G lobal markets faced an array of challenges in 2015. With gains tougher to come by than in 2014, NorthCoast Asset Management found winners for its ETF retirement portfolios in unlikely places.
Foreign ETFs provided some of the best returns among equity positions. On the fixed-income front, municipal bonds beat out other bond holdings.
Here are highlights from the NorthCoast ETF retirement portfolios for 2015:
Japanese Stocks Bounce
IShares MSCI Japan ETF ( EWJ ) was the top performer of its long-term equity holdings. Shares of EWJ rose 10% in 2015, even as the country slid into a technical recession late in the year.
"The Bank of Japan's quantitative easing program helped to weaken the yen, which contributed to rising exports," said Patrick Jamin, chief investment officer for NorthCoast. "Corporate tax cuts and other stimulus efforts have led to an increase in fund flows into Japanese stocks. They have come not only from investors outside of Japan, but also from pension funds and retail investors inside of Japan."
Another unlikely winner for NorthCoast wasiShares MSCI Emerging Markets ETF ( EEM ). EEM ended the year down 16%, but retirement portfolio clients benefited from a well-timed trade. The firm bought EEM during a late-summer pullback and sold the holding a few weeks later for a healthy gain.
"We bought it on Sept. 8 based on our model, which showed valuation, technical and macro indicators being the most positive," Jamin said. "We sold it on Oct. 23 for a 9.4% gain as we saw a weakening macro outlook."
Muni Bonds Outperform
IShares National AMT-Free Muni Bond ETF ( MUB ) proved to be a bright spot for NorthCoast's Tactical Income portfolio in 2015. "We are overweight muni bonds, and they have done pretty well in this environment," Jamin said. "Its outperformance vs. the Aggregate Bond Index has been driven by low supply and solid demand for tax-free income."
Sales of municipal bonds spiked 23% in 2015 to $376.8 billion.
NorthCoast kept large positions in U.S. ETFs throughout 2015.IShares Core S&P 500 ETF ( IVV ) was the top holding of three of the portfolios at year-end. "The U.S. economy is still relatively strong, and we've had healthy job growth," Jamin said. "We have a positive outlook for 2016. The U.S. economy is close to full employment. We expect wage growth and inflation to kick in and the economy to benefit from higher consumer spending."
IVV ended the year up 2%.
Outlook Across The Pond
Jamin also held large stakes in European ETFs during 2015. Heading into 2016, the NorthCoast ETF retirement portfolios ownediShares Core MSCI EAFE ETF ( IEFA ),iShares Core MSCI Europe ETF (IEUR) andiShares MSCI Eurozone ETF (EZU). "Valuations are most attractive in Europe when compared to other regions, including the U.S.," Jamin said. "We expect the European Central Bank to continue to be accommodative with its quantitative easing program. Overall, Europe is one of the regions where we are most bullish towards equities at the moment."