10 Updates

How To Play It In May

May 5 2014, 11:42am CDT | by

Is the past prologue? This becomes a difficult question to answer when you have two remarkably consistent historical precedents that seem to conflict with each other in 2014. In the second year of a...

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12 weeks ago

How To Play It In May

May 5 2014, 11:42am CDT | by

Is the past prologue? This becomes a difficult question to answer when you have two remarkably consistent historical precedents that seem to conflict with each other in 2014.

In the second year of a four year Presidential term (as is the case in 2014), the stock market has historically been weak, usually forming a bottom in the second or third quarter. This Presidential term behavior for the markets has been very consistent, dating back to World War II. No better year to follow the old adage of “sell in May, and go away”, right?

Not so fast. We also know that in the 60 years since 1954, there were 14 times when the stock market rose at least 20% in a calendar year. And, in the year following these 20%-plus yearly gains, the market rose, on average, more than 10%. If stocks achieve even the average return that this historical precedent would suggest for 2014, the stock market should achieve a significant gain sometime before the end of the year.

So, the question becomes, how do investors play it right now?

With the seasonally weak period for stocks ahead of us, investors might be wise to heed the old adage of selling in May, but with a twist, given that stocks could achieve a decent return by the end of 2014.

Rather than simply selling and sitting on the sidelines, we recommend diversifying growth portfolios into some other areas. It’s worth considering investment ideas that offer solid potential return, plus a reduction in total portfolio risk compared to a portfolio dominated by U.S. growth stocks. Concentrating in a few hot sectors worked well in 2013, but this year broader diversification and risk reduction are in order.

So where to diversify?  Increasing exposure to large-cap value stocks makes a lot of sense in this environment. This area also offers lower volatility and low correlation relative to the high beta stock sectors.

The Guggenheim S&P 500 Pure Value ETF (ticker symbol: RPV) is a particularly interesting way to play this trend, as the past performance of this ETF stands out compared to other large value offerings. By adopting a “pure” value play, this fund emphasizes areas such as energy, financials, and utilities.

Investors should also look overseas to a newer subcategory of emerging markets, termed “frontier markets”. This sector is made up of countries that are smaller and less economically developed than the BRIC countries (Brazil, Russia, India, China) that have become synonymous with emerging markets.

Many of the frontier markets are found in the oil producing Middle East, or in former Eastern Bloc countries that are resource rich. There’s plenty of long range growth potential, but at this point in their development, with volatile swings and less transparency, an investment in the frontier markets likely deserves no more than a satellite position in a portfolio.

Forward Frontier Strategy Investor (ticker symbol: FRONX) seeks to replicate the MSCI Frontier Markets Index and is an attractive vehicle for this category. ETF investors, willing to take on considerably more risk, can also consider iShares MSCI Frontier 100 ETF (ticker symbol: FM).

To achieve even more diversification, investors should consider other areas, beyond common stocks. With the yields on U.S. Treasuries and other bond investments quite low, high yielding preferred securities are favorable in the current environment.

The Market Vectors Preferred Securities ex Financials ETF (ticker symbol: PFXF) offers a high dividend yield (more than 6%) and stability to offset more volatile stock positions in a portfolio. In addition, since this ETF does not invest in preferred securities issued by financial companies, the resulting industry mix (mostly utilities) results in a reduction in risk compared to many of its peers. Preferreds should remain attractive until we get a sustained rise in interest rates.

This year has certainly brought a much different market environment compared to last year, and as a result, investors need a shift in strategy. If the past is prologue, the question remains, which past will play out this year? We believe it’s best to hedge your bets with broader diversification right now.

David Kudla is CEO and Chief Investment Strategist of Mainstay Capital Management, a fee-only, independent, Registered Investment Advisor. More information about his firm can be found at www.mainstaycapital.com . Follow him on twitter at David_Kudla.

Disclosure: Clients and employees of Mainstay Capital Management may hold the securities mentioned in this article in their investment portfolios. The securities mentioned may not be suitable for some investors, based on their tolerance for risk or their investment time horizon.

 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat w ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken into by ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the Dewan R ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Ministe ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selata ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 m ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk Seri ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaa ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyway (Ki ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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