Author: Tyler Kocon, Split Rock Private Trading
Covestor model: Equity Rotation
Split Rock Private Trading has always held a strong preference for traditional fundamental investing. We've therefore consistently maintained our portfolios in line with current economic and geo-political events as they unfold.
Within our current portfolios, we hold significant weight in the energy and consumer staples sectors. Compared to the S&P 500, we are overweight in both of these categories. We have decided to place a heavier concentration on shale-related energy stocks (e.g. EOG Resources, Kodiac Oil & Gas) in our Equity Rotation Model portfolio because we believe that there is solid growth potential tied to those equities if oil continues to trade north of $86 a barrel for 2012, as we think it will for the majority of the year. Additionally, we try to balance out our high-growth energy holdings with established, high-yield defensive energy positions (e.g. ConocoPhillips, Kinder Morgan, Entergy Corporation). These positions also have significant participation in the Bakken shale, which presents a decent amount of growth potential as well.
Similarly, we are underweighted in the cyclical sector, which includes basic materials, consumer cyclical, financial services, and real estate industries. We are also underweight in the health care sector. We have avoided these sectors simply due to the fact that they show high correlation, in the short-term, to volatility and uncertainty. The current economic climate in the United States is unclear. We have chosen to avoid the cyclical sector as we simply do not know how the economic and political future of the country will play out. Until we have seen proven numbers that support continued economic expansion, job growth, and an increase in GDP, we will most likely continue to avoid cyclical stocks.
In addition, we at Split Rock feel that the uncertainty of the current political climate, especially in regard to pending legislation surrounding "Obamacare" and related healthcare reform, puts a large amount of strain and pressure on the health care industry as whole. Because of this, Split Rock has elected to avoid volatile positions like these and prefers more defensive and consistent equities.
Because of our positive outlook on the energy sector, Split Rock has taken a particular interest in several high growth potential exploration and production companies involved in the hot-button Bakken shale deposit. One company in particular, Kodiak Oil and Gas Corp.