Today, I eliminated the two equity sector funds in my portfolio, the iShares U.S. Healthcare Provider ETF (IHF) and the First Trust NASDAQ Global Auto ETF (CARZ). I also reduced my exposure in the iShares Core U.S. Growth ETF (IUSG).
In total, these trades reduced my stock exposure by approximately 2% point relative to my overall net worth.
In the recent mid month strategy update, I mentioned the Market flash PMI data would be released today, giving some indication if global economic trends were improving, holding steady or deteriorating.
The preliminary PMI data for developed countries showed economic growth trends are worsening.
The Markit Flash Eurozone Manufacturing PMI came in at 51.0, down from 52.3 last month. This is a twelve month low.
The Nikkei Japan Flash Manufacturing PMI came in at 50.2, down from 52.3 last month. That is an eight month low.
Finally, the Markit Flash U.S. Manufacturing PMI came in at 51.0, down from 52.4 in January. This was the lowest level for the Markit U.S. Manufacturing PMI since September 2009.
None of those measures suggest the developed market economies are contracting, but the economic momentum is clearly on the downside.
Consequently, I used the recent rebound in stocks to reduce my equity exposure slightly.
While the recent economic data influenced my decision, there are also additional factors.
First, I anticipate additional capital calls for the private capital partnerships I invest in so I wanted to raise cash to fund those calls.
Second, my foray into sector funds was an experiment I initiated last year, and I find I would rather simplify my portfolio structure and not spend time analyzing various sectors, unless I see one that is significantly undervalued with improving market conditions.
Finally, with the U.S. stock market overvalued as I have mentioned in the monthly investment conditions report for some time, this was an opportunity to reduce my allocation to that region.
These trades were made after a sharp rebound from the market lows earlier this month. The iShares U.S. Healthcare Provider ETF (IHF) was sold after a 9.1% gain from its low. The First Trust NASDAQ Global Auto ETF (CARZ) was sold after an 8.2% gain from its low, and the reduction iShares Core U.S. Growth ETF (IUSG) came after a 7.6% gain from its low.
As I mention in the mid month strategy update, I continue to look for evidence that the current market rally is sustainable. While the recent PMI data puts a bit of a damper on things, it is possible emerging market PMIs come in at a stronger than expected level, suggesting overall global economic growth is improving.
We will have a clearer picture when that data is released in the beginning of March, and I will discuss it in the March investment conditions report.