We just had a fantastic blow out jobs report that has contributed to the fall in TLT, VNQ and LQD. The basic tenant is that good numbers will prompt the fed to increase rates earlier rather than later and this pressures REITs, Utilities and Treasuries. Unfortunately this is the bulk of our momentum portfolio! However, I mean, the global situation is deteriorating (bad Chinese data, Greece, Ukraine etc) so who knows where the month will end. Despite the positive numbers, many experts don’t see a reason for the fed to increase rates this year. Alas, the market reaction (OVER-reaction) was a sell-off in anything affected by higher interest rates. This affects our momentum portfolio.
Momentum Portfolio (February)
In the momentum portfolio we still hold TLT (+.06%), VNQ(-0.33%) and LQD(+0.06%). The momentum portion of our portfolio is suffering this month. It’s not overly surprising as we did just have an epic month in this portion of the portfolio, I guess we’re just reverting to the mean. I mean, we’re probably still up 4% overall on that part. So no complaints! Though I post these sorts of short term results, we shouldn’t really be taking them so seriously. The momentum strategy will average 14-16% a year (if we leverage 1.6x it’ll be 22-25%) and we’ll have periodic draw downs of 10-12% ( 16-20% leveraged). That’s what it is. There’s no discretion, nothing we can do to beat it, we’ve trusted in the strategy and we are along for the ride. My hope is that these various strategies will work together to make this ride as stable as it can be. My aim is to remove all discretion from trading and follow the systems set forth. Every 1st day of the month we rebalance the portfolio and take the top 3 of 15 ETFs and hope for the best. No discretion.
Pair Trade (February)
The pair trade for March is suffering as the massive drop in TLT over the past few weeks (nearly 6%!) hasn’t been accompanied by a big rise in SPY overall. So basically, they are both declining. Not ideal but over time it’ll work out. We can expect 15-20% declines at times with this trade. It’s high variance. It will happen. You can’t get 10-15% months without that sort of volatility. Right now, after a successful month of the pair trade, well we’re kind of experiencing the dreaded volatility. We’re down probably about 5% as of right now on this trade. We did about 10% the month before (I still need to calculate everything).
Protector Trade (February)
The protector is doing fine and as expected. It’s down as of today because well, its the start of the year and we’re still paying for the hedge. Down movements will bring the trade into a negative situation temporarily. We have to let the year ride out. I believe we’re probably down a few % on this one. As the year goes on and as the hedge gets paid for, it’ll start turning a profit. This is a full year portfolio and we expect it to do 12-15% a year (14-18% leveraged at 1.6) and it’ll have very low drawdowns even in crashes.
The alpha portion seems to be doing good this month compared to last. OCN has rebounded a bit and QCOM as well. We’ve got some winners as well, despite the market being down.