The flock traders and their advisors are making significant net inflows into equity funds. In contrast, there has recently been a notable increase rate of insider selling for high dividend stocks. Large cap equities contain substantial weighting of high-dividend assets which have become dangerously overvalued. We sold our position of SPY with 17% gain more than three weeks ago.
We are in the final stages of a powerful multi-year bull market which started in December 2008. General equity indices, especially European shares, which had been a big winner, are not going to climb substantially from their current levels. We at ETF Trade Advisor made a healthy gain in trading the Europe ETF which is EFA, in our portfolio. We bought it last year when nobody wanted to have anything to do with Europe. We closed our position a few weeks ago for a gain of almost 24%. We have also closed most of our risk asset positions with the exception of Brazil (EWZ) and Canada (XIU) ETFs. These latter countries have a substantial weighting of raw material and precious metals, hence will be the near future leaders with healthy gains. We like the fact that the media’s attitude toward precious metal and raw material mining shares has become extremely negative. We are particularly happy to hold these ETFs since the insiders of commodity companies have recently stepped up their buying in a significant manner.
Many investors will crowd into whatever is gaining the most in percentage terms and not many risk assets remain in a notable uptrend. The extreme dislike of commodity producers and an equally powerful conviction of amateurs for holding on to high-yielding REITs, utilities and similar mainstream favorites have created an irrational and unsustainable disparity between these equity classes. This divergence will be strongly resolved in 2013.
Commodity shares are likely to be strong performers during the next several months. Precious metal and raw material shares as well as their respective ETFs are significantly undervalued in relation to most of the well-known stock market benchmarks.
We are planning for a bear market in the future, but it’s not imminent. Savvy investors should not be too concerned for the time being. Focusing on value such as commodities is where you will find the best opportunities.