Portfolio Shield – April 2022

Since January, we’ve all watched how volatile equities have been. Portfolio Shield™ is a long-equity strategy that hedges with long-term bonds during such volatile or Bear markets. Because equity volatility has now subsided, Portfolio Shield™ formulas removed the bond hedge (TYA) for April.

Despite the bond hedge hurting returns, it is important to understand Portfolio Shield™ did precisely what it is designed to do: attempt to reduce downside risk during volatile markets.

Some of you may be concerned the hedge didn’t perform as you expected. The majority of the time, bond hedging does work. However, no hedging strategy is perfect. There will be times in the future it will be wrong. Please be assured, Portfolio Shield™ remains very effective at hedging over the long term.

While short-term returns may have been impacted, know that Portfolio Shield™ targets 3-to-5-year annualized returns. It shines during Bear markets.

The usage of TYA as the hedge taught us one thing. Had it been available during the Great Financial Crisis, all of the strategies would have posted a positive return during a year the market was deeply negative.

As a money manager, I believe we are headed for a recession in the months or year to come based on inverting of the yield curve. I am excited to learn how well the strategy will likely perform during this next downturn.

Today, we anticipate it will significantly outperform the markets and potentially generate a positive return when the markets are deeply negative. This suggests we will continue to outperform over the long term just as the strategy is designed to do.

Despite the drag on returns, all models actually performed well. I consistently benchmark strategies against academically constructed portfolio models to determine if another strategy would serve you better. In my professional opinion, answer is always, ‘no.’

Other strategies invest in foreign and emerging markets equities, high-yield, emerging markets, and corporate bond funds. All of those strategies performed poorly.

Because of our high allocation to the best performing index, the S&P 500, and the downside embedded hedging of the Simplify funds, we continue to outperform comparable strategies.

In the next three months, I anticipate the strategy will likely hedge again. This is especially critical given the flattening and inverted yield curve. At some point, it will be bearish for equities and bullish for bonds. For that reason, the strategy will continue to hold the two Simplify funds with the embedded downside put options, to further control any downside risk.

Thank you for your continued trust in allowing me to manage your money with Portfolio Shield™.

Portfolio Shield™ removed its position in TYA and increased its position in SPD and QQD for April.

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.

Linked below are the latest Morningstar® Investment Detail Reports for the Portfolio Shield™ family.

Thank you,

Steven Van Metre, CFP®