2019 - Q3 Performance
In the third quarter we have continued to see prices increase, however the pace has slowed.
In the TA portfolio, the decision to focus on large cap stocks was very beneficial in Q3. VONE was up 0.98% while the small cap VTWO was down 2.61%. Investment grade bonds were the top performer during the quarter returning 1.63%. Lower quality bonds JNK were down 0.18%. It is typical in the late cycle of an economic expansion for large cap stocks to continue performing while small cap show early signs of market stress.
In the Enhanced portfolio, GOVT returned 1.96% which outperformed the AGG by 0.33. DVY returned 2.4% which outperformed VONE by 1.42%. Both of these contributed to the Enhanced portfolios strong results. Emerging markets continued to suffer and IEMG lost 4.70% which trailed VONE by 5.68%.
Right now the poor performance of small cap stocks and low quality bonds in recent months is a strong signal to increase safety in the portfolio. Statistics are moving around very quickly and are very choppy (depending on whether the most recent tweet was market friend or foe). The yield curve is inverted, bond spreads are wide and the cash markets are in serious stress. This is a good time for caution.
Performance as of September 30th was:
In the TA portfolio, the decision to focus on large cap stocks was very beneficial in Q3. VONE was up 0.98% while the small cap VTWO was down 2.61%. Investment grade bonds were the top performer during the quarter returning 1.63%. Lower quality bonds JNK were down 0.18%. It is typical in the late cycle of an economic expansion for large cap stocks to continue performing while small cap show early signs of market stress.
In the Enhanced portfolio, GOVT returned 1.96% which outperformed the AGG by 0.33. DVY returned 2.4% which outperformed VONE by 1.42%. Both of these contributed to the Enhanced portfolios strong results. Emerging markets continued to suffer and IEMG lost 4.70% which trailed VONE by 5.68%.
Right now the poor performance of small cap stocks and low quality bonds in recent months is a strong signal to increase safety in the portfolio. Statistics are moving around very quickly and are very choppy (depending on whether the most recent tweet was market friend or foe). The yield curve is inverted, bond spreads are wide and the cash markets are in serious stress. This is a good time for caution.
Performance as of September 30th was:
| 3 Mo | 1 Yr | 3 Yrs | ITD | ||
| Equal | 0.88% | 3.00% | -na- | 7.08% | |
| TA | 1.54% | 3.07% | -na- | 12.19% | |
| Enhanced | 1.83% | 3.42% | -na- | 7.08% | |
In this blog I share and discuss three portfolios.
The first is a "buy and hold" strategy that does not ever change. I call this the Equal portfolio because it is made up of four equal parts allocated to different asset classes. It is 1/4 in Large Cap Equity (Ticker VONE), 1/4 in Small Cap Equity (Ticker VTWO), 1/4 in Investment Grade Bonds (Ticker AGG), and 1/4 in Junk Bonds (Ticker JNK). The allocations never change. The only thing needed is to rebalance every so often as performance differences will cause the weights to get out of whack.
The second portfolio is a "tactical" portfolio. It is tactical because it adjusts the weights to the four asset classes above based on market conditions. I call this the TA portfolio. It can go 100% into any one asset class or be a mixture of them. 1/12th of this portfolio can change each month as I make a monthly call on what i expect will do best over the next year based on current market conditions. Historically I have picked the best asset class about 50% of the time, the second best about 25% of the time, the third best 18% of the time and the worst 7% of the time.
The third portfolio is also a "tactical" portfolio. I call it the Enhanced portfolio because I follow the same allocation as the TA portfolio but I try to pick other vehicles that will give a better return than the four basic ones used in the Equal portfolio. This allows for exposure to International Equities, Emerging Markets, and Commodities among others.
DISCLAIMER:
The first is a "buy and hold" strategy that does not ever change. I call this the Equal portfolio because it is made up of four equal parts allocated to different asset classes. It is 1/4 in Large Cap Equity (Ticker VONE), 1/4 in Small Cap Equity (Ticker VTWO), 1/4 in Investment Grade Bonds (Ticker AGG), and 1/4 in Junk Bonds (Ticker JNK). The allocations never change. The only thing needed is to rebalance every so often as performance differences will cause the weights to get out of whack.
The second portfolio is a "tactical" portfolio. It is tactical because it adjusts the weights to the four asset classes above based on market conditions. I call this the TA portfolio. It can go 100% into any one asset class or be a mixture of them. 1/12th of this portfolio can change each month as I make a monthly call on what i expect will do best over the next year based on current market conditions. Historically I have picked the best asset class about 50% of the time, the second best about 25% of the time, the third best 18% of the time and the worst 7% of the time.
The third portfolio is also a "tactical" portfolio. I call it the Enhanced portfolio because I follow the same allocation as the TA portfolio but I try to pick other vehicles that will give a better return than the four basic ones used in the Equal portfolio. This allows for exposure to International Equities, Emerging Markets, and Commodities among others.
DISCLAIMER:
Past performance is not a guarantee of future performance. This strategy is presented for informational purposes only and is not a solicitation to buy or sell any securities. The writer of this blog owns many (long positions only), if not all, of the securities discussed in this blog. October is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May , March, June, December, August and February. ~ Mark Twain
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