At the midway point of 2016, the utility and telecom sectors have emerged as the top performers in the S&P 500, delivering total returns of more than 20 percent. Given the make-up of our model Portfolios, we’re not complaining.
Our Conservative Income Portfolio
holdings have rallied an average of about 25 percent this year, while the names on our Top 10 DRIPs
list have gained an average of almost 30 percent. The Aggressive Income Portfolio
has posted an average total return of about 15 percent, while the spotlighted stocks from each issue have gained an average of 14 percent.
Although we remain confident in our holdings’ underlying businesses and growth prospects, stretched valuations suggest that the recent momentum-driven gains won’t last. Historically, the risk of a pullback is elevated whenever the Dow Jones Utilities Average trades at more than 20 times earnings and yields less than 3 percent—a cause for caution.
We continue to emphasize the importance of taking advantage of this rally to reduce risk, rebalance your portfolio and take some profits off the table in big winners. This dry powder will come in handy during the inevitable pullback.