3 Second-Half Growth Plays

07/05/2011 9:23 am EST

Focus: ETFS

The second half of 2011 is beginning to resemble the same period last year, a very positive sign given the growth we saw back then. In this interview, Kate Stalter talks to Hank Mulvihill, of Mulvihill Asset Management in Richardson, Texas, who shares the broader sectors that should do well as the year moves on as well as three specific investments that he likes.

Kate Stalter: We're talking today with Hank Mulvihill, of Mulvihill Asset Management in Richardson, Texas. What's your take on the broad overview for individual investors now, given current market conditions and some of the volatility that we've seen lately? What's the 30,000-foot view?

Hank Mulvihill: Well, it's interesting. After this almost 10% drawdown that we saw after the late April highs, I think it's going to look somewhat like last year.

This feels very much like a 2010 analogue, where we got the sell-off in May and June, but July 1 was a kickoff to definitely a strong recovery.

Yes, it dwindled a little bit, and then finally we had the massive push that started in September, and I wouldn't be a bit surprised to see the same thing carry out this year.

Kate Stalter: What are some of the particular sectors, or maybe geographic regions or industries that you see as emerging from the pack and showing some strength right now?

Hank Mulvihill: Sure, we are heavy sector-rotation driven, and we do pay a lot of attention to that.

Year-to-date, health care and utilities have been leading. I don't think that will change much...I think health care is going to continue to be an area that attracts money. But I'm seeing a very strong rotation right now heading toward a subset of that, which is the biomedicals and genetics-and that looks very, very interesting and very positive.

Without getting into specifics, perhaps buying a broad-sector exchange traded fund or mutual fund might be the way to participate. It tends to be a high beta and a little bit more risky. (But) it looks pretty interesting here.

I also like more industrial-oriented, chemical-type companies. Chemical producers look very good here as well. In general I feel that more of your growth names are going to succeed in the second half, and interestingly, a piece that works here is transports.

Kate Stalter: Are you speaking in terms of US-based or global? Can you drill down on that a bit further?

Hank Mulvihill: On transports in particular, I like the large US-based names, and more rail than truck.

Kate Stalter: What should be avoided right now? Any sectors, industries, global regions that the individual investor should stay away from or sell at this point?


Hank Mulvihill: This is going to be a large updraft if what I see in the third year of the presidential election cycle holds, so not a lot of sectors are going to be crushed.

It's going to be a rising tide lifting the boats. I really do think that's going to be the second half. However, I would suggest that your "terror plays"-the investor seeking shelter in the precious metals-might not do as well as some of the growth plays.

Kate Stalter: Along those lines, what are some of the vehicles or strategies that you are advising your clients about these days? What are some of the instruments that you're using to help them meet their objectives?

Hank Mulvihill: Well here's the thing: Bernanke told us about QE3 in his first press conference on April 28, and the whole world missed it. I did not. What he said was, we will reinvest the proceeds of our maturing US Treasuries-that's $300 billion. That's QE3 right there.

Now, in the last press conference last week, the most recent one, he said we will keep short-term interest rates low longer than we previously thought. OK, we already know the federal government is keeping tax rates low until the end of 2012.

Folks who are listening out there, you do not get conditions like this very often, where the monetary authority is saying we're going to give you free money, and the tax authority says you get to keep it!

That means growth is going to be bid up. Companies that produce high growth are going to attract a lot of money. This is a good time to be investing-and furthermore, if you find a secure income stream, it will be very much to your benefit.

Kate, drilling back to your question, I love high-quality industrial names that pay high dividends and are increasing earnings and increasing payouts.

My ideal vehicle for finding these things is a little exchange traded fund called the Dow Dividend 100 (DVY). Lots of volume, excellent payout, interestingly managed for trailing six quarters of earnings, rebalances once a year...that's a nice vehicle.

I also like the oil and gas pipelines as relatively secure. Call them toll booths of transporting petroleum. No matter what happens to the cost of oil and gas, they're still going to transport them through pipelines.

My favorite vehicle there is AMJ (AMJ). It's a nice dividend-paying vehicle, and it can be used in IRA accounts, which avoids the unimpeded business income that's a problem in some of those partnerships.

Finally, in growth I like the mid-cap a little bit better than smalls, and there I use a vehicle called IJK (IJK). Those are my three interesting broad-market picks.

The expert featured in this column may or may not own positions in any investment vehicle mentioned.

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