I want to update you on the recent developments in the market and the adjustments made to your Portfolio Shield™ strategy.
After reaching all-time highs in December, we observed a pullback in stock prices. However, the overall trend remains positive, driven by several factors: robust corporate share buybacks, the expectation of a pro-business Republican government, the potential for lower short-term interest rates to stimulate growth and inflation, and a prevailing belief among investors that stock prices will continue to rise.
Looking ahead, we believe that the equity allocation will remain unhedged for the foreseeable future.
Following a brief rally in bond prices that peaked in early December, sentiment among investors, asset managers, and hedge funds has turned bearish on bonds, leading to an increase in interest rates. Consequently, high-yield bonds have retraced five months of gains, reverting to levels seen in August.
In response to rising interest rates, we are adopting a more defensive stance on our bond allocation for January, aiming to mitigate the impact of further rate increases.
While there were only slight adjustments to the Portfolio Shield™ equity allocation for January, we remain positioned to capitalize on any continued stock market rally.
We are actively exploring the options discussed in last month’s update to refine the equity allocation and transition Portfolio Shield™ towards a more dynamic monthly rotational momentum strategy.
Our back-testing engine is now complete, and we are testing various strategies to identify the most effective approaches based on historical performance. Our goal is to develop a fully rotational model that allows us to adeptly move in and out of the market.
For the bond allocation, all models—Growth, Balanced, Income, and Conservative—have exited their positions in high-yield bonds (HYG) and transitioned to short-term Treasury Bills (SHY) for January. Given the negative momentum observed in both HYG and IEF last month, our strategy is to reposition into these short-term securities.
Please note that all strategies will be rebalanced on the first trading day of each month, and any new funds will be invested according to your selected model at that time. If you wish to change your investment strategy, please be aware that changes will be implemented at the next rebalance. Additionally, accounts with a zero balance for six months or longer will be closed, and where applicable, advisory agreements will be terminated.
Currently, we maintain a minimal cash allocation of just 0.3% across all models.
Should you have any questions or if you would like to discuss your Portfolio Shield™ strategy further, please do not hesitate to reach out.
Thank you for your continued trust in us to manage your investments with Portfolio Shield™.
Thank you,
Steven Van Metre
