Markets Grind Upward in Stock Picker’s Market

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

U.S. stock markets resumed their upward march last week, with the Dow Jones up 1.35%, the S&P 500 rising 1.37% and the NASDAQ climbing 1.89%. The MCSI Emerging Markets Index rose 1.09%.

Big gainers in your Alpha Investor Letter portfolio included Skyworks Solutions Inc. (SWKS), which jumped another 7.44%; the iShares Currency Hedged MSCI Germany (HEWG), which added 2.93%; the Guggenheim Spin-Off (CSD), which rose 2.81%; the Market Vectors Biotech ETF (BBH), which recovered 2.78%; Illumina Inc. (ILMN), which gained 2.62%; and the iShares S&P Global Timber & Forestry Index (WOOD), which jumped 2.50%.

Several positions also hit new 52-week highs. These include the Vanguard Global ex-US Real Estate ETF (VNQI), Markel Corp. (MKL), Skyworks Solutions Inc. (SWKS), Cambria Global Value ETF (GVAL), AdvisorShares TrimTabs Float Shrink ETF (TTFS), Guggenheim S&P 500 Equal Weight ETF (RSP) and WisdomTree Japan Hedged Equity ETF (DXJ).

With both U.S. and global markets rallying higher, several of your positions moved back above their 50-day moving averages and changed to a BUY. These include the Guggenheim Spin-Off (CSD), iShares S&P Global Timber & Forestry Index (WOOD), Vanguard Russell 2000 Index ETF (VTWO) and Market Vectors Biotech ETF (BBH).

Despite the U.S. stock market hitting record highs in the past week, domestic markets have been choppy for quite a while now. So far in 2015, the longest winning and losing streaks have lasted no more than three weeks on the S&P 500 or Nasdaq. Aside from February, moves measured in percentage points have been less than 5%.

The collapse in oil prices, the rise of the U.S. dollar and expectations of higher interest rates in the United States are all trends that have reversed in the past two months or so, causing investors to recalibrate their expectations.

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That means that markets in are in a constant flux of adjustment, even more so than usual. The choppy environment means that investors must stay tuned to the latest market signals and be ready to shift gears swiftly.

It is also very much a stock and sector picker’s market. That’s why your biggest gainers year-to-date have been Skyworks Solutions (SWKS), up 43.38%; the Market Vectors Biotech index (BBH), up 16.17%; and Ireland’s Actavis (ACT), up 15.94%.

The one exception has been the continued strong performance of the “Baby Berkshire,” Markel (MKL), which has generated a 15.94% gain in 2015 compared with a 2.4% loss in Berkshire Hathaway (BRK-B) itself.

Overall, 16 of your 20 holdings are beating the S&P 500.

Portfolio Update

Berkshire Hathaway (BRK-B) added 1.21% over the last five trading days. BRK-B has spent very little time below its 200-day moving average (MA) in recent years — and that’s why I highlighted the fact that it was at the 200-day MA recently. Stocks with good fundamentals like BRK-B tend to move higher from their 200-day MAs. That is the case here. BRK-B is a BUY.

Guggenheim Spin-Off (CSD) added 2.81%. Last week’s Alpha Investor Letter newsletter focused on “smart-beta” stocks, and I added several to your portfolio. CSD is yet another example of this type of investment that has been working in your favor and has been on a brisk rise over the past two weeks. CSD also rose above the 50-day MA last week to become a BUY.

iShares S&P Global Timber & Forestry Index (WOOD) rose 2.50%. Now that summer is nearly here, “spring is in the air” for WOOD. As the home builders build new homes after the winter snow melts, they buy lots of lumber. WOOD has enjoyed a bit of a bounce over the past few weeks, moving above its 50-day MA to become a BUY recently.

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Vanguard Global ex-US Real Estate ETF (VNQI) gained 2.02%. As several regions around the globe continue to enjoy economic recovery, real estate is getting a lift as well. VNQI hit a new 52-week high last week to touch the $60 price level — an important long-term resistance point. Although VNQI managed to touch this point back in mid-2014, its last firm stint above $60 was back in mid-2013. I’ll be watching VNQI for a sustained move above $60. VNQI is a BUY.

Markel Corp. (MKL) gained 2.06% last week and hit a new 52-week high. Still rising from a recent strong quarterly earnings report, MKL continues to gain as analysts shine their lights on this strong firm. Fitch Ratings upgraded MKL’s Insurer Financial Strength (IFS) rating, as well as its Issuer Default Rating (IDR), and A. M. Best upgraded its ratings as well. MKL is a BUY.

Skyworks Solutions Inc. (SWKS) jumped 7.44% last week, hitting another 52-week high and bringing its total gain in your portfolio to an astronomical 114%. The move is not over. SWKS is a BUY.

Illumina Inc. (ILMN) rose 2.62%. The “13-F” is a quarterly filing requiring hedge funds to disclose major fund changes. The Viking Global Investors hedge fund just disclosed adding 213,291 shares of ILMN in the first quarter of 2015. As it is one of the 10 largest hedge funds on earth, with $27.1 billion in assets under management, this is yet another sign of support for Illumina. ILMN is a BUY.

WisdomTree Japan Hedged Equity ETF (DXJ) has gained 1.81% in the short time it has been in your portfolio. This position has reached a new 52-week high. DXJ allows you to profit from the ongoing Japanese economic recovery and its several catalysts while hedging against the decline of the yen. DXJ is a BUY.

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Nicholas Vardy

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As I write this, I am on the Eurostar train whizzing back from Lyon, France’s “second city,” to London. I’ve just spent a few days touring Bourgogne (Burgundy) -- arguably the center of the most exclusive wine region in the world. It also gave me a chance to read and watch the local media in a country that many Americans may visit, but few would ever invest in. Today, the French economy is in a funk, a blot on the euro zone’s economic recovery, despite the economy expanding by 0.

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