We are genuinely pleased with the performance of most asset classes in 2012. As we expected, bond yields have moved mostly sideways. But the real story has been the remarkable rally in stocks. The strong start in January was followed by an equally strong February. After multiple months of bull market conditions, some sort of mild correction might be expected. But in playing the role of contrarian, it is our view that the growing chorus of investors expecting a correction might be disappointed.
Bull markets do not last forever, of course, and the current bull market will be no exception. But we believe that this bull market still has room to run. Our reasoning centers around developments in Europe. Fears of a Euro zone meltdown were the primary driver of last year’s volatility. But as those fears continue to recede, investors who were previously afraid to buy stocks are slowly re-entering the market. This thawing of investor sentiments should keep this rally going for another couple of months.
Sizemore Capital is heavily allocated to Europe in its Tactical ETF and Sizemore Investment Letter portfolios, and we believe that European stocks should be among the highest performers in 2012. Within Europe, we prefer companies with a strong presence in emerging markets.
Our primary strategic focus continues to be high-quality companies that pay strong and growing dividends. These, in our view, represent the best risk/return trade-off for the next 5-7 years and should be the backbone of any portfolio. We do, however, continue to look for shorter-term tactical trades in more cyclical sectors.
Our biggest disappointment thus far in 2012 has been the performance of the telecom sector. Sizemore Capital has a dedicated position in global telecom in the Tactical ETF portfolio via the iShares Global Telecom ETF (IXP) and in the Sizemore Investment Letter portfolio via our positions in Telefónica (TEF), Turkcell (TKC) and China Mobile (CHL). We continue to see great long-term value in the individual stock holdings, but our position in the broader ETF is currently under review as a shorter-term tactical holding.