{"id":38117,"date":"2013-05-06T11:24:49","date_gmt":"2013-05-06T15:24:49","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=38117"},"modified":"2013-05-06T11:24:49","modified_gmt":"2013-05-06T15:24:49","slug":"may-2013-covestor-model-commentary-long-live-boring","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/05\/06\/may-2013-covestor-model-commentary-long-live-boring\/","title":{"rendered":"May 2013 Covestor Model Commentary: Long Live Boring!"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

If I could sum up the year-to-date with one line, it would be \u201clong live boring!\u201d<\/p>\n

The Dividend Growth Model<\/a><\/strong>, which is designed to be a stable, long-term producer of income, is one of the top-performing portfolios on the Covestor platform, with year-to-date returns 23.7%, vs. 13.2% for the S&P 500 (returns through May 3, 2013).<\/p>\n

And remarkably, those returns were generated with less volatility (beta of only 0.7% and lower maximum drawdown than the S&P 500).<\/p>\n

I would love to say that the investing process is as simple as buying a basket of income-producing stocks and watching them run circles around the market averages.\u00a0 It has<\/i> been that simple in recent years, but this is a result of a handful of conditions that we can\u2019t expect to endure forever.<\/p>\n

To start, two major bear markets in less than a decade massively shook investor confidence in growth and has led to a very narrow focus on cash dividends.\u00a0 With years\u2019 worth of capital gains able to evaporate in a matter of days, investors have come to see the wisdom in the old Wall Street saw that a bird in hand in worth two in the bush.<\/p>\n

Secondly, with bonds and traditional savings accounts and CDs yielding next to nothing these days, investors have flocked to dividend-paying stocks as bond substitutes.\u00a0 For long-term investors, I believe this is the right thing to do.\u00a0 If bought well, a portfolio of dividend-paying stocks will produce an income stream that grows faster than the rate of inflation, meaning your standard of living has the possibility of improving in retirement.\u00a0 The exact opposite is true of a bond portfolio; even with the modest inflation we have today, your real bond income gets a little smaller each year.<\/p>\n

And finally, demographics have played a role here.\u00a0 The market turbulence notwithstanding, the Baby Boomers\u2014America\u2019s largest and wealthiest generation\u2014are starting to retire, and their focus is on the generation of income.\u00a0 And companies are responding to their tastes by upping their dividend payouts.<\/p>\n

Sizemore Capital believes that each of these trends has further to run and that the outlook for dividend-paying securities continues to be strong.\u00a0 Additionally, with its heavy allocation to midstream master limited partnerships, the Dividend Growth Portfolio is well positioned to take advantage of another major macro trend, America\u2019s domestic energy renaissance.<\/p>\n

Will Dividend Growth\u2019s outperformance relative to the market continue at its blistering pace?\u00a0 We have no way of knowing, of course, but frankly I hope the answer is \u201cno.\u201d<\/p>\n

I consider the securities in the portfolio attractive because, as a group, they pay a strong current dividend that I expect to grow over time.\u00a0 But if the prices of dividend-paying stocks rise to the point that they are no longer attractively-priced and no longer pay what I consider to be a high current stream of income, then it might be time to explore other strategy options.<\/p>\n

We are not there yet, and I consider current market conditions to be very favorable for a dividend growth strategy.\u00a0 But I encourage investors to view this strategy the way I intend it to be viewed\u2014as a way of building long-term retirement income irrespective of the market\u2019s direction.\u00a0 This portfolio was never intended to generate market-crushing returns\u2014though we certainly shouldn\u2019t complain during those times when it does!<\/p>\n

Disclaimer: All portfolio returns figures are calculated by Covestor, and Sizemore Capital Management believes them to be accurate.\u00a0 Past performance is no guarantee of future results.<\/p>\n

Charles Sizemore is the manager of the Dividend Growth<\/a>\u00a0portfolio and three other models on the Covestor platform.<\/p>\n

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