Q2 Portfolio Management

Q2 Portfolio Management

Portfolios are overweight equities, underweight bonds, and underweight cash-equivalents because the U.S. economy is in a robust expansion. Historically, stocks outperform bonds and cash-equivalents in an economic expansion experiencing rising yields. Economic conditions suggest diversifying into cyclical Value stocks.






Portfolios are overweight equities, underweight bonds, and underweight cash-equivalents because the U.S. economy is in a robust expansion. Historically, stocks outperform bonds and cash-equivalents in an economic expansion, and in a Bull market.

When the yield curve is steepening, and economy is growing, the playbook calls for investing in the following sectors: Financials, Energy, Industrials, Materials, Technology, and Consumer Discretionary. That is what I have done.

I am diversified among Large-cap Growth stocks and Large-cap Value stocks. I have invested in reasonably priced Growth stocks with services and products that will remain in strong demand in the new economy. These Growth stocks are extremely profitable and are projected to grow sales at greater than fifteen percent. In addition, I am buying cyclical Value stocks as part of the reflationary trade. Value stocks sales will accelerate as the reopening of the economy creates an economic boom. They also have greater operating leverage that allows faster earnings growth than many other equity sectors.

I have exposure to Small-Midcap stocks. Small-Midcap stocks outperform Large-cap stocks 1-2 years into an expansion. Furthermore, Small-caps outperform Large-caps when yields rise from their lows.
I have exposure to foreign stocks. The U.S. dollar has declined in value in response to endless printing of money for stimulus programs. When the U.S. dollar declines foreign stocks tend to outperform domestic. In addition, Emerging Market equities are highly correlated to commodity prices. When commodity prices rise so does Emerging market equity. Robust U.S. and global growth, massive global liquidity, and vaccine rollouts should push commodity prices higher in 2021, and emerging market equities.

Commodities prices are rising which is a harbinger of inflation. Commodities are the best inflation hedge. Better than Treasury Inflation Protected Bonds, Bank Loans Leveraged, Real Estate. I own commodities and energy investments in accounts. This summer driving season should be a strong one and with manufacturing in full throttle, demand and supply for energy will climb higher.

I believe inflation will be higher over the next 12 months and so will yields. Therefore, I reduced bond maturities to short-to-intermediate bonds in all portfolio strategies. The adjustments I made in the bond component of portfolios have locked in long term bond gains and are now protecting capital. I rebalanced proceeds from long term bonds into bond investments that outperform in a rising yield market. Examples of these investment are Inflation Protected Treasury Notes, Floating Rate Notes, and Leveraged Bank Loans.