Allocation Model – Conservative
Following recent developments in equity markets post-election, I am making the following changes to the allocation model for conservative account. CVS Health’s disappointing outlook has me less sanguine on the future over the next twelve months. While the shares are up 142% – despite last week’s 8% plunge – since entering the portfolio, I believe it would be prudent to reduce exposure to CVS from 13% to 8%. Likewise, I am taking down Verizon Communications one percentage point to 6% on the likelihood of higher interest rates and a rotation out of the telecom sector. Nonetheless, I am holding on to both positions for now. Conversely, Deere & Co. will likely benefit from a slow improvement in farm machinery, as I believe lackluster demand plaguing the industry for the past few years has bottomed. Also, Deere’s construction segment (21% of sales) should provide some tailwinds with a renewed interest in infrastructure improvements. DE goes from 7% to 9%. I am also becoming more positive on United Parcel Service’s ability in stabilizing its domestic package delivery business and adding to its logistics portfolio, especially in healthcare. I am going to give UPS the benefit of the doubt that it will not fail in getting product to customers in a timely fashion during the all-important Christmas season and, thus, provide decent sales and earnings gains in the fourth quarter and beyond. Therefore, I am increasing UPS from 9% to 11% of the pie. Finally, Swiss engineering giant ABB has won some nice orders for its robotics and automation business of late and its position in electric utility infrastructure in China and elsewhere should grow in 2017. The decent 3.3% dividend is also a plus. ABB moves up two notches to 9%. Here is the new allocation for the conservative portfolio.
I will also be making changes to both the income and aggressive lists in the days to come.