by Will Ashworth | June 24, 2013 3:08 pm
Ben Bernanke threw a dose of reality on the markets last week, sending the S&P 500 down 2.1% on the week and reducing its year-to-date gain to a still-respectable 11.7%. While the short-term news was bad, the prognosis for stocks is good in the long-term because a pullback in monetary easing would be a signal of a stronger economy.
With that in mind, InvestorPlace contributors were busy coming up with good investment ideas for the week of June 17-21. Here are my ETF alternatives:
Marc Bastow jumped on the Sears bandwagon June 21. Before you conclude the veteran editor has lost his marbles, he’s talking about Sears Hometown and Outlet Stores (SHOS), the former subsidiary of the struggling retailer that was spun off last October. Although its Q1 revenues and income were disappointing, they’re still very much in the black. Even better, this is a business driven by franchisees, making it far less capital-intensive. In the first quarter, its capital expenditures were just 0.15% of its $601 million in revenue. This compares to 0.64% for Sears Holdings (SHLD), which has a well-earned reputation as one of the cheapest retailers out there.
SHOS isn’t my cup of tea, but there’s an easy alternative for Marc and others. The PowerShares Dynamic Retail Portfolio (PMR) is a fund of 30 stocks, most of which operate retail stores. The modified market cap-weighted fund holds SHOS at 2.08%, the smallest position of all 30 stocks. The largest is Walgreen (WAG) at 5.16%. While its expense ratio of 0.63% — or $63 for every $10,000 invested — isn’t cheap, it’s the best way to capture SHOS without taking on too much risk.
Tom Taulli was busy June 20 analyzing 3 pros and 3 cons of owning J.M. Smucker (SJM). Ever since SJM purchased Folgers from Proctor & Gamble (PG) in June 2008 for $3.7 billion — doubling its size — I’ve been a huge fan. Since the company announced the acquisition, its stock has achieved a total return of 135% compared to 29% for the SPDR S&P 500 (SPY). And with only 9% of its business outside North America, it has a real opportunity to grow through acquisition. While I don’t know if it can duplicate its 2008 success, coming anywhere close would be a huge boost for the jelly maker.
I usually look for equal-weight ETF alternatives because they are much better at providing a balanced portfolio than a cap-weighted one. The Guggenheim S&P 500 Equal Weight Consumer Staples ETF (RHS) invests in 41 stocks, with 55% in food and beverage companies like Smucker, Kraft Food Group (KRFT), Constellation Brands (STZ) and others. The market cap of companies included in the ETF varies from $3.1 billion all the way up to $228 billion. With an expense ratio of 0.5%, it’s an inexpensive way to own consumer staples stocks — which tend to be some of the most stable stocks over the long term.
Over the weekend, I read in the Wall Street Journal that Morgan Stanley (MS) had received approval to acquire Smith Barney from Citigroup (C). Brokerage firms are hot these days as it becomes increasingly clear that stocks are the only way to go. James Brumley is especially enthusiastic about the discount brokers, whose assets have grown substantially in the past year on higher-than-usual trading. TD Ameritrade (AMTD), Charles Schwab (SCHW) and E*Trade (ETFC) are up an average 41% year-to-date through June 21. Although these stocks are a little frothy, the future direction seems very positive.
Once again, I’m going to go with the most obvious choice … which in this instance is the iShares U.S. Broker Dealers ETF (IAI), a collection of 21 businesses related to brokerage. With the exception of Citigroup, all of the stocks mentioned in the previous paragraph are held in the fund, with none having a weighting of less than 4.7%. Up 29.3% year-to-date through June 21 and 48% over the last 52 weeks, IAI is hotter than a pistol. The upside here is an expense ratio of just 0.45%. The downside — it’s extremely focused on the brokerage business. If anything unanticipated happens to the economy, it’s an extremely vulnerable ETF.
Aaron Levitt provided two big reasons June 19 for owning Weyerhaeuser (WY), the Washington-based timber REIT. The first was the recent announcement that it was acquiring Longview Timber for $2.65 billion from Brookfield Asset Management (BAM), adding by more than 33% to its timber acreage in the Pacific Northwest. That’s a big deal considering most of the trees are ready for cutting. Even bigger news: The company is exploring spinning off its real estate development business, whose value as an independent company could be as high as $5 billion. While I like the idea of the homebuilding business counterbalancing the slow pace of the timber business, Aaron’s right to suggest it would unlock the true value of Weyerhaeuser Real Estate.
Rather than go for one of the timber-related ETFs, I’m going to recommend the PowerShares Active U.S. Real Estate Fund (PSR), a collection of 50 REITs. Weyerhaeuser is the ninth-largest holding with a weighting of 3.61%. No. 1 on the list is the world’s biggest mall owner — Simon Property Group (SPG) — at a weighting of 11.95%. If the homebuilding business is spun out as a REIT, I’d expect it to join Weyerhaeuser among the holdings. The fund does have one major turnoff, however — its 0.8% expense ratio. In addition, with just $31.5 million in total net assets, it’s hard to gauge its long-term survivability.
Back in March, I featured a recommendation by Charles Sizemore who was keen on Daimler (DDAIF) despite the fact its stock was getting pummeled. Last Monday, Sizemore wrote another article about Daimler, suggesting it was worth owning despite its big move over the last two months. And then the bottom fell out of the market, with Daimler losing 8.4% of its value in four consecutive days of losses. Despite those losses, I’m pretty certain Charles would have the same recommendation today. Look around at how many Mercedes Benz GLK250 BlueTec diesels are running around town and you have to know Daimler’s doing very well indeed.
When I selected Charles’ Daimler recommendation in March, my ETF alternative at the time was the First Trust NASDAQ Global Auto Index (CARZ). Nothing’s changed that would get me to recommend something else. Why fix what isn’t broken? It’s not cheap at an expense ratio of 0.7%, but it’s the best way to own Daimler and many of its peers.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.
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