Recently, a fellow member requested a barometer report update. In response.
As of market close Friday February 1, 2019 Old_Skeet's market barometer which follows the S&P 500 Index indicates that the Index ... based upon its metrics ... is in the overvalued range on the barometer's scale with a reading of 140. With this, Old_Skeet would not be a buyer of the Index at this time for a special investment position. Coming off the December lows the Index has gained more than half of what it lost from its recent high. I'm thinking the next half will take a good bit longer to recover what has been lost.
The time to have been a buyer of the Index based upon the metrics of the barometer was during the last week of December and first week of January. Back then the barometer had reading of 182 and 183 respectively indicating that the Index was extremely oversold and due for a rebound (or throw back rally).
Remember, a higher barometer reading indicates there is more investment value in the Index over a lower reading. In addition, there has been a recent increase in short interest for SPY over the past week or so. So, as the Index has recovered and risen in its valuation some investors are now increasing their short positions over the past couple of weeks. Short interest as measured in the number of days to cover has risen from 1.1 days to cover to 1.8 days.
I'm thinking ... and, this is just a scientific wild ass guess (SWAG) ... we will see the markets pullback some once we get through 4Q2018 earnings and revenue reporting. After all, forward earnings growth projections for the Index have, of late, been on the decline. Also, remember there is a lot of "hot" money that frequently gets reposition in the markets form time-to-time through computerized trading systems. Since stocks have recently had some good upward momentum during January here comes (or came) the fast money. And, how long will it be before the FOMC again begins to bump interest rates? They are still low by historical standards and I'm thinking although they say they are on hold for now their actions might be quite different in a few months, or so. Perhaps, they have raised to far and to quickly and this is the true reason for their pause.
For me, I'm watching the yield on the US10Yr Treasury as a clue of what might be ready to happen with stocks. Today, it closed with a yield of 2.69% which is way down from its October high yield of around 3.23%. Seems, the US10Yr is still in good demand. Since, bond values and their yield generally move in opposite direction of one another ... Well ... I'm thinking ... the time to again become a buyer of stocks will be when investors begin to flee bonds and their yield begins to rise. Right now some investors are still seeking cover in bonds especially US Treasuries.
Emerging markets just might be the near term ticket since both domestic stocks and bonds seem to be overbought, from my perspective, and explains why they are catching investor interest. After all, both of my emerging market funds are up nicely thus far this year and their P/E Ratios are quite low compaired to other choices. Plus, they are both off their 52 week highs by better than 10%. Remember, though, the "hot" money crowd also chases after opportunity and money from the "hot" money crowd can leave just as fast as it arrives.
Wishing all ... "Good Investing."
Old_Skeet
Comments
A look at the returns on ginnie mae bond funds might be enlightening. Bonds comprise such a diverse asset class now days that we often overlook that almost by definition a bond is intended to offer security. Ginnie maes do this by investing almost exclusively in government backed paper - but are not as high on the credit quality ladder as Treasuries. Thus, I consider them a good proxy for bonds as the term is often tossed around. In watching ginnie maes over the years, I’ve noticed they seem to track the “intermediate” portion of the yield curve having only moderate sensitivity to rates. That may be because mortgage rates often key off of the 10 year Treasury.
With the 10 year Treasury falling this year, I expected PRGMX would be soaring. Not so. YTD it’s only ahead by .56% - just slightly ahead of Price’s ultra short TRBUX (.45%). Looking back over one year, Price’s ginnie mae fund actually lags their ultra short bond fund (2.10% vs. 2.15%). I’m not sure what that is supposed to mean except that for anyone looking to grow their portfolio, traditional “bonds” ain’t the place to be. Of course, there are no doubt attractive pockets in corporates, high yield, EM, etc. if one is willing to take the extra credit risk.
Ed S. in the February commentary makes an interesting case for owning income producing equities over bonds. I’d encourage all to read that.
I agree about having some exposure to equity income as Ed writes about in his article this month which I have also read. Please know, I have two sleeves geared towards equity income generation which are held in my growth and income area of my portfolio. One is of a domestic configuration while the other is more global. Also, on my buy list I have a couple of funds that are of the equity income type which in time I will be adding to these funds. But, until I get my asset allocation balanced I am left in buying elsewhere other than on the equity side of my portfolio.
