Portfolio Shield – June 2023

We are pleased to see the equity allocation continues to perform extremely well this year, particularly due to the recent outperformance of the Nasdaq-100 relative to the broad market.

Over the past month, the long-term bond hedge in the equity allocation had a negative contribution to returns but it was more than offset by the outperformance of the Nasdaq-100.

Up until mid-May, the bond allocation was performing as expected as we fully unveiled the rotational model where the bond allocation could rotate between high-yield bonds and intermediate-term Treasury bonds each month based on a one-month momentum screen.

In mid-May, bond prices across the board fell and momentum also turned sharply to the downside which has led to the strategy selling both positions to move into short-term Treasury Bills for the month.

Given all the factors, Jeff and I continue to maintain that stocks can continue to rally, and bonds can rally in the months to come.

Portfolio Shield™ is currently positioned to take advantage of a stock rally but remains hedged to reduce the downside risks of a declining equity market.

Portfolio Shield™ is not a timing strategy due to the look-back period associated with the construction of its formulas and may not offer any immediate value to the strategy. Over the next several months, Jeff and I believe the addition of the long-term bond hedge will be of benefit to the strategy as declining interest rates as predicted by the yield curve steepening from an inverted position will offer the potential for excess returns over the broad equity market.

Portfolio Shield™ slightly reduced its position in QQQ and slightly increased its position in TLT across all models for June.

Portfolio Shield™ continued to meet both of its criteria to maintain the hedging of the equity positions for June.

The strategy will likely remain hedged with long-term bonds for July, August, and September based on current market conditions.

Please be aware that the rebalancing software is unable to bring smaller balance accounts in line with the model and may not have the same or any of the long-term bond positions as larger balance accounts.

We continue to evaluate the options outlined in last month’s update for the equity allocation to move Portfolio Shield™ more toward a true monthly rotational momentum strategy.

The Growth, Balanced, Income, and Conservative models have removed HYG and IEF from the models and added a position in SHY to the bond allocation for June.

Based on the current one-month momentum screen applied to the bond allocation, the momentum for both HYG and IEF was negative last month.

When the one-month momentum screen for both HYG and IEF is negative, the bond allocation will add SHY iShares 1-3 year Treasury Bond ETF in an attempt to control downside risk from declining bond prices.

We will continue to run the additional one-month momentum screen, from the Momentum Timer Pro™ report for HYG and IEF and adjust the bond allocation each month for the Growth, Balanced, Income, and Conservative models based on its recommendations.

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.

Zero balance accounts that have had a zero balance for six months or more will be closed and where applicable, the advisory agreement terminated.

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 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.

The latest Morningstar® Investment Detail Reports for the Portfolio Shield™ family are available on the Portfolio Shield™ website.

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

Thank you,

Steven Van Metre, CFP®