Thoughts of the financial week
January 17, 2018
I have several items worthy of comment this week, but couldn't turn one into an entire article. So here are my thoughts of the week:
Thought 1: The "Me Too" hashtag has gone viral as a means of denouncing sexual assault and harassment. Last week, the movement got a boost from Oprah Winfrey when she spoke out about gender equality. From an investment standpoint, there is a way to invest in companies that promote gender diversity. The SPDR Gender Diversity ETF (HER) tracks companies that employ women in high-level leadership roles. The holdings are those with the highest ratio of women on the board of directors and in executive positions in their sector.
Thought 2: Dividends matter. I'm proud to say I've been on the right side of most all of my market calls in this column. The exception is my liking energy stocks in early 2014, right before the price of oil collapsed. I listed BP Plc (BP) as attractive. It went from the mid-$40s, fell below $30, and is now back to the mid-$40s. That was a painful two years, but BP yields 5.6 percent so investors were rewarded as they waited. My point, holding dividend payers helps offset bad timing.
Thought 3: When you buy an S&P 500 index fund, you are overweighting expensive stocks. The S&P 500 is capitalization weighted so stocks that have done well play an increasingly large role in the index.
Over the past few years, technology stocks have performed very well. As a result, that sector represents 24 percent of the index. When you buy the S&P 500 you are buying a lot of technology.
Such "buying high" has happened before and did not end well. In 2007, the financial sector represented 23 percent of the S&P 500. By 2009 its weighting was only 11 percent. Energy had a 10-percent weighting in 1993, now it's 6 percent. My point, cap-weighted index investors overweight sectors that have already done well.
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Thought 4: The 10-year Treasury yield reached 2.6 percent. There seems to be near universal agreement that rates are heading higher.
Expect fixed-income asset flows to favor interest rate hedged products like ProShares High Yield–Interest Rate Hedged (HYHG) and ProShares Investment Grade-Interest Rate Hedged (IGHG). Both attempt to eliminate interest rate risk by including a built-in hedge that holds short positions in U.S. Treasurys. Fixed income investors that fear higher rates should consider those.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.