Two macro themes that have been plaguing the market this summer should be reaching their conclusions this month: the Syria War and the long-awaited tapering of quantitative easing.
I’ll start with Syria. The civil war has been raging for more than two years, and I am not suggesting that it is anyone close to being over. But the Western response to the use of chemical weapons by the Assad regime could be launched within the week.
Should we fear a long and drawn out war? No. As I wrote this week, the goal of the United States and France is to punish Assad, not remove him from power.
Will he retaliate? I doubt it. He’s winning his war, and I don’t see him being foolish enough to put his regime at risk. And the West has no stomach for a drawn-out engagement.
For investors, I expect developments in Syria to be non-events.
What about the Fed’s tapering? Once it begins, won’t it suck out the liquidity that the bull market has depended on?
Not likely. In the absence of real information from the Fed, bond investors have decided to sell first and ask questions later, essentially pricing the worst-case scenario into bond prices. When the Fed shows its cards (presumably at its meeting this month), I expect bond yields to fall as tapering proves to be less bad than feared.
Great. Now, what are we supposed to do with this information? I expect the market to trade in a choppy range until there is guidance from the Fed and until the Syrian crisis has passed. This give us an opportunity to accumulate the highest-quality equities that have seen their prices sag this summer.
A great ETF option is the Cambria Shareholder Yield ETF (SYLD). SYLD is an actively managed ETF that invests in 100 stocks with market caps greater than $200 million that rank among the highest in (a) paying cash dividends, (b) engaging in net share repurchases, and (c) paying down debt on their balance sheets.
Any of these criteria alone would be a good screen for quality, good management, and shareholder friendliness. Taken together, and SYLD becomes a veritable super-ETF.
SYLD is not an ETF I recommend you actively trade. There are better options out there for short-term market timing, and SYLD is a new security with somewhat thin trading volume. But for the portion of your portfolio invested in long-term growth assets, SYLD should feature prominently.
I added SYLD to my Tactical ETF Portfolio earlier this summer, and I continue to recommend it on any pullbacks.
This article first appeared on TraderPlanet.
Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he was long SYLD. Click here to learn about his top 5 global investing trends and get your copy of “The Top 5 Million Dollar Trends of 2013.”