FYI: In our Q4 Outlook report released last week, we highlighted the fact that while valuations for equities were high, there is case to be made that relative to alternatives, equities were attractively valued. The TINA (There Is No Alternative) argument, as it’s called, suggests that even with equities trading at rich valuations, they are attractive compared to yields on fixed income securities which are at or near historic lows. The fact that more than 60% of the stocks in the S&P 500 pay a higher dividend yield than the 10-Year US Treasury illustrates one example of this idea.
The problem with the so-called TINA argument is that when interest rates rise as they have this week, the alternatives can quickly start to look a lot less attractive. A case in point is the Utilities sector. Over the last several days, as the long end of the curve has steepened, high-yielding stocks like Utilities have been under steady selling pressure, and as of yesterday’s close the sector finished in the red for the tenth straight trading day.
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/utilities-an-imperfect-10/
Comments
The formerly high-flying utility sector has stumbled in recent weeks, shifting the leadership baton to the technology sector, based on a set of proxy ETFs. Expectations that the Federal Reserve could raise interest rates before the year is out is weighing on yield-sensitive utility stocks. Meantime, the tech sector continues to trade near record highs.
One bullish factor for technology shares these days is the expectation for robust merger-and-acquisition activity. “The booming tech sector is gearing up for a wave of consolidation,” notes financial columnist Matthew Lynn at The Guardian. The trend “will drive the next stage of what it already turning into an epic bull market,” he predicts.
Looking past the short-term noise via one-year returns highlights XLK’s relative strength. The tech Etf is up nearly 19% for the trailing 12-month period through Thursday. XLU is still in the black over the past year, but the sector’s leadership has been substantially pared to a relatively mediocre 12% total return. That’s just slightly ahead of the broad market’s 11.5% gain for the trailing one-year window, based on the SPDR S&P 500 (SPY).
Utilities vs Tech 1 Yr
http://www.capitalspectator.com/a-change-in-sector-leadership-puts-tech-in-the-lead/
With this, I still have good yield coming form my interest rate sensitive sectors plus some other sectors that have now advanced in valuation that have more than covered their decline.
Since I am a disbeliever in conventional wisdom and don't believe in diversification, will remain 100% in the bank loan/floating rate/leveraged loan area - with of course a mental stop based on decline from recent highs.
Thanks for making comment following my post.
It is interesting that you have selected bank loan/floating rate/leveraged loan area to make a position in. This is the number one performing area within my income sleeve; and, I am looking to increase my position held in my bank loan fund. My next best performing fund within this sleeve is my high yield fund.
I recongize that we are cut from different cloths when it comes to our portfolios; however, I have a great deal of respect for you ability to pick "the next best thing to venture into." I am not sure I could find myself comfortable with putting such a sizeable sum into just one (or two) focused investment ventures as you are capable of doing with success.
However, I do maintain a sizeable amount of cash within my portfolio and from time-to-time I do open spiff (special investment) positions. These positions (combined) would amount to no more than ten percent of my portfolio at a given time. Currently, I have no spiff positions as I have been movings things around within my portfolio keeping my asset allocation pretty much constant but allowing for some seasonal and yearend positioning. I do plan to increase my equity allocation by about five percent during the next couple of weeks to play the traditional and seasonal fall stock market rally. I am thinking the anticipated improvement (I see) in 4Q2016 corporate earnings will be a driving force for this rally.
Take care ... and, I wish you continued success.
Skeet
Rates Bump Higher During the Week as Economic Data Argue For a December Rate Hike
• High Yield: Although ten year treasury rates are up 16 basis points this week, high yield bond prices actually moved higher. This isn’t unusual:
high yield bond returns are historically negatively correlated with rate movements, so fixed income portfolios seeking superior risk-adjusted
returns tend to benefit from an allocation to high yield bonds
• Municipals: Harvard University issued $2.5 billion of municipals this week - $1.5b tax-exempt and another $1b taxable. Municipal funds
experienced the 40th consecutive week of fund flows this year, extending the streak to 53 consecutive weeks overall.
https://www.payden.com/weekly/wir100716.pdf