Allocation Model – Income
Following the elimination of Verizon Communications from the income portfolio and other market conditions I foresee over the next twelve months, I am making the following changes to the allocation model. As inflation fears grow and interest rates begin to rise, it is going to be difficult to single out specific income stocks that will outperform in the year ahead. Therefore, I am taking the ALPS Sector Dividend Dogs ETF up three percentage points to 15% of the pie to provide some well-needed diversification. Consumer staples with a broad global presence will be facing a stronger dollar and therefore companies like Kimberly-Clark will be continue to struggle internationally. I still believe KMB is a well-managed force in its respective markets, but I am taking the percentage slice down a notch to 9% following weaker-than-expected guidance. The REIT sector will certainly feel the pains of higher rates and the fundamentals within the real-estate business will also experience higher interest costs and, therefore, I am reducing the exposure to the Vanguard REIT ETF from 7% to 5%. While Intel has made significant progress over the past twelve months in reducing its dependence on the PC market, the shares appear fully valued and warrant some caution. INTC goes from 12% to 10%. As interest rates rise and the economy begins to improve, I believe the banking industry will prosper to include financial institutions north of the border. I am increasing Royal Bank of Canada two percentage points to 10% of the whole.
Until I can find a suitable replacement for Verizon, I am maintaining an 8% cash position at this point. All other positions remain at their previous allocation.