Monday, March 29, 2010

Portfolio Review: March 29, 2010

This is a real time portfolio managing real money. The portfolio is managed by ARL Advisers, LLC, the publisher of TheTechnicalTake blog. The ARL Advisers investment strategy is a global asset allocation strategy that is strategic, balanced, and targeted. The portfolio is designed to produce equity like returns with bond like volatility.

This is an actively managed strategy where investment funds are allocated toward asset classes with the highest potential for appreciation and away from asset classes with greater potential for loss. In essence, an element of market timing (i.e. using proprietary models) is added to a simple asset allocation model.

The portfolio is constructed with highly liquid exchange traded funds (i.e., ETF's). Our universe of assets includes: 1) international and domestic Treasury bond ETF's; 2) corporate bond ETF's; 3) currency ETF's; 4) commodity ETF's; 5) US Equity ETF's (i.e., style and sector); 6) foreign developed and emerging market ETF's.

The portfolio has been live since January 1, 2009, and it is currently being monitored by kaChing, a website that brings investment managers to the public. To view the performance of the portfolio and the current holdings, please click here: PORTFOLIO.

To invest with ARL Advisers, LLC via the kaChing platform and mirror this portfolio, you can click here: INVEST.

As always, if you have questions or would like to discuss your individual investing needs, please contact me via E-MAIL.

General Comments
The portfolio is positioned defensively with a 50% weighting in currency and gold. I have no long US equity exposure, and in fact, the portfolio is short US equities.

Portfolio Purchases

Proshares Ultra Short Yen (symbol: YCS) has been a portfolio holding for sometime. Back on January 29, 2010, I stated the following:

"The US Dollar should outperform the Japanese Yen, which is on the cusp of a secular down trend."

With the Dollar rising and the Yen falling, it appears that the breakout that I have been anticipating is upon us. Last week's purchase of YCS was additional shares to balance the portfolio relative to other holdings, and being a 2x leverage ETF, YCS has 31.6% effective weighting in the portfolio. I am ok with leveraging YCS as currencies tend to move with less volatility.

My other currency position is in the SPDR Gold Trust (symbol: GLD); this is a new position and the allocation, which is 18% of the portfolio, is currently one - half of my target allocation. GLD is trying to make a stand here with $106 -ish as support. GLD is at the bottom of trend channel and above the rising 40 week moving average. But from this perspective many of the recent past leaders (i.e., emerging markets, metal and energy stocks) appear to be rolling over and GLD might follow. A close below 106.24 would have me thinking about liquidating the position as it is likely that I could buy the position back at a lower price possibly below $104. Regardless of how I feel about it, my methodology has me in GLD and I know where my stops are.

I believe we are getting some resolution to the bond v. yield issue as the yield on the 30 year Treasury closed this past week at its highest level since June, 2008. This prompted me to liquidate my position in the i-Shares Lehman plus 20 Year Treasury Bond Fund (symbol: TLT); I initiated a position in the inverse ETF, which is the Ultra Short Lehman 20 plus Year Treasury Fund (symbol: TBT). I reviewed the technical rationale in this article, "Higher Yields, Lower Equities?"

On a cash basis, TBT is 13.5% of the portfolio, and being this is a 2x leverage product, this gives me a 27% effective weighting the portfolio, which is almost at my target allocation of 28%.

Portfolio Sells

The position in the United States Oil Fund (symbol: USO) was liquidated. The breakout that I thought would happen never really materialized, and USO closed the week below its breakout point.

See above discussion on TBT.

Other Important Positions

I discussed this position in the article "On Dealing With A Bad Trade". This is the Ultra Short S&P500 ProShares (symbol: SDS), and this is a 2x leveraged product that "tracks" the S&P500. This position has been nothing but angst as the market only knows one direction: up. However, by week's end, the position was looking better although it remains underwater. The rationale - overly bullish sentiment + extremes in the trends of gold, crude oil, and Treasury yields = bad outcome -for the strategy remains sound, and I discussed this in the above referenced article. Shorting the market is never easy or comfortable, and betting against the consensus is never easy or comfortable. Nonetheless, in my data centric world, this is the right play.

SDS has a 30% weighting in the portfolio.
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Guy M. Lerner said...


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