MPG Core Tactical 60/40: April 2014 Performance Update

MW-BB798_sm6040_20130422180557_MDDear Mr. Market:

Unless you’ve never picked up a financial magazine or read the business section of any newspaper, you have undoubtedly heard of the old investment adage “Sell in May and go away”. Many financial “experts” and journalists do their best to paint the summer months as those that are primed to underperform. Does history always repeat itself in exactly the same way? Nope. It’s not hard to find investors who sold last spring (or even the one prior) in anticipation of a nasty summer and they are still in cash or underweight equities. If you’re in that boat and don’t trust the stock market, you may sleep better at night for now but in the interim you’ve lost opportunity cost and missed another bull market.

The flip side to this is that bearish investors will eventually be right! The S&P 500 has not had a correction of -10% or more since October 3, 2011. Like many investors out there we firmly believe a correction of -10% to -20% is coming this year but we don’t think it will be the start of a bear market. The challenge behind all of this, however, is that the longer we go without a healthy correction the deeper and more severe the inevitable sell-off will be.

When this occurs it will whipsaw and scar many investors into making the worst decision at absolutely the most inopportune time. We’re admittedly more conservative in advance of such an event and therefore the MPG Core Tactical Portfolio is slightly trailing the market right now but not by much and it’s doing so with far less market risk.

Here’s the current summary of the overall portfolio mix, which is updated as of this writing (May 5, 2014).

Click Here….

What adjustments did we make?

Aside from the regular dividends that hit the model portfolio we didn’t make too many changes this month.

4/10/14:  Sold 239.74519 shares of BND (Vanguard Total Bond Market ETF) (~$19k total)

4/10/14:  Bought 1,000 shares of INVN (InvenSense Inc) @$21.31/share (~$21k total)

4/17/14:  Took some profit in IVV and closed out MBB position. Sold 92 shares of IVV (S&P 500) @ $187.71 and sold 381 shares of MBB (iShares MBS Bond Fund @ $106.31.

4/25/14:  Bought back VB at a lower price than when we sold last month and also averaged down to lower our cost basis on MONIF. Bought 100 shares of VB (Vanguard Small Cap ETF) @ $109.75 and 8,790 shares of MONIF (Monitise PLC) @ $1.05.

As for the standard and passively managed 60/40 Benchmark we made the monthly and automated adjustment to the allocation. On the first trading day of the month we bought more equities with proceeds from bonds:

5/5/14:  Sold 16 shares of BND @ $81.76 (Vanguard Total Bond Index).  Bought 12 shares of IVV (S&P 500 Index) @ $188.00

As of this writing the MPG Core Tactical Portfolio is up +2.16% YTD. The passively managed 60/40 Benchmark is up +2.88% YTD. The S&P500 is at +3.16% YTD, the Nasdaq has barely broken positive now at +0.59% YTD, and the bond index is tracking at +1.83% YTD.

Where are we going from here?

The second quarter kicked off with investors having very little conviction in either stocks or bonds. Domestic stocks have led international stocks and emerging markets have been hurt the most but are poised to bounce back first. What is tying up most investors right now is uncertainty. Do you trust the market? The answer is probably not and you’re not alone.

Most intelligent money managers don’t trust tomorrow’s market either but they have to play the game. Much of the “smart money” is trying their best to paint a picture of a slowly improving economy but it doesn’t take a long walk down Main Street to see that some of the dots aren’t connecting to paint a pretty picture.

One of the following catalysts will easily trigger what we’ve all been waiting for:

(1)  Russia/Ukraine conflicts escalate.

(2)  Increased concerns over a true economic slow down in China.

(3)  Realization (on a global scale) that monetary policy has grossly over-stimulated growth. (i.e It’s finally time to stop kicking the can down the road)

(4)  Sudden geopolitical event such as anything related to the Iran/Israel situation.

The stock market also appears to be favoring a rotation from growth into value styles right now but that actually does not mean you need to shift your focus and abandon good growth names. We see this mistake with so many mutual funds and this emotional error coupled with excessive trading fees is what causes most funds to underperform steadier and more rational trading hands.

The bottom line is this: During the later stages of most bull markets you will see a back and forth grinding and often times the lack of a bonafide catalyst.

Folks…that’s partly what we need to get things moving in one direction or the other; an actual catalyst. It’s coming but nobody knows exactly what it is nor how it will be packaged. Once this catalyst presents itself you will see how we implement the rest of our allocation for 2014…

See you next month!

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