By Joshua Schroeder
Like many investors, I am confused, confounded and completely unsure of what to do next. On one hand we have a relatively cheap S&P 500 trading at around 13 x earnings, a housing market that is pulling itself off the mat and an American economy “on the cusp of reinventing itself and becoming a manufacturing and energy powerhouse.”1
However the flip side is downright ugly, highlighted by a bickering do-nothing Washington, the impending fiscal cliff, tight credit conditions, a wave of new regulation, a soaring federal deficit, crumbling infrastructure, a stalled labor market, an economy fighting to grow at just 2% and a rift between the so called 1% and 99% bigger than the Grand Canyon.2 In spite of all that is ugly about America, not to mention the troubles in Euro land, the S&P 500 has darted over 10% higher (on a total return basis) so far this year.
So, is it time to take profits and run or continue to ride the markets higher? I think it depends on each investor’s portfolio.
In my case I have decided to add increased downside protection trading a double short S&P ETF (SDS) and protect against volatility buying the VIX. The reasoning behind this decision is that my portfolio is still producing a yield of over 5.5% even after strong price appreciation and I do not want to miss out on future dividends by trimming back on positions that I believe offer extremely attractive risk adjusted returns.
As well, my portfolio is overweight REITs, energy, financials and Apple (AAPL)… all of which have outperformed over the past few months. And I believe these sectors represent areas of the economy that will continue to be the largest contributors to US GDP in the short to medium term. Review your portfolio and be sure that it’s in line with your risk profile. Good Luck.
- Source: Economist July 14, 2012
- US Trust Capital Markets Outlook August 6th, 2012
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.
Positions in AAPL, XLF, XLE, SDS, and related investments in BAC, NRF, NCT, NLY, and VIXY at the time of publication.