YTD: -9.8%
Performance YTD result is an estimated percentage based on a model account and may not be performance of your account.
As Of: 04/30/2020
Market Exposure
  • U.S. Equities
  • Cash
U.S. Sector Select Hedged
Strategy Overview:

U.S. Sector Select Hedged is a fully tactical investment strategy designed to generate long-term growth with downside risk protection. The strategy utilizes a proprietary scoring and selection process to actively allocate across U.S. sector ETFs. The strategy invests in sectors with higher risk-adjusted return potential and reduces or eliminates exposure to sectors with lower risk-adjusted return potential while applying defensive cash scaling risk controls designed to reduce volatility and mitigate significant loss.


Provide long-term growth while minimizing volatility and mitigating significant loss.

Active Management for a Changing Market:

  • People are living longer, and the road to financial security is only getting more complex. Investors require thoughtful solutions that properly balance the financial tradeoff between portfolio growth and peace of mind.

  •  The rise of the Exchange Traded Fund (ETF) marketplace has provided NorthCoast with one of the tools necessary to deliver investment products designed to manage this tradeoff. Utilizing a variety of ETFs, NorthCoast can provide investors with increased transparency, lower costs, and greater consistency. 


Date Update
September 20, 2019

How are you expecting U.S. equities to finish out the year?

Our global tactical asset allocation model still indicates a cautiously bullish outlook for the U.S stock market in the near-term. However, the long-term signals have decreased recently. The short-term targeted equity level at the moment is around 90% while the long-term signals indicates a target level of about 70%. An area of concern is that the probability of a recession has slightly grown. We monitor a number of data points to help determine the probability of a recession. For example the yield curve, which went into a deeper inversion, contributed to the elevated odds.

However, we don’t expect a recession to occur in the near future since the macroeconomic data points we monitor are still relatively upbeat. Industrial production rose 0.6% in August, its third increase in the last four months. The total capacity utilization also rose 0.4%. Some macroeconomic and sentiment figures are less optimistic including the labor market and PMI data. The labor market moderated further in August. Payrolls increased by 130,000 jobs, bringing average growth to 158,000 per month this year, far below the 2018 pace, confirming suspicions that the pace of hiring has cooled. Also, U.S. PMI data has been decreasing every month since March this year. In August, the PMI data indicated that the U.S. manufacturing sector is contracting for the first time since the end of the energy rout. The ISM manufacturing index fell from 51.2 in July to 49.1 in August, the lowest reading since January 2016 and below the neutral threshold level of 50.


February 13, 2019

The Sector Select Hedged strategy began reinvesting on 2/13/2019 as technical indicators regained strength after the market downturn in Q4 2018. At the market's close on Wednesday, February 13th, the strategy was just over 50% invested across three sectors that are showing particular strength: Consumer Discretionary, Energy and Healthcare. During the period the strategy was fully in cash (11/13/2018 - 2/13/2019), the S&P 500 dipped as low as -13% on 12/24/2018 before slowly recovering in 2019.


Source: Bloomberg, NorthCoast Asset Management

January 1, 2019

What is your outlook for the U.S. equity market for 2019?

Our global tactical asset allocation (GTAA) model still signals a relatively bullish outlook for the U.S. equities. Strong readings in sentiment and valuation indicators outweigh weaker technicals and recent price pullbacks. 

In 2018, the U.S. economy enjoyed a banner year with real GDP annual growth rate on track to increase by close to 3%, which is the strongest gain of the nearly decade-long expansion. We believe the deficit-financed tax cuts and government spending increases will continue to help the economy grow much of next year. We also expect the labor market to continue to grow and unemployment to stay low by historical standards. 

Despite these positive signals, we do recognize some possibilities of weakness moving forward. The stimulus effect might fade and put downward pressure on the market in the longer term and diminishing labor supply might result in gradually decreasing prices. The ceasefire between the U.S. and China may indicate that the worst of the escalations are behind us. However, the trade tension remains and might contribute to equity volatility. We do expect some market volatility to continue through 2019 despite our model indicating that the odds of a near-term recession remain relatively low.

