Using Our Bottom-Up Approach to Add a Railroad
Posted on July 2, 2015 | Dividend Investing
We are making our first change to the DI portfolio since March. ALFAC Inc. (AFL) is being replaced by Union Pacific Corp. (UNP). We discuss the change in the new July Monthly Report, but we’ll give a brief overview of our rationale here.
Airlines Getting Too Friendly While Greece and Its Creditors Can’t Make Up
Posted on July 2, 2015 | Stock Superstars Report
While summer is officially underway, the doldrums were not in effect this week, as we saw the potential end game in Greece with the government declaring a referendum for July 5 to determine whether the country would accept its creditors’ terms. The ruling Syriza party has recommended a “no” vote, arguing that the country could get a better deal if the offer was rejected. The creditors have suggested, however, that a “no” vote would be a vote to leave the euro currency bloc. Greece additionally went on to miss a debt payment that was due to the International Monetary Fund (IMF) on Tuesday, which technically constitutes a default.
My Notes From the Morningstar Investment Conference
Posted on July 2, 2015 | Investor Update
Last week, I attended Morningstar’s annual Investment Conference. Attended primarily by financial advisers, the conference is notable for both its size and its mutual fund focus (as many of the speakers work for mutual fund companies). This week, I’ll share some of my notes and observations. In future issues of the AAII Journal, there will be transcripts of interviews with managers of a top-performing large-cap fund and of a frontier markets fund.
Members Cite U.S. Monetary Policy, Greece as Future Market Movers
Posted on July 2, 2015 | AAII Survey
This week’s Sentiment Survey special question asked AAII members what they thought would most influence the direction of stock prices over the second of half this year. Responses were mixed, with many AAII members listing more than one factor or event. Nearly one out of every three respondents (32%) said a potential change in U.S. monetary policy or a corresponding change in interest rates. Greece and the eurozone was a close second, named by about 28% of respondents. Nearly 15% of respondents said economic growth while more than 13% said corporate earnings.
Here is a sampling of the responses:
- “The Federal Reserve’s position on raising interest rates and global economic events.”
- “If/when the Fed tightens and the Greek situation.”
- “Earnings always seem to be the main driver.”
- “The improving economic outlook in the United States.”
- “Downturn in China, the Greece-euro crisis and unrest in the Middle East.”
AAII Sentiment Survey: Pessimism Rebounds to Its Highest Level of 2015
Posted on July 2, 2015 | AAII Survey
Pessimism rebounded strongly, reaching a new high for the year, in the latest AAII Sentiment Survey. At the same time bullish sentiment plunged back to an unusually low level, while neutral sentiment remained above 40%.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 12.9 percentage points to 22.6%, a three-week low. The large drop puts optimism at an unusually low level for the eighth time in nine weeks. This is also the 17th consecutive week with a bullish sentiment reading below its historical average of 39.0%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, slipped 0.5 percentage points to 42.3%. Even with the modest decline, neutral sentiment remains above its historical average of 31.0% for the 26th consecutive week and at an unusually high level for a 13th consecutive week.
Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 13.4 percentage points to 35.1%. The jump puts pessimism at its highest level since August 7, 2014 (38.2%). The historical average is 30.0%.
Even with this week’s jump, pessimism remains well within its typical historical range. Bearish sentiment was last at an unusually high level (above 40.1%) on August 22, 2013 (42.9%).
Monday’s large drop in the large-cap indexes occurred at the same time we sent out a weekly reminder email to take the survey. (We send out a reminder to a rotating group of AAII members each week.) The ongoing crisis in Greece is also having an impact, as can be seen in the responses to this week’s special question. This week’s events follow ongoing concerns some AAII members have had about the possibility of a bigger decline in stock prices occurring, the pace of economic growth, the lack of wage growth, valuations, the impact of the stronger dollar on earnings and geopolitical events. Keeping other AAII members encouraged are the ongoing bull market, sustained economic expansion, earnings growth and still-accommodative monetary policy.
The current 13-week streak of neutral sentiment readings at or above 40% is the longest since 1988. Neutral sentiment readings above 39.6% are unusually high (more than one standard deviation above average). As noted above, optimism is back at an unusually low level. Both such occurrences have typically been followed by better-than-average six- and 12-month returns for the S&P 500. For more information, see my May 21 AAII Investor Update, Unusually High Neutral Sentiment Often Followed by Good Returns. (There is no guarantee, however, that history will repeat.)
