Q1 2024
March 27, 2024
Our portfolio is currently very tight, with each position performing a certain “role”. Another option would have been to further diversify by adding another individual position, but we decided against that. We will be running the equity side of the book a bit above target, but given the actual stocks that we own, it’s fine (low correlation with SPY and QQQ).
We are executing the following orders at today’s close:
We are prepared to reduce risk if and when it will be technically necessary. For now, none of our stops have been hit, so there is no reason to sell.
March 21, 2024
As a result of few options in the equity market, we’d rather look to commodities for diversification and hedging purposes. On one hand, broad exposure via DBC is a safe play in the space. We also can’t discount the opportunity presented by a hypothetical rebound of Nat Gas. We already have RRC in our portfolio to benefit from a price surge, but recently LPG has also caught our attention. The recent 2 standard deviation drawdown (~20%) presents a compelling opportunity for an entry point.
We are executing the following orders at today’s close:
March 7, 2024
At today's close, we are exiting the position in WW Grainger Inc (GWW), following the stock's year-to-date 22% rally to our $1.000 Price Target.
This trade will also cut our equity risk exposure by 4%, as the market is becoming bubbly.
Executing the following order at today's close:
SELL 100% GWW (Close Position)
February 27, 2024
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.
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.
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)
February 21, 2024
Our portfolio headed into this period of softness on a defensive note and carrying 9% in cash.
While it’s not time to become overly defensive just yet, we do want to make sure that we book profits in positions which have already exceeded expected returns. On the ETF side, the rotation also continues, as we let the market dictate trade flow. Right now, we are seeing confirmed softness in Momentum and resilience in Value and Foreign Markets.
The orders for execution today reflect our thinking:
SELL 50% LLY (Reduce Position by 50% to 3% of NAV)
SELL 100% MTUM (Close Position)
BUY 3% EFA (Initiate 3% Position)
February 14, 2024
We’ve already cut back on tech exposure previously this week by closing our position in NVDA. Last week, we have performed part of our planned rotation, by reducing our overall correlation to QQQ.
We’d rather follow Enterprise’s allocation plan at this juncture. In order to align with that, we’ll need to further reduce TLT from our portfolio, and dial down bonds exposure. It’s not yet time to “buy the dip” in equities, despite yesterday’s plunge.
We won’t be replacing TLT with any other position yet. Cash holdings will increase to 9% until we get a better understanding of where this pullback episode will ultimately find support (both for stocks and bonds)
SELL 5% TLT (Reduce Position by 5% to 15% of NAV)
February 12, 2024
We are closing out the entire position in NVIDIA. At these levels, there's little incentive to continue holding this position.
Executing the following order at today's close:
SELL 100% NVDA (Close Position)
February 7, 2024
On the one hand, we’ve got an average 81% system exposure coming from our automated models, indicating that holding cash is probably not the best call right now. The market’s sentiment is rather neutral, with plenty of “walls of worry” to scale.
Breadth is bad, but volume is surging. Parts of the market that are doing great are pushing valuation extremes, but the ones which are reasonably valued are trading poorly. This is an environment ripe for a rotation trade, where we don’t want to necessarily reduce equity exposure, but adjust it really well instead.
First of all, we need to recognize that recent economic data came in hot and did not confirm our long bonds thesis. It did feel like we got rug-pulled in TLT. Given TLT’s technically challenging backdrop for we’ll follow the example set by Enterprise and reduce treasuries in favor of equities:
SELL 5% TLT (Reduce Position by 5% to 20% of NAV)
Next off, we’ll rebalance ETF exposure to favor value versus high growth:
SELL 100% QQQ (Close Position)
SELL 3% MTUM (Take Profits, Reduce Position by 3% to 3% on NAV)
BUY 7% IVE (Initiate a 7% Position)
Then, we will proceed to take profits in NVDA:
SELL NVDA (Reduce Position by 3% to 2% on NAV)
We’ll add this 3% to PRGS (much more defensive tech stock):
BUY PRGS (Add 3% to existing position)
Findally, we’ll initiate Global Payments Inc GPN with 3%:
BUY 3% GPN (Initiate 3% Position)
February 1, 2024
We are using the breakout and positive reaction in the treasury market to bring our bonds allocation to target.
This implies lengthening our bond duration by selling SHY (1-3 year bonds ETF) and buying TLT (20 year + bonds). There is a slight mismatch in the order size, so that bonds exposure will climb to 35% of the portfolio from 31% currently.
The orders are:
BUY 10% TLT (Add 10% Position, now at 25%)
SELL 6% SHY (Reduce existing Position to 6%)
Also monitoring the situation in regional banks, whose sell-off was catalyzed by New York Community Bank taking a large provision for credit losses to address weakness in the office sector. In theory, this should be a one-off scenario, implying this is more of a buying opportunity in financials rather than a point where we need to trigger a STOP-LOSS. The drop in yields is also weighing against the financial sector today.
January 23, 2024
This week, we would like to achieve 3 goals:
Rebalance our Energy sector exposure (since XOM has been underperforming for the second week in a row);
Raise our equity exposure to target - from 54% previously, to our 60% target after the rebalance is executed;
Achieve a superior risk-reward proposition while performing this rebalance;
As much as we liked Millennium’s picks for this month, we believe there will be better entry points into many of those positions. We would like instead to capitalize on the breakout in Financials (XLF) and add 2 positions from this sector: ZION (Zions Bancorporation) and Popular Inc (BPOP).
We’ll be selling part of Exxon Mobil (XOM) and make room for Valero Energy Corporation (VLO). Here’s what the orders look like:
BUY 3% ZION (Initiate 3% Position)
BUY 3% BPOP (Initiate 3% Position)
BUY 3% VLO (Initiate 3% Position)
SELL 3% XOM (Reduce existing position to 2%)
Our trades from today carry a $1.826 upside, while risking $445 - so our third objective should be satisfied.
January 17, 2024
This week, we would like to opportunistically add to our position in TLT, benefiting from the recent drawdown. In order to maintain the same overall allocation to bonds, we will sell SHY proportionately. The overall effect of this transaction is lengthening our bond portfolio duration (SHY effective duration is 1.8 years, while TLT is 16.5 years). Executing the following orders in the Sigma Portfolio at today’s close:
SELL 3% SHY (Sell 20% of Position Size)
BUY 3% TLT (Add 3% to existing Position)
January 9, 2024
Our profit taking campaign started in early December continues this week by closing out the position in Amgen Inc (AMGN). In just a couple of weeks, Amgen has shot up almost vertically and there’s very little upside left up to our price target ($316).
We will replace the lost exposure resulting from this sale by adding a position in XLV, the ETF most closely correlated with the stock’s movement. Despite the fact that net exposure remains the same, swapping a single stock position for an ETF is a defensive move.
We have also updated all stop targets in the Portfolio Tracker. Click here to access our own tracker for the Sigma Portfolio and understand how the positions contribute to the overall exposure profile.
Raising stop levels and making the aforementioned swap increases our defensive profile in a “hot” market, while maintaining upside.
In total, we stand to gain $11.445 by risking $6.132 if our targets are correct. This is a fair risk-reward profile, only attainable by careful position selection and increased stop targets.
Correlation to Financials (XLF) is still a bit too high, but we’ll correct that in the following trades.
Executing the following orders at today’s market close:
SELL 100% AMGN (Close Position)
BUY 3% XLV (Initiate 3% Position)
The asset class allocation after the orders are executed remains the same (our benchmark is a 60% stocks / 40% bonds portfolio).