Sizemore Capital February 2013 Model Commentary

2013 had one of the best Januaries in recent history, only to hit a rough patch in the first week of February.  Though the markets were due for a breather, events in Europe were the trigger.

The two European countries most likely to cause the next phase of eurocrisis—Italy and Spain—both had potentially destabilizing political developments.  In Italy, former prime minister (and current billionaire playboy) Silvio Berlusconi—the man most responsible for Italy’s financial malaise—has been gaining in the polls by making promises to roll back some of the economic reforms pushed through by Mario Monti’s government.  These would be the same economic reforms that calmed the bond market and helped to restore confidence in Italy.

And in Spain, Prime Minister Mariano Rajoy has been implicated in a corruption scandal that threatens his government…at the same time that Catalonia is agitating for independence.

At this point, Sizemore Capital sees this as a mild correction in the midst of a bull market that likely has several years left to run.  But it  may get choppy for a few weeks.

Sizemore Capital made several portfolio moves in January and early February.  In the Dividend Growth Portfolio, we sold our position in Spirit Realty Capital (NYSE:$SRC) following the announcement that it was to be acquired by Cole Credit Property Trust II,  a non-traded REIT.  Given the legal uncertainty facing the acquisition (there are multiple lawsuits from disgruntled shareholders), taking our profits seemed the more prudent course of action.

Abbott Labs (NYSE:$ABT) divested its pharmaceutical business as a separate stock—AbbVie (NYSE:$ABBV).  Sizemore Capital is attracted to Abbott for its collection of stable businesses in nutrition, medical devices and over-the-counter drugs, but the pharmaceutical spinoff was a bad fit for the Dividend Growth Portfolio.  We sold our shares of AbbVie and reinvested the proceeds in additional shares of Abbott.

Finally, to round out our REIT exposure, we added a position to Healthcare Trust of America (NYSE:$HTA), a REIT specializing in medical office buildings.  Sizemore Capital is attracted to HTA’s medical property portfolio, as it is supported by strong demographic trends and should actually benefit from ObamaCare.

Sizemore Capital also made minor adjustments to the Tactical ETF Portfolio.  We reduced our exposure to Africa via the Market Vectors Africa Index ETF (NYSE:$AFK) and invested the proceeds in the iShares FTSE China 25 Index Fund (NYSE: $FXI).   Additionally, we slightly reduced our exposure to U.S. large cap dividend payers via the Wisdom Tree Large Cap Dividend ETF (NYSE:$DLN) and initiated a new position in the iShares MSCI France ETF (NYSE:$EWQ).

This is consistent with Sizemore Capital’s view that Europe and China represent better bargains for investors at current prices.

We made one addition to the Sizemore Investment Letter Portfolio, initiating a position in the tech start-up fund GSV Capital (NYSE:$GSVC).  After the drubbing Facebook (Nasdaq:$FB) took in 2012, we expect a rebound in “Web 2.0” stocks, and GSV is uniquely positioned to benefit.

And finally, we replaced our bond index exposure in the Strategic Growth Allocation with active management in the form of the Pimco Total Return Bond ETF (NYSE:$BOND). For a full explanation, please see Sizemore Capital shifts to active bond allocation.

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