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Why rate sensitive assets are performing well in 2014

By Charles Sizemore

As we fast approach the summer months, one point about 2014 is abundantly clear: this is a very different kind of market than 2013. Investors have become far more cautious and are giving far more scrutiny to earnings outlooks.

This is unquestionably a good thing. While monster rally years like 2013 are fun, expectations had clearly outpaced underlying fundamentals. Without a correction or a period of consolidation, this is a recipe for a market bubble.

Interestingly, 2013 and 2014 have one thing in common. Income-oriented sectors have broadly outperformed more speculative sectors through the first four months. Of course, May 2013 was marked by a major reversal of this trend, as the "taper tantrum" led to a broad selloff of bonds and "bond like" investments.

Are we in for a similar reversal this year? No in my opinion. Bond yields are significantly higher in May 2014, and growth expectations have, if anything, deteriorated. First quarter GDP figures were flat, the labor force participation rate continues to drift lower, and outside of food prices, inflation has been tame. These macro conditions suggest stable or even falling yields, which should continue to bode well for rate-sensitive assets.

With all of this as a backdrop, the Dividend Growth model had returned 9% year to date through May 13, compared to 3.4% total return for the S&P 500 Index (SPX).

Sizemore Capital made several changes to the Dividend Growth portfolio in April and early May. We sold or reduced positions in Martin Midstream (MMLP), Energy Transfer Partners (ETP) and Enbridge Energy Management (EEQ) and added new positions in Quest Diagnostics (DGX), Home Depot (HD) and Target Corp (TGT).

These moves represent a subtle portfolio shift to a greater emphasis on dividend growth over current yield and, in my opinion, is consistent with the portfolio's contrarian bent.

To review, the investment strategy of the Dividend Growth portfolio is to generate a current yield that is competitive with mainstream income options such as bonds while offering a rising payout that may potentially outpace the rate of inflation.

Moving on to Sizemore Capital's other strategies, through May 13 the Tactical ETF model had returned 5.7% year to date, compared to 3.4% return for the S&P 500 index.

The Tactical ETF portfolio is very heavily weighted in emerging market equities and in European equities, reflecting Sizemore Capital's view that these markets offer better value than the domestic U.S. markets at this time.

In April, Sizemore Capital slightly lowered its exposure to China and added one new position: the Cambria Global Value ETF (GVAL).

Through May 9, the Sizemore Global Macro portfolio had returned 3.9% year to date, compared to 3.4% return for the S&P 500 Index. Sizemore Capital made no significant portfolio moves in April.

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.

The post Why rate sensitive assets are performing well in 2014 appeared first on Smarter Investing

Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at For information about Covestor and its services, go to or contact Covestor Client Services at (866) 825-3005, x703.
Charles Sizemore

Charles Sizemore

Sizemore Capital Management LLC is a registered investment advisory firm located in Dallas, Texas. Charles Lewis Sizemore, CFA is the

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