Linked below are the latest Morningstar® Investment Detail Reports for the Portfolio Shield™ family.
When I designed Portfolio Shield™ I wanted a strategy that attempted to anticipate volatile or bear markets by reducing risk before a large move lower occurs rather than a reactionary strategy that adjusts after stock prices start to plunge. While Portfolio Shield™ is often early it is also often more right than wrong.
It began hedging months before the Great Financial Crisis. It was hedged before the December 2018 correction and later it was hedged before the March 2020 crash. Portfolio Shield™ is once again early but since the economic data is showing the global economy is rapidly slowing, early is better than late.
Based on what I am seeing now, I anticipate Portfolio Shield™ will remain hedged into early next year, which I think is good. From a return perspective, with the strategy hedged and the additional downside protection with the Simplify funds, I expect it to underperform. This is normal when the strategy is hedged, and stocks are still rising.
The key to the success of Portfolio Shield™ is not timing the top, but reducing its allocation to stocks when the formulas believe stock prices are near a peak. By reducing risk near the top, it creates the opportunity to add back that risk when equity prices are lower.
I wanted you to know that Portfolio Shield™ is behaving as it has in the past. If history is a guide to it being early, then a major move in the equity market is not too far off in the future. When Portfolio Shield™ removes its hedge, I will evaluate the need to hold the additional downside protection on the equity funds.
Given its current positioning, Portfolio Shield™ is well-positioned for a sizable market correction, which I think is good.
Portfolio Shield™ slightly increased its long-term bond hedge (TYA) and slightly reduced its S&P 500 (SPD) position in November across all models.
As a reminder, all strategies are rebalanced on the first trading day of each month and at that time, any new monies are invested according to the model strategy you are in.
For those who want to change between strategies, changes will occur at the next rebalance on the first trading day of each month.
There is only a 0.3% allocation to cash in each model. Due to a misreporting between Morningstar® and the ETF providers, the Asset Allocation box on the fact sheets may show a higher cash position than is actually in the model.
If you have any questions or would like to change which Portfolio Shield™ strategy you are invested in, please let me know.
Steven Van Metre, CFP®