Interesting, year-to-date the three best performing funds that I own are all held in my small/mid cap seeve found in the growth area of my portfolio. They are AOFAX +13.71% ... NDVAX +12.21% ... and, PMDAX +10.83% with PMDAX being considered a small/mid cap dividend fund.
Thanks again @hank for making comment. I enjoy reading what others are thinking and their positioning; and, also for bringing light to Ed's article.
Old_Skeet
There are, of course, alternatives to investing only in income or equity. Alternative and asset allocation funds could fill that middle portion of a portfolio. Not meant to criticize. Just enjoy seeing and thinking about how others allocate. I agree that you are wisely positioned for post-retirement.
Thanks for your commentary.
Added: Brief excerpt from linked article - Building a barbell portfolio, you slap on weights of extremely safe investments on one end and extremely risky ones on the other end. The safe investments carry with them virtually no risk of ruin. They are robust. Even in the face of Black Swans. The aggressive risk-seeking side of the portfolio opens it up to unlimited or sheer unlimited upside. Through this barbell approach, it is possible to build a portfolio that thrives under a variety of circumstances, including extreme ones.
In addition, you will notice for me to be 20% cash / 40% income and 40% equity (a balanced towards income allocation) I have to hold towards the maximum weighting range in my cash and income areas while towards the low range in my growth & income and growth areas. To move towards a balanced towards growth allocation it is just the opposite as I have to be weighted towards the maximum allowable in the growth & income and growth areas of my portfolio.
Currently, I'm weighted towards the balanced towards income allocation or what I have also refer to as my all weather allocation for it provides me ample cash, ample income and ample growth to meet my needs and objectives with me now being in retirement.
Perhaps being able to see how I have things organzided will be of some benefit. The (A) that follows a ticker symbol (or investment) indicates the fund (or investment) is under construction and not fully built with what has been targeted to hold.
Old_Skeet's portfolio holdings and asset allocation ranges follow.
CASH AREA: (Weighting Range 10% to 20%)
Demand Cash Sleeve ... Cash Distribution Accrual & Future Investment Accrual
Investment Cash Sleeve ... Money Market Funds: AMAXX, GBAXX, DTGXX(A), PCOXX, CD Ladder(A) & Cash Savings(A)
INCOME AREA: (Weighting Range 30% to 40%)
Fixed Income Sleeve: CTFAX(A), GIFAX, LBNDX, NEFZX, PONAX(A) & TSIAX
Hybrid Income Sleeve: APIUX, AZNAX, BAICX, DIFAX(A), FISCX, FKINX, ISFAX(A), JNBAX, PGBAX & PMAIX(A)
GROWTH & INCOME AREA: (Weighting Range 30% to 40%)
Global Equity Sleeve: CWGIX, DEQAX, DWGAX(A) & EADIX(A)
Global Hybrid Sleeve: CAIBX, TEQIX(A) & TIBAX
Domestic Equity Sleeve: ANCFX, FDSAX, INUTX(A) & SVAAX
Domestic Hybrid Sleeve: ABALX, AMECX, FBLAX, FRINX(A), HWIAX & LABFX
GROWTH & OTHER ASSET AREA: (Weighting Range 10% to 20%)
Large/Mid Cap Sleeve: AGTHX, AMCPX & SPECX
Small/Mid Cap Sleeve: AOFAX, NDVAX & PMDAX
Global Growth Sleeve: ANWPX, NEWFX & SMCWX
Miscellaneous, Specialty & Theme Sleeve: LPEFX, PCLAX & PGUAX
Spiff Sleeve: This sleeve is governed by my market barometer. No position held at this time.
Thanks again hank for making comment on my post. It is much appreciated.
I wish all ... "Good Investing."
Old_Skeet
Yes - Very helpful. Keep a close eye on all that.
What I think is interesting are all the various approaches used to safeguard / grow one’s lifetime of investments mentioned on the board. You’ve outlined yours Ol’ Skeet. Another senior member got out completely last fall and went to bonds & cash equivalents as I understood it. One left the markets almost completely except for a “foot in the door” minimum investment in each of his equity funds - in case circumstances allow for him to re-enter the markets. Another sounds to be very conservatively positioned (lots of cash) but likes to speculate around the edges when he sees opportunity.
