The Active Asset Allocation Portfolio utilizes a trend following strategy by buying and selling securities based on established price trends in each asset class. Below is a snapshot of the current trends we are following:
US Equities:
The trends in US Equities have continued a positive trajectory and have strengthened even further. Kiplinger believes that “the underlying fundamentals are sound” but admit that the“pace of gains is bound to slow” and “a correction is due”. The trend will most likely not continue at this pace, although we expect this trend to be positive for the rest of year..
We are watching a few opportunities develop within certain sectors. Specifically, we have recently added to the technology sector of our existing holdings.
Foreign Equities:
This asset class is starting to show signs of a positive trend developing throughout the asset class. We recently wrote (LINK) about a divergence in the performance between emerging markets and developed markets – where emerging markets were declining while developed markets improved. But for the last month or so, these two markets have at least been moving in the same direction, bucking the unusual trend we have seen develop at the end of 2012.
If the trend in emerging markets continue to strengthen, we would likely add a small position.
Bonds:
The trend continues to remain flat, which we noted at the end of the 1st quarter (LINK) and last month (LINK). While the threat of rising interest rates looms over us, it probably won’t happen this year. But If interest rates were to rise, we see bonds responding in different ways.
1) The value of the existing bonds would decline and, given how the markets have been performing, interest rates will likely go up rather than stay put (they can’t get much lower, either).
2) Municipal bonds could offer more protection and can provide tax benefits, although their value could go down quickly.
3) GNMA securities, mortgage pools guaranteed by the government, could be a better option compared to the previous two.
4) Corporate bonds, including “junk” bonds have performed the best over the past few years, although it tends to correlate with the stock market.
5) Emerging market debt continues to be an attractive option as it diversifies our bond holdings. We’ll be touching upon this more next week.
Bottom line, there are a lot of moving parts..
The indexes and ETFs we track have been bumping around the 200 day moving average. Many of our specific holdings in the portfolio have held up well, showing less volatility than the passive indexes due in part to their diverse nature and active management. We are fully invested in this asset class at this time.
Real Estate:
One of our longest held positions continues to perform very well. This asset class has had a few bumps in an otherwise positive trend that has existed for a few years.
Recently, this positive trend has even outpaced that of the overall market.
Commodities:
Our holdings at this time are minimal. Most commodities have been in a negative trend for a few months. We have recently sold out of our positions in gold.
This trend has continued to weaken due in part to the improving U.S. economy. Investors are not fleeing to the safety of precious metals like they have for the past few years. Rather, they are pulling out of gold and other precious metals to go into equities.