Hello everyone! We are excited to be a new member of the Substack community and we look forward to sharing our most timely and important thoughts in this forum.
We have been considering for some time now the need for a more practical, efficient and effective way of communicating with our followers; along with many of our colleagues we have found this to be a more personal way of communicating to our audience as opposed to the many other social media platforms available. While we will maintain our presence on several other platforms we will periodically provide a summary of our most actionable ideas here.
As this is our first edition on Substack, we want to share a very easy-to-read and high-level view of the markets from our perspective, and allow you to see an outline of our current investment portfolio as well as a bit of a behind-the scenes look into how it’s constructed.
We also believe this piece will provide our readers with a quick reference within future editions of our newsletter.
CURRENT HIGH-LEVEL MARKET OUTLOOK
We believe stocks are nearing significant levels of support and we expect a multi-month rally to begin later this year and last well into 2023 — however our models predict increased volatility and ultimately much lower lows for stocks, perhaps into 2024. The timing of course is impossible to predict, but what is important is to know where we are in the cycle and in the short term we are expecting a cyclical bull market in stocks within a continued secular bear market in equities.
We test our hypothesis daily and make changes as we see fit, and we maintain a portfolio that aligns with our macro view of the markets. The charts below provide insights into the manner in which we construct our investment portfolio as well as our current positioning.
MODEL PORTFOLIO CONSTRUCTION
First off we want to be very clear that our primary investment focus is - and has always been - centered on Risk Management and our portfolio construction is a reflection of that focus.
Our model portfolio is quite unique within the industry of asset management and is the result of decades of experience with several long market cycles and resulting portfolio performance across many strategies. As we have no conflicting interests with our audience in terms of how money is allocated and managed, we feel we are able to provide a more practical investment model than most who are compensated for putting client money into marketable securities regardless of the macro-economic environment.
And with that - let’s begin with a discussion of our model portfolio (Chart 1) which provides a general construct for our holdings:
CORE EQUITIES: We own individual stocks within 11 sectors, with a primary focus on companies with strong balance sheets, dividend yield (in most cases) and good growth opportunity as predicted by our models. In addition, all of our position selections start with a chart as we look for prudent opportunities for buys, sells and adds.
OPPORTUNISTIC TRANCHE: As seen in Chart 1, this tranche represents a significant portion of our portfolio and is available to hold fixed-income ETFs, equity ETFs, inverse-equity ETFs and commodity ETFs. Within this tranche, we favor ETFs over individual shares as this allows us to quickly add or subtract relatively large positions to take advantage of prevailing market trends without the micro risk associated with the selection of individual shares.
OUR CURRENT PORTFOLIO - HIGH LEVEL VIEW
Combing our model portfolio construct with our current market outlook we are currently invested as shown in Chart 2.
CASH: Our cash position is currently quite large as we wait for confirmation of one of the following
significant levels of support as mentioned above so that we may increase our long equity exposure
a sharp rally in stocks which may represent a medium-term top in which case we may add short-equity exposure
a bottoming of the fixed-income market in which we will likely add US Treasuries
a topping of the US dollar (DX/Y) in which case we may add significant exposure to inflation-sensitive assets
EQUITIES: We own individual stocks within the 11 sectors indicated according to the proportions shown; equity selection is focused on companies with strong balance sheets, dividend yield (in most cases) and good growth opportunity as predicted by our models. In addition, all of our position selections start with a chart as we look for prudent entry, exit and adding opportunities.
OPPORTUNISTIC TRANCHE: Currently this tranche consists of a small basket of emerging market and other weak-dollar sensitive investments. Given that the US dollar continues to be in a bull market, this position remains small.
FIXED INCOME: Currently our allocation to fixed income is of a non-material size (super small) as we continue to watch for a topping in yields across the curve — we will likely look to add exposure to long-dated US Treasuries when we feel those rates have peaked.
OUR PERFORMANCE YTD
As of October 17, 2022 our portfolio is -4.20% YTD compared with the S&P 500 -22.77% , the Nasdaq composite -32.94% and the Russell 2000 -23.49% for the same period.
We are particularly proud of this result as our portfolio was much heavier-weighted in equities during the first half of this year as we took in solid dividends while shorting the US equity markets against our long positions.
We feel we are in a good position to close the year in strong fashion both relative to the S&P500 as well as in absolute terms pending the market action for the remainder of 2022.
PLEASE NOTE WE ARE NOT SUGGESTING YOU TRY TO MIMIC OUR PORTFOLIO AND WE ALSO DO NOT EXPECT OUR READERS’ PORTFOLIO PERFORMANCE TO MATCH OURS IN ANY WAY.
WE PROVIDE OUR PORTFOLIO ONLY TO ADD CONTEXT TO THIS POST. PLEASE DO NOT BUY OR SELL ANY INVESTMENT PRODUCTS BASED ON THIS PUBLICATION!
IN CLOSING
If you have any questions or if you want to continue the discussion about this post please Comment or join our free Chat, and visit our “About” section to learn more about FiNiche.