MPG Core Tactical 60/40: January 2015 Performance Update

MW-BB798_sm6040_20130422180557_MDDear Mr. Market:

Even if you didn’t watch the 49th Super Bowl on Sunday, you inevitably heard something about it. We admittedly did not have a dog in the hunt and took the side of “let’s at least hope for an entertaining game”; and guess what folks…that’s exactly what America got!

 

Regardless if you rooted for Seattle or New England, there was plenty of excitement and surprises. Even if you could care less and were in the “I can’t wait until half time camp” you got to see Katy Perry perform with eight outfit changes. (yes…eight)

How does all this relate to the stock market and the MPG Core Tactical 60/40 portfolio? Well…we’re only one month into 2015 and volatility has come back with a vengeance! During the month of January the Dow Jones had 14 of the 20 sessions end up with triple-digit days to either the upside or downside.

The broader market indexes are now down -4% from their December 2014 highs. The S&P 500 also dropped -3.1% in January, which by the way…was the exact same performance as in January of 2014! For those with short-term memories, allow us to remind you how the “experts” said the bull market would end due to how we started the year out. (that doesn’t quite line up with how 2014 finished as a whole…does it?)

Here’s the current summary of the MPG Core Tactical 60/40 portfolio mix, which is updated as of this writing (February 2, 2015).

Click here to compare our portfolio against the benchmark

What adjustments did we make?

The following moves were made during the month of January:

Nothing! Nada! Zippo… 

The “fun” thing about trading a diversified portfolio of this size is that there is always something that you can find to trim, adjust, or add to. That being said, however…sometimes, “doing nothing is actually doing something.”

Let that thought marinate for a bit because if there is at least one monthly article where we wanted to leave this impression on you, it was this month! In regular (actual client) accounts that we manage, we nibbled at some more energy positions. Depending on the portfolio size and risk profiles for each client, we either added to positions like ConocoPhillips (COP) or a basic energy ETF like (XLE), Energy Select SPDR. Outside of that, the MPG Core Tactical 60/40 actually enjoyed sitting tight and picked up dividends that our bond positions kicked off!

Remember this theme of “doing nothing” the next time you may feel angst with an apparent lack of activity amongst increased volatility. Even if this only happens for us once this calendar year, let the following adage remind you of another investing truth:

“An investment portfolio can be like a bar of soap; the more you handle it, the smaller it gets!”

With our 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 equities and sold bonds:

2/2/15:

  • Bought 84 shares of IVV @ $200.87 (S&P 500 Index)
  • Sold 164 shares of BND @ $84.35 (Vanguard Total Bond Index)

The year is young and therefore typical “year to date” numbers aren’t worth focusing on too much. The MPG Core Tactical Portfolio returned about +0.56% over the past three months. The passively managed 60/40 Benchmark returned +1.59% for the same period although that was with rebalancing (per the above noted moves); had you started the year fresh with the typical 60/40 mix, you’re already down -0.51%.

What’s interesting to note is that the laggards of a well-diversified portfolio last year are now leading the mix out of the gates in 2015. (Hint: that’s what this whole exercise tries to show you over time…) One of the international indexes that we track (VEU) is up +0.11% effectively outperforming the “best house in a bad neighborhood” (i.e. the United States) by over 300 basis points. Emerging markets are doing even better with a +1.60% YTD start. Lastly, those old stodgy bonds which some investors wonder why they’re worth keeping, are proving their position in a portfolio. The US domestic markets are down -3.1% and they are up +1.61% to start the year…

Where are we going from here?

All headlines are on oil right now so we won’t spend too much more time on the obvious. What should have awakened you is the other “black swan” of which we spoke of last week (read it here). The currency surprises that we witnessed a couple of weeks ago are unprecedented and speak to the need for a global review of central banks’ foreign exchange policies. The Swiss National Bank may be done with this story but the world is not…

Too many people are once again regurgitating the same information and it’s in environments like this where you see something totally unexpected that can dramatically alter the playing field.

Don’t let anyone take any of your precious time and limited attention with the worry that interest rates will increase this year. Here’s the deal: Yes…they will eventually increase and that will likely be towards the back half of the year. Even though rates will rise (finally!), it will be overly telegraphed and once it’s done you can expect them to remain at those levels for a good while. In other words, much of this news is “already baked into the pie”.

As Punxsutawney Phil poked his head out of the ground to see his shadow on Groundhog Day, we too can expect a repeat of volatility in the foreseeable future. Keep most of your chips towards larger domestic equities but be prepared to go shopping on the heels of another unexpected surprise…

See you next month!

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