Portfolio Rebalance / February 27
This edition of our Portfolio Rebalance Article shall be abbreviated due to our focus on the Quarterly Market Outlook Report due by the end of the week. So without further ado, we’ll skip to the business end of the rebalancing process.
Trading in the Sigma Portfolio (Live)
Our automated models have scaled back on overall exposure this week, and have now become more aligned with our own live portfolio. The models currently stand at 68.5% risk exposure and we are at 60% in the Sigma Portfolio.
The overall profit taking / rebalancing framework continues this week, as we close the position in Eli Lilly (LLY) in favor of buying the dip in Amgen (AMGN). We would like to get ahead of a factor rotation from growth to value and from large caps to small caps. In any case, we would favor a more defensive approach as we near the month of May, and if stop-losses are triggered, we’d rather keep allocation to ETFs than individual stocks.
Automated Strategies and Market Outlooks
There is no need to become overly defensive just yet, as momentum is still on the bulls’ side. Market sentiment has not yet touched “Extreme Greed” levels, so there’s no immediate threat. However, we’d like to keep some dry powder stored for when a real opportunity shows up again to increase exposure.
In the short term, we may lose some relative performance to our benchmark, but that’s the price we have to pay for managing risks.
The Sigma Portfolio (Live)
On the bonds side, there is no need to make any adjustments just yet. Gold has consolidated since the start of the year and commodities are still trading poorly - so we’ll leave these asset classes as they are for now. We only need to tweak equity exposure so that we become the beneficiaries of technical bounces.
The orders for execution today are:
SELL 100% LLY (Close Position)
BUY 2% AMGN (Initiate 2% Position)
BUY 1% BPOP (Add 1% to Position)
BUY 1% GPN (Add 1% to Position)
There is minimal change in the overall asset allocation after the orders get filled:
Click here to access our own tracker for the Sigma Portfolio and understand how each position contributes to the overall exposure profile.
In total, we stand to gain $13.182 by risking $6.246 if our targets are correct. Technical risk is somewhat elevated, and there’s one more position to close before our rotation is complete (GWW).
The factor exposure profile has now clearly tilted toward value stocks, mid caps and small caps. Growth, Momentum and Tech (QQQ) have now become secondary factors.
On the sectors side, Financials (XLF), Industrials (XLI) and Consumer Discretionary (XLY) form the bulk of our positive exposure, while Energy (XLE) is still the laggard - we narrowly missed a buyable dip last week, but oil companies are most definitely on our radar.
If you have any questions, please contact us using your favorite channel. Have a great week everyone, and happy investing!
Andrei Sota