Stocks rallied last month as global investors bet big on growth and inflation to drive the price of U.S. equities higher. Except for November, when the strategy was hedged, we are pleased to see the equity allocation has performed well this year.
Looking forward, the equity allocation is unlikely to be hedged again for the foreseeable future.
As for the bond allocation, moving to a defensive position in November reduced some of the downside risk from a further decline in bond prices.
Momentum turned positive for high-yield bonds, which is why the strategy is shifting into high-yield bonds for December.
High-yield bonds tend to perform well during periods of growth and inflation relative to Treasuries.
There were very slight changes to the Portfolio Shield™ equity allocation for December.
Portfolio Shield™ remains positioned to take full advantage of a continued rally in stocks.
Stocks can continue to rally as investors are very bullish on stocks and the hopes of a soft landing, corporate share buybacks continue at a large pace, and investors believe Federal Reserve rate cuts are bullish for equity prices.
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 supported by testing against historical returns.
The Growth, Balanced, Income, and Conservative models removed their position in SHY and added a position in HYG to the bond allocation for December.
Based on the current one-month momentum screen applied to the bond allocation, the momentum for HYG 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
