NEW YORK (ETF Expert) -- Investors may be heartened to discover the Cyprus bailout is back on track. I am not sure how that will prevent Europeans in Italy and Spain from slowly moving their money out of beleaguered banks, but that is an issue for another day.
Right now, broad-based U.S. large-cap stocks are trading at record levels yet again. And as
recently penned, "Why Worry, Be Bullish!"
After several decades in financial services, I find it ironic that pundits ever self-select into a bull or bear camp. Investing does not require predicting, it requires control. One needs to limit costs to increase his/her portfolio returns. One needs to eliminate the possibility of a big loss in any position. One needs to minimize the effect of his/her emotions on decision-making.
Granted, I may have an opinion or a combination of opinions whereby others might label my current stance. However, I do not think in terms of bear or bull. I think in terms of gathering information -- fundamental, technical, historical, economic, political, contrarian, anecdotal. I use that "intel" to decide what and when to purchase. Equally important, I have a
plan with unemotional, mechanical tools
(e.g., stops, hedges, trendlines, etc.) to determine exactly what and when to sell.
I continue to stick with consumer staples, pharmaceuticals, broad-based health care, telecom and a number of utilities -- the meat and bones behind
a safer growth and income approach.
The fact that I continue to recommend holding cash to buy more low-risk, non-cyclical assets for the next 5% pullback probably places me in a camp of bashful bullishness. If that's the way others see me, so be it. That said, the evidence at the present moment does not support going boldly into cyclical favorites like technology, energy or industrials.
Here, then, are three trends that favor non-cyclical ETFs over their counterparts:
1. Manufacturing Slowdown is Damping the Industrial Sector
Nearly every week, the media inundate us with the Dow 30's latest record or the S&P 500's most recent conquest.
Beyond the price movement, however, actual economic data are less encouraging. For instance, the year-over-year growth rate for factory orders has slowed considerably over the last two years. Granted, the
uses weak economic info to justify its ongoing bond purchases.
That said, it may be getting harder to justify owning funds like
SPDR Select Sector Industrials
. The XLI:S&P 500 price ratio shows how the industrial sector is rapidly falling out of favor.
2. How Footloose and Fancy-Free Is the Almighty Consumer?
It is true that
are selling vehicles. By many standards, they are selling a ton of them. On the flip side, only Ford managed to exceed the sales estimates by analysts. And perhaps things are bit less rosy at
. After all,
First Trust Global Auto
has been rather erratic in 2013 and has struggled mightily in the last month.
3. Maybe Sequestration Will Hamper Corporate Earnings After All
We haven't heard much about how the automatic spending cuts have or have not affected corporate profitability. If anything, some companies are likely to use the sequester as an excuse.
, for instance. Executives are already reporting their revenue growth slowed due to U.S. government cuts. Seems like a stretch to me. However, if spending does slow, it tends to slow in discretionary arenas, not toilet paper and toothpaste procurement.
The slowdown in manufacturing, the potential for subtle changes in consumer spending habits and the possibility of under-performing cyclical companies are three reasons that I prefer non-cyclicals in the 2nd quarter of 2013. One of the strongest representatives?
WisdomTree Equity Income
. Even with this exchange-traded fund, however, I prefer to wait until the broader markets pull back 5% from a recent peak.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.
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