Despite the recent pullback in stocks starting mid-July, we are pleased to see the equity allocation continues to perform well this year, particularly due to the continued strong performance of the S&P 500 and Nasdaq-100.
Looking forward, the equity allocation is likely to remain unhedged until around December which is the first possibility the strategy may begin hedging. To hedge, the strategy will have to meet two qualifications, one which our models anticipate as a possibility, the other being a bull steepener in the yield curve.
Given all the factors, we continue to maintain that stocks can continue to rally as investors remain bullish on the economy, corporate share buybacks continue at a large pace, and investors believe the Federal Reserve is likely to cut rates in September.
The biggest risk to stocks and bonds in the near term is the election and the seasonal slowdown commonly experienced every August.
Momentum remains positive for both intermediate-term Treasuries and high-yield bonds.
There were very slight changes to the Portfolio Shield™ equity allocation for August.
Portfolio Shield™ remains positioned to take full advantage of a continued rally in stocks.
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.
We are in the early stages of building a new model that could be used in a rotational equity model, which I am rather excited about.
Our programmer has been working on building an internal back-testing program to ensure that our goal of building a fully rotational model can be validated by testing against historical returns.
There were very slight changes to the Growth, Balanced, Income, and Conservative models for August.
Based on the current one-month momentum screen applied to the bond allocation, the momentum for both HYG and IEF was positive last month.
Portfolio Shield™ is positioned to take advantage of declining interest rates.
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.
If you have any questions or would like to change which Portfolio Shield™ strategy you are invested in, please let me know.
Thank you for your continued trust in allowing us to manage your money with Portfolio Shield™.
Thank you,
Steven Van Metre
