Tom's Roundup: Time to Take Tactical Approach and Consider Adding Value Stocks

Market commentary from Thomas C. O'Neill, Senior Vice President, Investments

Growth has far outperformed value this year:

Some of the growth indices are up approximately +20% year to date, while some of the value indexes are down -15-19% year to date.

This difference in performance is very wide based upon historical data.

Portfolio Moves

I have been trimming some of the technology stocks to lock in profits in my stock dividend model that I manage. In my ETF model, I have trimmed some of the tech ETF funds, and purchased a mid- cap ETF and a small cap value ETF with the proceeds.

I use two approaches to managing portfolios

1. Strategic: a buy and hold approach for many years, i.e. 3, 5, or 10 years. The companies in this category have consistent growth of revenue and profit, like high quality tech, health care, and staples like food.
2. Tactical: this is a shorter-term approach with a 12-24 month horizon. Here I look to buy companies whose revenues are most sensitive to the economy, like cyclical stocks, and value stocks (think dividends).

I do manage a third portfolio called The Top Picks. This is a strategic portfolio focused on companies that benefit from the new 5G network and bio-pharma.

Value to Outperform Growth

I expect value to outperform growth over the next 12-24 months and small/mid companies to outperform large companies. I still maintain many high quality tech and bio-pharmas in my portfolios. Cyclical stocks are not a buy and hold forever.

Fed Balance Sheet is now $7 Trillion

The Fed balance sheet is now at 7 Trillion in assets. There is a direct correlation with the rise and fall of the stock market and the Fed balance sheet activities. When the Fed buys securities, it adds liquidity to the financial system and the economy, moving the stock market up. Inversely, when the Fed reduces their balance sheet, the stock market goes down.

With the Fed expanding their balance sheet, I don’t expect a major correction, although anything is possible. I am encouraged that when growth sells off, value picks up the baton and has a good day/week.

Until next time, good investing.

This market commentary is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Diversification and asset allocation does not ensure a profit or protect against a loss.