Model Portfolio Results: September, 2012
For the 4 week period from August 31, 2012 to September 28, 2012, the SP500 gained 2.45%. For the year through September, 2012, the SP500 is up 14.56%. From January 1, 2011, the SP500 has gained 14.55%.
The market (SP500) has done quite well since the June lows. It is up nearly 14%, which matches the return seen over the past 9 months and the past 21 months. If you are a buy and hold investor, you really haven’t seen your nest egg grow despite all of the hand wringing about QE3 and other schemes to jump start the economy and markets. However, you have been on a bit of a roller coaster.
Investors correctly anticipated the run up to Bernanke’s QE3 announcement, but now that the Fed is “all in”, the markets seem to have hit stall speed. And this leaves the markets just above levels seen at the April, 2012 intermediate term top. Going “all in” with QE to infinity and beyond, the Fed has essentially taken itself out of the market equation. There will no longer be speculation what the Fed is going to do if the market falls by a mere 3%. They are already doing all they can. The next discussion will be why this extraordinarily accommodative policy isn’t working to improve the economy or decrease unemployment. QE3 was a game changer, but from this perspective, the scope of the liquidity operation is less important than the fact that the Fed is now relegated to the sidelines.
The economy remains weak here and abroad. Europe is not fixed. China is in for a hard landing. Treasury yields spiked on QE3 news, and what appeared to be an awakening of the bond vigilantes (i.e., higher yields) has turned into more of the same. Bond prices continue higher presumably a sign of economic weakness. Commodities are softening and are another sign of a weakening economy. Gold benefits from global currency debasement and especially from QE infinity and beyond. There are a lot of tailwinds in gold’s favor including lower interest rates, currency devaluation, and time. The longer these accommodative policies remain in effect, the better it will be for gold.
Last month, I opined that the markets were set up for “Buy the Rumor, Sell the News” type reaction when it came to QE3. This appears to be happening to some degree as prices are trading at the lows of the QE3 announcement. There hasn’t been an all out repudiation of Fed policy yet, but at this juncture, I would rather sit on the sidelines than go all in. The QE3 breakout appears to have lost its mojo. As stated last month and probably the month before that, this appears to be a market top. The recent rally has been built on a poor foundation (i.e., declining volume and poor breadth), and the inability of the market to clear itself of the weak hands for over 6 months now is another sign that the market is at best stuck in range or looking to top out.
- ARL Advisers has 3 portfolios: Conservative, Broad Market, and Aggressive
- Use of proprietary models and a research driven methodology to determine those factors that lead to sustainable market moves
- Diversification across equities, bonds, real assets, and currency
- Personalized service
ARL Advisers: Strategic. Balanced. Targeted.
For the 4 week period from August 31, 2012 to September 28, 2012, the Conservative Portfolio gained 1.54%. Over the same time period, the SP500 gained 2.45%. For 2012, the Conservative Portfolio has gained 8.10% and the SP500 has gained 14.56%. The portfolio has positions in GLD, and currently has a cash position exceeding 50%. As an aside, I am looking to add a currency pair to this portfolio.
Since its inception on January 1, 2011, the Conservative Portfolio has returned 16.56%. Buy and hold S&P500 has returned 14.55%. Results are through September 28, 2012. The Conservative Portfolio equity curve v. buy and hold SP500 (since inception) is shown in the next figure.
Conservative Portfolio v. Buy and Hold SP500/ since inception
The goal of the Conservative Portfolio is to generate a return equivalent to the long term returns (8.78%) annualized total return since 1871 of the SP500. Capital preservation is a hallmark of this strategy.
For the 4 week period from August 31, 2012 to September 28, 2012, the Broad Market Portfolio was flat. Over the same time period, the SP500 gained 2.45%. For 2012, the Broad Market Portfolio has gained 9.05% and the SP500 has gained 14.56%. Results are through September 28, 2012. We start the month with no positions; the portfolio is in 100% cash.
Since its inception on January 1, 2011, the Broad Market Portfolio has returned 2.68%. Buy and hold S&P500 has returned 14.55%. The Broad Market Portfolio equity curve v. buy and hold SP500 (since inception) is shown in the next figure.
Broad Market Portfolio v. Buy and Hold SP500/ since inception
The goal of the Broad Market Portfolio is to generate a return that exceeds the long term returns (8.78% annualized total return since 1871) of the SP500 with significantly less risk than buy and hold S&P500.
For the 4 week period from August 31, 2012 to September 28, 2012, the Aggressive Portfolio gained 2.17%. Over the same time period, the SP500 gained 2.45%. For 2012, the Aggressive Portfolio has gained 5.56% and the SP500 has gained 14.56%. Results are through September 28, 2012. As we start this reporting period, portfolio positions include: GLD, and SH. The portfolio has been short the SP500 (position SH) since mid August. Our long position in OIL was closed out 3 weeks ago for a 15% profit.
Since its inception on January 1, 2011, the Aggressive Portfolio has returned 18.69%. Buy and hold S&P500 has returned 14.56%. Results are through September 28, 2012. The Aggressive Portfolio equity curve v. buy and hold SP500 (since inception) is shown in the next figure.
Aggressive Portfolio v. Buy and Hold SP500/ since inception
The goal of the Aggressive Portfolio is to generate a return that exceeds the long term returns (8.78% annualized total return since 1871) of the SP500 by 2-3 times.
Historical returns and portfolio examples shown on this website are not presented net of investment advisory fees or other transaction costs. Actual performance results will vary from these examples. Past performance is not indicative of future results. This material should not be considered a recommendation to purchase or sell any particular security or an offer to sell any product. ARL Advisers, LLC reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.
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