful Defense in March
NorthCoast Asset Management flexed its defense in March as top holdings of its ETF retirement portfolios fought to hold on to gains from a strong showing in February.
The S&P 500 set a new record high, undeterred by a slight pullback following comments from the Fed. ETFs focused on Europe held steady despite tension in Ukraine and emerging market positions clawed their way back up the charts.
Here are highlights from the month:
On March 19, Fed Chairwoman Janet Yellen indicated the Fed could raise interest rates in about six months after its monthly bond buying ends.
"While the tone and its reception was a little more hawkish, the chairwoman remarked that the policy stays unchanged," said Patrick Jamin, chief investment officer for NorthCoast. "Our expectation is also unchanged in that we expect interest rates to stay low for 2014."
IShares Core S&P 500 ETF ( IVV ), a top holding in three of the portfolios, overcame a negative stock market reaction to the comments. It then tailed off but rebounded the final two trading days of the month. IVV ended March up 0.4%.
Hawks Circling On The Horizon
The position has been a major long-term winner for Jamin. However, an 18.3% ascent from a year ago has the NorthCoast team looking at reallocation options. "The stock market's performance has been tremendous over the past few years," Jamin said. "The environment can be described as one in which U.S. equity valuations are neither cheap nor stretched. We have been slightly underweighting the U.S. to redeploy the capital in more attractive segments."
European stocks held their ground in March amid an economic recovery. Conditions have been favorable for holdings such as iShares MSCI EAFE ETF ( EFA ) and iShares Europe ETF ( IEV ). "Looking beyond the unpredictability linked with Russia, the eurozone is quite attractive," Jamin said. "There is restructuring momentum in Italy and France and the European parliamentary elections should advance better austerity measures and stimulative reforms."
Enticing Prospects Overseas
Also during the month, Mario Draghi, president of the European Central Bank, revealed that the ECB is prepared to take more policy measures if inflation falls lower than expected.
"Monetary policy is anticipated to remain loose," Jamin said. "The weakening of the euro vs. the dollar is helping rebalance the economic competitiveness of the eurozone."
Jamin notes a blend of factors have held back Japanese stocks. Currency fluctuations, weak growth and the expectation of a tax hike have worked against EFA and iShares MSCI Japan ETF ( EWJ ).
Relief may be in store though. "The mid-July meeting of the Bank of Japan is expected to deliver increasingly accommodative policy, and inflation numbers have been more positive as of late," he said. "These catalysts could provide further appetite in Japanese equities, especially at these low valuation multiples."
IShares MSCI Emerging Markets ETF ( EEM ) jumped 3.9% in March. The holding may have more room to run. "With the exception of 2008, the P/E ratio of the MSCI Emerging Markets Index is now at the low end of its range over the past 10 years," Jamin said. "This development has warranted a tactical overweight to the region."