There wasn't much activity in the Aspect Large Cap Value portfolio on the Covestor platform in April as the broader stock market indices continued their choppy movement up and down.
I added a position in Verizon (VZ) and also increased my holdings in Pan American Silver (PAAS). I have no way of knowing this for sure, but I believe that precious metal prices may have bottomed. In fact, political tensions in Ukraine and further economic sanctions against Russia have sparked a rally in that asset class, particularly gold, platinum and palladium.
My preferred method of investing in precious metals at this point is to buy the beaten down mining stocks. Of course, due to the lack of investment opportunities, I am also holding a higher percentage of cash than I would normally.
If you look back over the decades, you will find that in times of investor panic gold and silver really don't react and aren't much of a "safe haven" investment play. However, these assets do seem to react well to anxiety - which is different than fear. Anxiety seems to happen when things are doing fine, but there are increasing worries that something will go wrong in the future.
That's the situation we're in now in my view. People are prone to worrying about things these days. Using excess cash to buy precious metals related stocks such as gold and silver is sort of a security blanket.
In my opinion this kind of investor behavior, plus the fact that mining stocks have declined, could point to a rebound in these stocks at some point.
For a while I thought that Newmont Mining (NEM) would be acquired by Barrick Gold (ABX), but merger talks ended in acrimony. On a fundamental basis, I believe Newmont Mining is worth a bit more than what it is selling for and there is still a chance that Barrick could do some sort of deal at some point. The fact that a possible merger was entertained by both sides makes me bullish on the one- to three-year outlook for gold and silver.
At some point in the next few quarters, I expect Rick's Cabaret (RICK) to do something about spinning off its real estate. Obviously, I don't have a crystal ball, but it would not surprise me if one or more of my stocks in the portfolio participated in some type of M&A activity before the end of the year.
When a company that you own gets a bid, it is one of those rare opportunities where you know that if you sell you will probably be doing the right thing. In my opinion, the reason is that execution risk is brutal and most of the time mergers and acquisitions don't have the intended results.
In the meantime, I'm staying cautious. I am waiting for some reason to make a trade, but I can't find one right now. In fact, I may raise cash or place bets on a pullback. That said, in my opinion, the market may be higher overall by the end of the year.
DISCLAIMER: The investments discussed are held in client accounts as of April 30, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
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