MPG Core Tactical 60/40: June 2014 Performance Update


Dear Mr. Market:

How did you treat everyone in June?

Last month we wrote about how “Sell in May and go away” did not work and for those expecting a correction…June would have to be the month something finally gives. Alas, for those in the bear camp we saw no such thing as a “June swoon” and the correction that has never come is still lurking out there somewhere. Everyone has telegraphed it by now and the longer we go without one the more severe it could be….or will it?

More importantly, is it even worthwhile trying to prepare for it? Can you prepare your portfolio for a market correction like you would your house for a natural disaster like an earthquake or a hurricane? Sure…you can but should you?

Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” –Peter Lynch

Here’s the current summary of the MPG Core Tactical 60/40 portfolio mix, which is updated as of this writing (July 7, 2014):

Click here to compare our portfolio against the benchmark

What adjustments did we make?

As usual we enjoyed several dividends hitting the portfolio. Although we believe it’s futile to think one can prepare for a correction, we continued to whittle down positions we’ve done well on (profit taking) and added one that could bring some additional momentum with it. The two sells and one buy we made were as follows:

6/20/14:       Sold 816 shares of VEU @ $52.98 (Vanguard FTSE All World ex- US) (~$43k total).

6/20/14:       Sold 305 shares of VWO (Vanguard FTSE Emerging Markets) @$43.51/share (~$13k total)

Although we chalk up these slight adjustments as “profit taking:, they are more accurately described as disciplined moves to reallocate. We had been a bit heavy with our exposure to Europe and Emerging Markets, and although it’s done well and it’s been been the right call, we now have the luxury to scale back a bit.

6/27/14:         Bought 1,000 shares of SLV (iShares Silver Trust) @ $20.25 (~$20k).

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:

7/1/14:            Sold 90 shares of BND @ $81.89 (Vanguard Total Bond Index)

Bought 18 shares of IVV @ $193.96 (S&P 500 Index)

As of this writing the MPG Core Tactical Portfolio is up +4.98% YTD. The passively managed 60/40 Benchmark is up +6.79% YTD. The S&P500 is at +8.25% YTD, the Nasdaq had another strong month and is now at +8.21% YTD. Lastly, the bond index traded positive most of June and is now tracking at +1.83% YTD.

Where are we going from here?

We now move into the second half of 2014! Contrary to any themes of “the summer duldrums” the markets have continued to reach new highs. Although we could care less about an improperly constructed index like the Dow Jones, it does make people feel giddy when a record or psychological barrier gets broken as it did with the Dow Jones going over the 17,000 mark.

What matters more is that the economy is indeed showing signs of a continued recovery. Granted, there have been some data points that are actually concerning to many economists but on the whole we are ever so slowly creeping towards consistent and positive growth. One thing to really keep an eye out for is consumer confidence. If Americans can finally begin to trust that we are actually in recovery mode the market will continue to march upwards. It is telling and ironic to note, however, that even after five years of economic growth this country is not trusting tomorrow like we once did. If we acted like we “used to” the aforementioned Dow Jones record would look something more like Dow Jones 20,000 (in our opinion).

The markets traded in a fairly narrow range over the past month and we like this type of action. So many investors are becoming increasingly nervous right now but if you’re properly balanced, or close to it, you’ll be better prepared than someone who is trying to time the top of this bull market or than the poor guy/gal who has been stubbornly sitting in cash.

While the main point of this series of articles is to actually show you that investing can really be simple, we do believe that we’re on borrowed time for a correction. At least from a technical standpoint, it’s extremely likely that we’ll see some selling pressure in the next few weeks. The percentage of NYSE stocks trading above their 200 day moving average has recently jumped from 66% to just over 70%. Readings above the 70% level are rather clear signals of overbought market conditions.

Our take for this month is this: Sit tight and make sure you have at least 15% to 20% of your portfolio in a hedged position that will not get slaughtered once we do get a correction. After everyone panics you’ll calmly be able to grab a cup of coffee and read our July or August summary. More likely than not it will be telling you that it’s time to reallocate and in this case…that would be buying stocks that are a little bit cheaper than they were before.

See you next month!

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