Over the past few days a few not very surprising things have happened. From Der Spiegel (as reported in the FT) German Chancellor Merkel has concluded that Greece must stay in the Euro and is now focused on ensuring this happens. Although many people (including apparently a majority of German voters) believe Greece should be kicked out (a satisfying and totally justified result of their profligacy) policymakers no doubt recognize that shoring up Spain and Italy (whose bond markets would undoubtedly be under enormous pressure in the event of a “Grexit”) would require sums beyond their current resources (perhaps 1 Trillion Euros). There really is no other choice.
Meanwhile the ECB announced its own version of QE last week over the objections of the Bundesbank. And another month of weak U.S. employment data on Friday made QE3 ever more likely. So Greece is staying in, and government buying of bonds is being broadened. None of this was much of a surprise, but equities have been rallying nevertheless, driven in part by the ever-decreasing attractiveness of fixed income. Mitt Romney even noted on Meet the Press yesterday that equities were higher because where else can you earn a decent return.
Interestingly though, GDP forecasts are not being revised higher. JPMorgan for example notes that consensus forecasts for GDP continue to be subject to modest downward revisions, and many corporations reporting earnings in recent weeks have provided cautious guidance on the near term outlook. It’s also interesting to note the divergence between stable, dividend yielding stocks and the S&P 500. On Friday they actually moved in opposite directions – the iShares Dow Jones Select Dividend Index (DVY) was -0.3% while the S&P 500 was +0.40%. In aggregate this all looks rather as if active equity managers are scrambling to keep up with their benchmarks while the market’s rising – higher beta names are performing well and the market is climbing its wall of worry.
For our part, our largest overall exposure in Deep Value Equities remains the Gold Miners ETF (GDX) since real assets have central bank support through reflation if they fail to improve through stronger economic activity. Our next largest is Corrections Corp (CXW) as we await further developments on their conversion to a REIT. Hedged Dividend Capture has lost around 2% over the past few weeks consistent with its proclivity to underperform a strong equity market. MLPs remain attractive – it’s interesting to note the growing number of unconventional MLP IPOs in recent weeks. A number of private equity firms have been taking public as MLPs businesses that have far more volatile earnings than is normal for the sector. An example is Petrologistics lp (PDH), whose S-1 registration statement includes the warning that, “We may not have sufficient cash available to pay any quarterly distribution on our common units.” Their units offer an 8% distribution yield but that yield could move violently in response to the profitability of polypropylene production rom their single facility. It’s not a name we would own, but developments such as these may begin to alter the make-up of the Alerian MLP Index.
The information provided is for informational purposes only and investors should determine for themselves whether a particular service, security or product is suitable for their investment needs. The information contained herein is not complete, may not be current, is subject to change, and is subject to, and qualified in its entirety by, the more complete disclosures, risk factors and other terms that are contained in the disclosure, prospectus, and offering. Certain information herein has been obtained from third party sources and, although believed to be reliable, has not been independently verified and its accuracy or completeness cannot be guaranteed. No representation is made with respect to the accuracy, completeness or timeliness of this information. Nothing provided on this site constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments. Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.
References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in an index and do not reflect the deduction of the advisor’s fees or other trading expenses. There can be no assurance that current investments will be profitable. Actual realized returns will depend on, among other factors, the value of assets and market conditions at the time of disposition, any related transaction costs, and the timing of the purchase. Indexes and benchmarks may not directly correlate or only partially relate to portfolios managed by SL Advisors as they have different underlying investments and may use different strategies or have different objectives than portfolios managed by SL Advisors (e.g. The Alerian index is a group MLP securities in the oil and gas industries. Portfolios may not include the same investments that are included in the Alerian Index. The S & P Index does not directly relate to investment strategies managed by SL Advisers.)
This site may contain forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involves a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of SL Advisors LLC or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made. r
Certain hyperlinks or referenced websites on the Site, if any, are for your convenience and forward you to third parties’ websites, which generally are recognized by their top level domain name. Any descriptions of, references to, or links to other products, publications or services does not constitute an endorsement, authorization, sponsorship by or affiliation with SL Advisors LLC with respect to any linked site or its sponsor, unless expressly stated by SL Advisors LLC. Any such information, products or sites have not necessarily been reviewed by SL Advisors LLC and are provided or maintained by third parties over whom SL Advisors LLC exercise no control. SL Advisors LLC expressly disclaim any responsibility for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on these third-party sites.
All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.
Past performance of the American Energy Independence Index is not indicative of future returns.