Last summer I pitched the old model (in service for 20 years), incorporating most of the holdings within a new model. The old one was more aggressively positioned and used dynamic allocation (based on changing market valuations). The new one is more conservative and a static model, using only occasional rebalancing: 40% Balanced funds, 15% Cash, 15% Diversified Income (RPSIX), 10% Real Asset funds, 10% International / EM bond, 10% Alternative funds. The reason for it being static is to avoid getting caught in a value trap where a “cheap” investment I might be buying continues to get cheaper - potentially outlasting my lifetime.
In answer to your question about having some movement within my portfolio the answer is yes. I have some flexability (within ranges) built into my asset allocation to allow for asset valuation movement along with some for special positioning from time-to-time without changing my overall portfolio's asset allocation which I plan to keep at 20% cash, 40% income and 40% equity due to my age. I am also thinking the stock market is close to peaking or perhaps has even peaked. I'm not seeing a lot of upside on the equity side of my portfolio during the next year, or so, although some asset classes will do better than others. If I wrong about this, then, I still have enough positioned in equities to benefit from an upside movement. In addition, I have enough income generating securiteis that generate ample income. I also am holding enough cash that I should not fall into a cash crunch.
Back in the late part of December during the market swoon I opted not to put a special equity position (spiff) in play since I was also in the process of reconfiguring my portfolio to my all weather asset allocation. This required me to reduce my equity allocation by about 10% and raise my cash and income allocations by about 5% each. For me to put a spiff in play it is really a simple process. I simply take money from my demand cash sleeve and open a position in the spiff sleeve held in the growth area of the portfolio. When I close the spiff then the sell proceeds are returned to the cash area of the portfolio. Generally, a spiff can be up to 5% of the overall portfolio but not more where the growth area exceeds a 20% weighting. Usually, a spiff is built through a position cost average process over doing a bulk placement; and, in most cases, I unwind it in steps.
In the past I have put spiffs in play in a number of diferent investment areas ... by sector, by world regions, by equity style, etc. Now, I'm down to just doing it through using a S&P 500 Index fund.
So, yes, I allow for some asset movement within my baseline allocation by a couple percent, or so, for normal valuation movement; and, also, at times, for a special investment position without triggering a portfolio rebalance enen though the spiff would cause an overweight in equites (and a underweight in cash) while the spiff is engaged.
Currently, I am equity heavy by a couple of percent. My solution is to direct new money to the cash and income areas believeing over a period of time it will bubble back to target. If the allocation gets to far form target then I'll trim where warranted to bring it into allocation alignment. And, repeat the rebalance process as necessary.
Thanks ,Derf
I have not thought much about the rule of thumb that you have referenced. For me, my reduction in equities has more to do with my concern about the rampant computerized trading more so than my age although that is part of it. My late father ran a 60% equity / 40% fixed asset allocation at age eighty. He favored dividend paying stock for most of his equity holdings. Currently, I also hold a good bit of equity income but not as much as he did. I remember, I could, years back, think about my positioning for better than a week, or longer, before having to commit money. Today, things move much faster. An example of this was the selling that was done on December 24th just to rebound the day after Christmas. The average retail investor, like myself, could not get thier wallets out fast enoung to capitalize on this movement. Although I saw it develop I was engaged in reconfiguring my asset allocation and chose not to act as it caught me somewhat off guard. I am sure it did others as well.
The way I see it, presently, is to position with an asset allocation model that I can live with in both up and down markets that will continue to produce an income stream; and, also, hold enough cash so I will not have to sell in a down market should I need cash. With this, the 20% cash, 40% income and 40% equity meets these needs plus it should still allow me to grow my principal over time. For me, this is an all weather asset alocation. A good bit of my equity allocation is also in dividned paying stock funds (two sleeves one domestic and one global) so this generates income as well as the income area of my portfolio. Plus, I have three sleeves of hybrid funds that also generate income. Combined this is more income that I currently need. Ed wrote a good article this month subtitled "Investing 2019" in which he covers where investors can seek income; and, dividend payings stocks are one way to do this plus most dividned paying companies generally increase their dividend payout over time.
So, again ... I had not thought much about the age based rule of thumb that your reference until you ask about it. Perhaps, there is some merit to it. Taking the number 110 rounding my age back to 70 (as I am 71+) puts me at 40% equity. And, that is about where I am according to the rule of thumb.
Take care.
Old_Skeet
As for pulling the trigger, I was a day late on 12/24 - 12/25 that you mentioned.
Have a good week, Derf