{"id":39246,"date":"2013-06-24T16:54:46","date_gmt":"2013-06-24T20:54:46","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=39246"},"modified":"2013-06-24T16:54:46","modified_gmt":"2013-06-24T20:54:46","slug":"core-satellite-investing-in-the-era-of-rising-bond-yields","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/06\/24\/core-satellite-investing-in-the-era-of-rising-bond-yields\/","title":{"rendered":"Core-Satellite Investing in the Era of Rising Bond Yields"},"content":{"rendered":"

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

I recently sat down with Covestor’s Mike Tarsala to discuss my core-satellite approach in the post-QE Infinity era.<\/p>\n

Per Tarsala’s article<\/a>:<\/p>\n

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A\u00a0200-point drop<\/a>\u00a0in the Dow Industrials is as good a reminder as any that it\u2019s important to play both offense and defense with your investment strategies, says\u00a0Charles Sizemore<\/a>, portfolio manager on the\u00a0Covestor<\/a>\u00a0platform.<\/p>\n

One specific way he\u2019s preparing for market volatility as investors react this week to the\u00a0potential end<\/a>\u00a0of loose Fed policies is by taking a Core-Satellite approach to running his\u00a0Tactical ETF<\/strong>\u00a0<\/a>portfolio.<\/p>\n

\u201cI\u2019m playing cautiously with the majority of my holdings in Tactical ETF, and dialing up the risk on only a portion of the portfolio that I think offers strong potential reward,\u201d he told me following our latest\u00a0Google Hangout.<\/a><\/p>\n

As Sizemore suggests, a Core-Satellite investing approach typically makes a significant allocation to a long-term, lower-risk \u201cCore\u201d strategy, and a lesser allocation to shorter-term \u201cSatellite\u201d holdings. The approach tries to minimize investment costs and volatility while still providing an opportunity to outperform the broader stock market.<\/p>\n

The majority of Sizemore\u2019s Tactical ETF portfolio invests in\u00a0Exchange Traded Funds<\/a>\u00a0(<\/span>ETFs<\/a>)<\/span> made up of income-oriented stocks. He is attracted to ETFs with stocks that have long histories of raising their dividends. Sizemore believes that companies that are boosting their distributions to investors will be attractive and may be more resilient to further market downturns.<\/p>\n

Meanwhile, Sizemore also is keeping a small portion of his portfolio in the tech sector. In early June, he purchased the Tech Sector SPDR\u00a0(<\/a>$<\/span>XLK<\/a>)<\/a>\u00a0for the\u00a0Tactical ETF Portfolio.<\/a><\/p>\n

\u201cIf I am right and in the second half we see a sector rotation into higher beta, higher volatility, more cyclical sectors, then tech should do well,\u201d Sizemore says. \u201cEven if I\u2019m wrong, tech right now is priced attractively. And it pays a great dividend yield.\u201d<\/p>\n

Tactical ETF also has\u00a0Master Limited Partnerships<\/a>\u00a0in its satellite holdings. So-called MLPs are unique investments that are required to pay out a majority of their earnings as dividends. The underlying investments in most MLPs are energy-related companies.<\/p>\n

Sizemore says that the group is attractively priced following a sharp\u00a0second-quarter selloff<\/a>\u00a0amid fears that their distributions would be less attractive in a rising interest rate environment.<\/p>\n

\u201cThey are one of the few areas of the market where you have excellent fundamentals, and by that I mean a substantial buildup of energy infrastructure projects in this country,\u201d he says. \u201cYet they also have a nice current yield and potential for rising dividends in the near-term, as well as over time.\u201d<\/p>\n

\u201cNo matter how you do it, I think it\u2019s important to be tactical in the second half of the year and react to what could be a very different market than what we\u2019ve become accustomed to in the\u00a0QE Infinity<\/a>\u00a0era,\u201d Sizemore says.<\/p>\n<\/blockquote>\n

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Related posts:<\/p>\n