James Stack: Why a Top Money Manager is Shifting Toward Value

11/20/2019 5:00 am EST

Focus: STRATEGIES

James Stack

Founder, InvesTech Research

In our model portfolio, we are reducing our allocation to the healthcare and consumer staples sectors; at the same time, we are adding a 5% allocation to the S&P 500 Value SPDR ETF (SPYV), explains James Stack, a leading value-oriented money manager and editor of InvesTech Research.

Equity markets powered to another week of all-time highs on relatively little news. Fed Chair Jerome Powell expressed that the Federal Open Market Committee (FOMC) is content with the current level of interest rates, while investors patiently await further development from the ongoing trade negotiations.

On the economic front, NFIB Small Business Confidence moving slightly higher, although hiring plans worsened in October’s reading. Initial claims for unemployment rose to 225,000, bringing the four-week moving average to the highest level since July.

Lastly, Industrial Production fell 0.8% in the worst drop since 2009, largely due to the now resolved General Motors strike.

Technical indicators softened. The Advance-Decline Line has diverged from the S&P 500 over the past 10 days, although it would take a more extended divergence for a meaningful bearish signal to be registered.

Our Negative Leadership Composite remains in neutral territory with bearish Distribution at zero and the bullish Selling Vacuum dissipating.

The majority of this cycle has seen growth and momentum style investments outperform at the expense of value stocks. This dynamic, however, has reached an extreme and may now be in the process of reversing.

As a result, we see this as an opportunity that may enhance the Model Fund Portfolio’s upside capture while simultaneously bolstering our defensive stance with value stocks.

The Model Fund Portfolio’s invested allocation remains unchanged at a defensive 65% with the remaining 35% in short-term Treasurys or a money market fund.

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