October 23, 2018

On October 23, the U.S. Sector Select Hedged investment strategy liquidated all equity positions and moved to a 100% cash position to preserve capital in the portfolio.

Since the beginning of the month, domestic equities have declined and traded in a volatile range. The S&P 500 has been trading near its 200-day moving average and a decline on the morning of the 23rd pushed it below this average of the prior 200 days’ closing values. Part of the investment mandate is to execute what we call a “circuit breaker” action when this specific technical indicator occurs.

When the index eventually rebounds and crosses back over the 200-day moving average, we will begin investing again. Be on the lookout for our November Navigator on November 1 with our most recent outlook on market action.

January 3, 2018

What has driven your bullish outlook on U.S. equities and how do you like the asset class heading into 2018?

Our model indicated a relatively bullish outlook for the U.S. equity market with stronger sentiment and macroeconomic signals. Leading sentiment indicators climbed or stayed at high levels in 2017 and producer sentiment recently strengthened. The ISM manufacturing index remained solid the last three months driven by the belief that the U.S. manufacturing conditions are improving as the global economy has strengthened and the U.S. dollar has depreciated. The homebuilder sentiment index also climbed steadily this quarter hitting 74 in December, the highest level since July 1999, indicating that the housing market is well positioned for growth in the coming months. Macroeconomic data became more bullish with the labor market continuing to tighten. Weekly initial jobless claims fell four consecutive weeks in late November and early December while industrial production posted steady gains for the last three months of the year.

We remain cautiously optimistic heading into 2018, seeing both strong growth indications as well as some cautious signals. The steady pace of economic growth is likely to be among the most significant drivers for the domestic equity market going forward. With the tightening labor market, wage growth, and surging stock and housing prices, consumers were one of the strongest sources of growth and will be looked upon to continue driving the economy moving forward. However, with the winding down of quantitative easing and possibly higher interest rates, risks remain for U.S. equity prices. We monitor these risks daily, especially as stock market valuations remain stretched.

For more commentary from CIO Patrick Jamin on the final quarter of 2017, Click Here

October 5, 2017

How do you like the prospects of large-cap U.S. equities for the upcoming quarter?

Our model is cautiously bullish on U.S. large-cap equities. Although the valuation and sentiment signals remained relatively weak compared with other international equity markets, the fundamentals of the U.S. economy are still strong. The macroeconomic data that weakened, such as industrial production and initial jobless claims, was partially due to hurricanes Harvey and Irma. We expect the Texas energy and Florida tourism industries to be operating at close to normal levels by the end of the September. The expected recovery of Puerto Rico and surrounding areas from Hurricane Maria is yet to be determined. Rebuilding from the storms will boost GDP beginning in the fourth quarter and into 2018, and the longer-term economic impact of the storms should be negligible. Although the labor market continued to show decent growth in recent months, consumers’ ability to lead economic expansion is likely to come to an end in the face of weakening salary income growth. Finally, the future path of short-term rates could add some possible volatility to the financial markets.

For additional commentary from NorthCoast's CIO Patrick Jamin on the third quarter, click here.

November 1, 2015

NorthCoast launches U.S. sector rotation strategy using ETFs. People are living longer, and the road to financial security is more complex than ever before. Investors need thoughtful solutions that properly balance the financial tradeoff between portfolio growth and peace of mind. • The rise of the Exchange Traded Fund (ETF) marketplace has provided NorthCoast with the tools necessary to deliver investment products designed to solve this tradeoff. Utilizing a variety of ETFs, NorthCoast has the potential to provide investors with increased transparency, lower costs, and greater consistency. Daily market research, active security selection, and disciplined risk management are the key components to Sector Select Hedged.