This week’s AAII Sentiment Survey:
- Bullish: 22.6%, down 12.9 percentage points
- Neutral: 42.3%, down 0.5 percentage points
- Bearish: 35.1%, up 13.4 percentage points
- Bullish: 39.0%
- Neutral: 31.0%
- Bearish: 30.0%
The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.
Sell OF THE WEEK 7/1/2015
Posted on July 1, 2015 | Podcast
AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Oil States International (OIS) is his “Sell of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.
Audio url: Sell of the week
AAII Members Talk Alternative Investments
June’s Asset Allocation Survey special question asked AAII members if any portion of their portfolio is allocated to alternative investments (something we do not track in our monthly survey). Almost half of all respondents (49%) said no, they do not hold any alternative investments. Some said they have no interest in owning them, while others suggested they needed to learn more about these types of investments before deciding to allocate to them. A small group of members asked us to define what counts as an alternative investment.
Slightly more than a third (35%) said they own alternative investments. Many described their allocations to “alts” as accounting for 10% or less of their total portfolio. Real estate was most common, with 15% of all respondents saying they had exposure to it either through real estate investment trusts (REITs) or via a direct ownership. One member has ownership in a vineyard.
Here is a sampling of the responses:
- “I do not and will not consider ‘alternative investments.’”
- “No, because I do not have enough information about ‘alternative investments’ for evaluation.”
- “Not much…I tried silver, gold, stamps, and convertible bonds; no returns are as good as stocks.”
- “Yes, about 8% to 10% of my portfolio is in ‘alternative investments.’”
June AAII Asset Allocation Survey: Cash Levels Continue to Rise
The June AAII Asset Allocation Survey reveals that individual investors increased their cash allocations for the third consecutive month. The rise in cash levels occurred as equity allocations fell to their lowest level since January.
Stock and stock fund allocations declined 0.5 percentage points to 67.2%. June tied January for having the smallest allocation to equities in 2015. Nonetheless, stock and stock fund allocations remained above their historical average of 60% for the 27th consecutive month.
Bond and bond fund allocations were unchanged at 15.5%. Technically bond fund allocations declined and bond allocations rose, but the changes were very minor. June was the second consecutive month with fixed-income allocations below their historical average of 16.0%.
Cash allocations edged up 0.5%, to 17.3%. This third consecutive monthly increase kept cash allocations at their highest level since October 2014 (18.7%). The increase was not large enough to keep cash allocations from being below their historical average of 24% for the 43rd consecutive month, however.
The rising level of cash corresponds with trends we’ve been seeing in our weekly Sentiment Survey. Neutral sentiment has been at an unusually high level for 12 consecutive weeks. Neutral sentiment’s record streak of consecutive weekly readings at or above 45% for 10 consecutive weeks lasted through much of last month. At the same time, many individual investors continue to be frustrated by the ongoing low-interest-rate environment.
June AAII Asset Allocation Survey results:
- Stocks and Stock Funds: 67.2%, down 0. 5 percentage points
- Bonds and Bond Funds: 15.5%, unchanged
- Cash: 17.3%, up 0.5 percentage points
June AAII Asset Allocation Survey details:
- Stock Funds: 33.5%, down 1.1 percentage points
- Stocks: 33.6%, up 0.6 percentage points
- Bond Funds: 11.8%, down 0.1 percentage points
- Bonds: 3.8%, up 0.1 percentage points
- Stocks/Stock Funds: 60%
- Bonds/Bond Funds: 16%
- Cash: 24%
*The numbers are rounded and may not add up to 100%.
The AAII Asset Allocation Survey has been conducted monthly since November 1987 and asks AAII members what percentage of their portfolios are allocated to stocks, stock funds, bonds, bond funds and cash. The survey and its results are available online at: http://www.aaii.com/investor-surveys.
BUY OF THE WEEK 6/30/2015
Posted on June 30, 2015 | Podcast
AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Lear Corp. (LEA) is his “Buy of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.
Audio url: Buy of the week
AAII WEEKLY FEATURE 6/30/2015
Posted on June 30, 2015 | Weekly Features
This week’s AAII Weekly Features has been updated.
View this week’s Top AAII Articles, Featured Stock Screen and Member Question.