The SP 500 was still up 10.58% as of May 31, even though the month of May was pretty ugly in terms of the monthly SP 500 return.
Here were client’s Top 10 holdings as of May 31 and their respective YTD returns:
- Microsoft: +22%
- Amazon: +18%
- Schwab: -1%
- JP Morgan: +10%
- EEM: +4.2%
- XLF: +9.75%
- VWO: +6.8%
- SPY: +10.58%
- CME: +2.5%
- OAKIX: +4.6%
Client accounts are run on a “balanced” basis, with the asset allocation typically varying from 50% to 70% on the equity allocation and 30% – 50% on the fixed-income allocation.
Clients had a pretty good 2018 “relatively” with the SP 500 down 4.5% for the year, and client’s kept in money markets for the bulk of the year. In 2019, client’s fixed-income allocations have broadened out to include more credit risk, but still duration is kept underweighted, which undoubtedly hurt in May.
When positioning more defensively or aggressively from a given market view, the cash allocation is changed. During the month of May ’19, 5% more in cash was raised for client accounts, as the SP 500 fell towards the 200-day moving average, and after failing for a 2nd time to make and sustain an all-time-high.
Portfolio turnover tends to be quite low, under 10% – 20% annually, so accounts are not managed with a short term view, although “tactical” trades are made occasionally.
The biggest changes to client portfolio’s in the last 18 months were that Apple and Facebook were sold in the Spring of 2018. Apple’s cash-flow-to-net-income was starting to deteriorate and the Facebook issues over data privacy was “brand-busting” to say the least from a customer trust perspective.
This year to raise some cash within client accounts the IJS (small-cap value ETF) was sold in early May as small-caps never regained what large-caps did and seemed to turn south first with the general market downturn in early May. Also, some biotech was sold in May ’19 with the IBB kept.
Summary / Conclusion: I am less worried about the Justice issues around Technology than i am the trade or tariff issues. Microsoft has been client’s largest holding for the last 5 years, with Schwab holding the #2 weighting for the same period, although Schwab and the rest of Financial’s have lagged badly since January ’18. Amazon was actually a #4 – #5 holding for years but the appreciation of the stock moved it up the weighting scale, probably helped by the under-performance of Schwab and Financials.
The fact that the SP 500 has not overtaken the January ’18 and September ’18 high and sustained both is worrisome, thus a little more cash is held today, but the portfolio’s are usually kept pretty consistent, depending on risk profiles, etc.
If 2019 turns out to be like 2016, and I suspect the SP 500 will make an all-time-high this year (and hold it), then client’s equity allocations will likely be lifted “tactically” for anywhere from a few quarters to a year, depending on what else is happening.
It’s just one opinion – so take it with a grain of salt – but lifting the equity allocation “tactically” allows me to add and subtract market “risk” easily, rather than increasing complexity.
The bond or fixed-income allocations are mainly “unconstrained” mutual funds with some high-yield ETF’s (underweight) and some other positions.
Thanks for reading.