Portfolio Shield – June 2022

It appears the long-anticipated Bear market rally has finally arrived. This type of market rally is associated with periods when rapidly rising equity prices occur during the early stages of a Bear market.

Most retail investors buy at the top of a Bull market. It’s no surprise then when stock prices begin to fall as central bankers reduce liquidity; those same folks who bought at the top quickly find themselves in a loss position.

Investors, particularly retail investors, flood the market with cash to drive equity prices higher with the hope of getting back to even, or better. When you think about it, this is no different than doubling down at the Blackjack table after a losing hand.

On average, Bear market rallies last about a month. Sometimes, it may be a bit longer. It all depends on the amount of conviction investors have and how much money they are willing to keep throwing at stocks.

Early stages of a Bear market are one of the most difficult times for hedging strategies like Portfolio Shield™. I designed the strategy to hedge risk in advance, which is exactly what it has been trying to do for many months now.

Similarly, this is how the formulas handled the Great Financial Crisis when they began hedging in the Summer of 2007. The strategy underperformed for more than one year, only to make everything up, and then some, in a matter of a few months as stocks crashed.

The good news is hedging made a positive contribution to the strategy for the month of May when the bond hedge outperformed both equity funds.

It is important to understand and remember that Portfolio Shield™ targets rolling 3- to 5-year annualized returns. Your entry point to the strategy tends to dictate your perception and experience with it.

As can be seen when you look at the Morningstar® factsheets, those who committed to several years or more of the strategy will be very happy.

Relative to other strategies, we performed very well in May due to the large allocation to the S&P 500. It was the top-performing equity index last month.

Because it appears we are in the early stages of a Bear market, Portfolio Shield™ will continue to hold the two Simplify funds (SPD & QQD) with the embedded downside put options, to further control any downside risk in equities. As a result, the strategy will lag a bit should the market rally.

I anticipate Portfolio Shield™ will reinstitute its hedge in the next couple of months because bonds are showing signs of bottoming out.

For those in Balanced, Income, Conservative, or bond-heavy models, hold tight – your day is coming soon.
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 June.

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®