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Despite Big Market Gains, Lots of Attractive Opportunities Remain


The market (SPY) has been on fire this year (+21.4%), however plenty of very attractive long-term investment opportunities remain. This week’s Weekly shares the performance of each of our holdings across all three of our strategies, and then provides concise commentary on attractive opportunities among REITs, healthcare, growth stocks and our high-income low-beta “Alternative Fixed Income” strategy.

Holdings and Performance:

For starters, here is a recent look at the recent performance of all of our holdings across strategies as of Friday’s market close (7/12/19). For reference, you can also download this information in Excel spreadsheet format here.


Real Estate Investment Trusts (REITs)…

…have some investors a little nervous considering the group has performed well this year but could face renewed pressures if interest expectations turn away from recently increased dovishness from the Fed. REITs are impacted significantly by interest rates because they generally rely heavily of the capital markets to fund growth.

One REIT we continue to like here is Simon Property Group (SPG) for its big safe 5.0% dividend yield, the continuing growth of the business, and its increasingly attractive valuation (the shares are relatively quite cheap). SPG is an A-class mall, but the share price has been held back by struggling B and C-class malls which continue to face challenges due to changing consumer shopping habits (mainly online shopping). As you can see in our earlier chart, SPG shares have actually fallen slightly this year as the market has soared. Considering the business and long-term expectations keep improving, SPG should be trading significantly higher.

Another interesting REIT is mortgage REIT New Residential (NRZ). NRZ is up 15.3% this year, but it has been recently held back by expectations for lower interest rates. NRZ’s balance sheet doesn’t like to much volatility, particularly when rates are expected to fall (NRZ’s mortgage services rights actually increase in value when interest rates go up—an unusual and attractive diversification quality, particularly for a REIT).

The Healthcare Sector…

…has really been lagging the market (See XLV in the table above) and is arguably due for a relative rebound from the negative narrative about the negative impacts of the potential dismantling of the Affordable Care Act as a case works its way through the courts about the constitutionality of the law in the post individual mandate era.

We’re currently playing the healthcare sector in four ways: passively through the healthcare sector ETF (XLV), actively by owning blue chip dividend paying healthcare stock Johnson & Johnson (JNJ), and with very high dividend (distribution) healthcare Closed-End Funds (“CEFs”) from Tekla (THQ) and (THW). We own all four, and depending on your preferences and goals, all four are currently attractive.

Specific Growth Stocks…

…are also currently very attractive. For example, we really like Shopify (SHOP) over the long-term even though it’s been on fire this year (it’s up over 100%). For a little color here is a link to a recent Barron’s article that basically describes Shopify as a bit of an Amazon killer (in a good way).

Source: Barron’s

Source: Barron’s

Also, we like a beaten up growth stock, food-delivery company GrubHub (GRUB); despite the recent weak performance by the shares, we believe the business and business model have tremendous long-term value and opportunities, and we wouldn’t be surprised to see the shares get acquired at a healthy premium by a larger company such as Square (SQ).

Our Alternative Fixed Income strategy…

…also remains quite attractive depending on your goals and risk tolerance. Specifically, if you like high income, but you’re concerned the market is due for a sell off, consider our Alternative Fixed Income portfolio. This strategy holds a variety of high-income non-stock-market investments. And you’ll see the weaker relationship with the market via the lower betas for the holdings in the strategy (see the beta column in our previous table). This is good for volatility reducing diversification reasons.

The Bottom Line:

If your nest egg is already big enough, and it’s generating the income you need to live off of in retirement, then there is really no reason to “bet the farm” at this point by being 100% invested in the stock market. On the other hand, if you have many years until retirement (or many years left in retirement) then you can keep investing in stocks so long as you’re doing it for the long-term and you understand that the market can sell off in large amounts over many months and sometimes many years. The bottom line is simply to stick to your long-term investment strategy without ever losing sight of your goals and without letting short-term news and/or volatility screw you up; diversified long-term goal-oriented investing has proven a winning strategy over and over again throughout history. Determine a smart plan for you, and stick to it.

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