Offensive Strategy

While a defensive approach to equities was the best strategy last year, our view is that continued economic improvement in the US, a quieting of the European sovereign-debt crisis and further growth in emerging markets justifies a more offensive stance. For 2012, our favorite sectors are industrials, technology and health care.

Although SPDR Dow Jones Industrial Average (NYSE: DIA) isn’t a straight industrial sector fund, it does offer heavy weightings in some of the best US industrial outfits, including Caterpillar (NYSE: CAT), Boeing Co (NYSE: BA), United Technologies Corp (NYSE: UTX) and General Electric Co (NYSE: GE). Some analysts worry about the competitive threat posed by China to US industrial names, but we see that concern as largely overblown. While more high value-added goods are produced in China, US firms are still the premier manufacturers of sophisticated industrial components. That’s a major positive for US industrials as both the developed economies and emerging markets continue to push for greater energy and production efficiency in 2012.

The newest addition to our Growth Portfolio, buy SPDR Dow Jones Industrial Average under 130.

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In Pursuit of Greater Yield

For investors who think another US economic collapse could be imminent, wide yield spreads between corporate bonds and Treasuries make sense. While we understand such anxiety, we have difficulty supporting that view because of the generally positive economic data that have been released over the past few months. Although this is certainly the weakest recovery of the post-WWII period, the economic data is still trending upward.

Given our favorable outlook, we’re taking advantage of the current widened yield spreads to add Vanguard Intermediate-Term Corporate Bond Index (NSDQ: VCIT) to our Income & Hedges Portfolio.

The ETF currently yields 3.9 percent, which is a better payout than most of the intermediate-term corporate bond ETFs available. That’s due to the fact that the ETF’s portfolio has a slightly longer duration than its peers. At this point, we’re not too worried about an impending jump in interest rates, so the ETF’s longer duration is a worthwhile tradeoff for its higher yield.

The newest addition to our Income & Hedges Portfoli, buy Vanguard Intermediate-Term Corporate Bond Index under 87.

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India’s Political Uncertainty Undermines Its Infrastructure Sector

Companies operating in India’s infrastructure sector continue to face issues such as limited regulatory transparency, high inflation and interest rates, and global economic uncertainty. And the majority of the Indian companies in the sector also have substantial debt burdens, which have not been helpful in a slow growth environment with a weak Indian currency. Beyond that, a decline in foreign direct investment has stalled numerous projects.

As such, our position in Indian infrastructure companies via the Emerging Global Shares INDXX India Infrastructure Index (NYSE: INXX) has not performed well since our initial recommendation in October 2010. Consequently, as we position the Model Portfolio for 2012, we are selling the position to take advantage of the recent rebound in the market.

Sell Emerging Global Shares INDXX India Infrastructure Index from the Growth Portfolio.

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