Late Entry for ‘Sell in May and Go Away?’

It was a choppy and ultimately negative week in the stock market, with the S&P 500 down 0.55% and the MCSI Emerging Markets Index tumbling 2.16%.

The big news, of course, was out of Japan, as the market took a massive dive of 7.6% last Thursday.

As a result, you were stopped out of WisdomTree Japan SmallCap Dividend (DFJ) for a gain of 13.52%, including a dividend payment of $0.36. Your other Japan bet, Wisdom Tree Japan Hedged Equity (DXJ), recovered somewhat but still ended the week down 6.86%.

The other area of (somewhat surprising) weakness in your Alpha Investor Letter portfolio was in your bets on U.S. and global real estate. After all, according to yesterday’s bullish S&P/Case-Shiller Home Price Index report, home prices saw their largest year-over-year gains in six years, and all 20 reporting cities marked annual gains for the third month in a row.

Yet, this bullishness was hardly reflected in your portfolio.

First, you were stopped out of your bet on global real estate Vanguard Global ex-US Real Estate ETF (VNQI) for a 16.95% gain, including dividend payments of $2.34. This was due in large part to 25% of VNQI’s holdings in Japanese equities. In the U.S. Real Estate Investment Trust (REIT) space, Two Harbors Investment Corp. (TWO) ended the week 3.46% down. Finally, S&P Global Timber & Forestry Index Fund (WOOD) dropped 2.81%.

I am keeping both WisdomTree Japan SmallCap Dividend (DFJ) and Vanguard Global ex-US Real Estate ETF (VNQI) on our watch list for potential re-entry at a later date.

I also wanted to highlight that the iShares MSCI Ireland Capped Investable Market Index (EIRL) was the only one of your positions in your Alpha Investor Letter portfolio to hit a new 52-week high. This contrarian bet seems unfazed by the sell-off on other global assets, as the savvy investors — including you — continue to bet on the Irish economic recovery.

After such choppy market action, the question is whether “Sell in May and Go Away” has made a late entry onto the investment scene.

I think it is too early to tell. In the United States, some early buying enthusiasm after last week’s sell-off wore off quickly, and stocks closed well off their highs. According to sentimentrader.com, when this kind of reversal pattern has occurred near previous market highs, it has a decent record at preceding choppy conditions at best over the next 30-60 days.

There continues to be a divergence between the performance of U.S. stocks and international stocks, as well. That said, the FTSE index in the United Kingdom is set to close May with its 12th consecutive month of gains. That’s the first time this will have happened since the launch of the index in 1962.

Portfolio Update

Berkshire Hathaway (BRK-B) closed flat for the week. BRK-B bounced off its 20-day moving average (MA) over the past two trading sessions — and, based on history, this is a great “Buy” signal for this position. Since crossing this line back in November 2012, BRK-B has moved higher every time it touched its 20-day MA. BRK-B is a BUY.

Visa Inc. (V) dipped 0.84%. Ryan McInerney, the departing chief executive of consumer banking at J.P. Morgan Chase, is replacing Visa’s retiring president, John Partridge. Mr. McInerney is the second major J.P. Morgan Chase executive to join Visa in the past year. V is a BUY.

PowerShares Global Listed Private Equity Portfolio ETF (PSP) dipped 1.43% over the holiday-shortened trading week. The world of private equity investment was simply off limits to the common investor just a few years ago, due to the amount of capital required to make even a small investment. Funds like PSP have changed all that, offering private equity investing to the retail investor. Up 30% since my initial recommendation, PSP has been delivering private equity profits to your portfolio for nearly one year. PSP is a BUY.

S&P Global Timber & Forestry Index Fund (WOOD) lost 2.81% last week. Following yesterday’s bullish S&P/Case-Shiller Home Price Index report, WOOD will likely continue to profit in the months ahead. Home prices saw their largest year-over-year gains in six years, and all 20 reporting cities marked annual gains for the third month in a row. Slipping just below the 50-day MA, WOOD is a now a HOLD.

WisdomTree Japan Hedged Equity (DXJ) fell 6.86% last week. DXJ has been on a tremendous roll since its initial Alpha Investor Letter recommendation in mid-February. DXJ’s last significant dip on April 1 resulted in an eight-week, 32% bull run. With the dust settling on the NIKKEI’s recent correction, DXJ is likely readying for its next climb upwards as it rides both the Bank of Japan-enhanced “Japanese recovery” and “weakening yen” waves. DXJ remains a BUY.

WisdomTree Emerging Markets SmallCap Dividend Index (DGS) dipped 1.32% over the previous four trading days. DGS dipped to touch the 50-day MA last week, only to rebound back to nearly even for the week. Emerging markets continue to trade sideways yet another week, right along our “Buy/Hold” line at the 50-day MA. DGS remains a BUY.

Two Harbors (TWO) lost 3.46%. Analysts at Compass Point upgraded TWO from ‘Neutral’ to ‘Buy’ last week and maintained its $13.25 per share price target -– a 19% jump from yesterday’s close. Despite its recent dip, the bullish case for TWO remains intact, and its dividend yield of 11% offers excellent downside protection. TWO is a HOLD.

iShares MSCI Ireland Capped Investable Market Index (EIRL) gained 0.40% for the week. Although it traded flat for the week, EIRL’s past three trading sessions have been quite positive, pushing EIRL to a new 52-week high. Ireland’s recovery is a long-term story that is just in the opening chapters, with plenty of upside to come. EIRL is a BUY.

MSCI Singapore Small Cap Fund (EWSS) dipped 2.53% over the past four trading days. Back at home from the annual Chartered Financial Analysts (CFA) conference in Singapore, I can’t help but marvel at the remarkable investment foundation Singapore has put in place over the years to foster economic prosperity. EWSS bounced strongly yesterday from the weighty 200-day MA and should profit in the weeks and months ahead. Trading just below the 50-day MA, EWSS is a HOLD for the moment.

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