I am making a few minor adjustments to the allocation model for the Income portfolio to reflect current market conditions and industry fundamentals. While I still believe the utilities are a core portion of any income account, I am lowering the Select SPDR Utilities ETF from 7% to 5%. Utilities have had a nice run over the past year and the fund has returned about 13% over the past year, including dividends. However, the outlook for utility stocks has lagged of late and the impending risk of an interest rate hike will take its toll on the sector. Also, with allocations of 5% and 8% for the iShares Global Telecom ETF and Verizon Communications, respectively, investors have plenty of exposure to high-paying “utility-like” plays.
I am increasing Intel’s slice of the pie from 10% to 12%, as rotation into technology stocks should continue and Intel has made some nice progress of late in focusing more on mobile and cloud based technology systems vs. its bread-and-butter personal computer business. I am also moving Royal Bank of Canada up a notch to 8%. The bank has done a good job of integrating last year’s purchase of City National and, thus, increasing its exposure in the more lucrative asset management segment of its businesses. While earnings for the year may be flat to lower, I believe next year will prove to be a turnaround point for RY and the dividend – yielding 4% – should continue to grow commensurate with earnings.
I am maintaining my allocations on all the other candidates at this time.