Cool Tool

This is not a paid endorsement. A few weeks ago I subscribed to a premium service at Morningstar that I think is called Portfolio Manager, specifically the X-Ray function. It is in the tools link and costs a little over $100 for the year. My primary use for this is to analyze portfolios of prospective new clients for the firm’s planners (as a side note the structure of our firm is that we have three financial planners who bring in new clients, do financial plans and determine asset allocations, I then implement portfolios based on the allocation determined by the planners) and for any portfolio consultation I do for people that are not clients. While there are a lot of functions that this can do my primary use is to input holdings and share amounts to then assess weightings for sector, country, style, cap size and other statistics. The depth of the reports is very good. There are a couple of quirks that are either issues with the application or user error;-) When I plugged in my portfolio it told me that 79% of my holdings are in large cap. It also says that the median market cap of my holdings is $14.5 billion which is, according to Morningstar is .30 of the S+P 500 median cap size which based on that I calculate to be $48.3 billion. I don’t think that classifies the cap size of my portfolio as large cap as implied by the style box part of the report. As an example I have one stock with a $3 billion cap that shows up as large...

Is That The Best Message?

Have you seen the Ameritrade commercial where Mr. Mover & Shaker is trying to trade from his hospital bed in several casts with pulley and levers all over the place? The nurse moves the laptop and he is so desperate to trade that he tries to use a straw to hit the button. Then he gets whipsawed on some news and wants to go back in and trade again. To me all the commercial does is underscore the pitfalls of actively trading and if anything would make me want to trade less. Maybe it’s just me, but I am amused nonetheless. Do I need to disclose that our personal accounts are at Ameritrade? I really don’t know but they...

Sizing Up

The general tone of the blog has been one of diminished expectations about what the market might do. A week or two ago I opined that down a lot had a greater possibility of happening. The market may be on the way to making me correct, but I’d love to be wrong. I have lightened up on a couple of things for clients but not enough. I underestimated the reaction that emerging markets would have to rising rates. While I have never had a huge percentage in emerging markets I have some and it is getting hit. The S+P still has a ways to go before it breaches its 200 DMA but I wanted to lay out my preliminary thoughts about what action I will take if/when it happens. I have talked about getting defensive by reducing equity exposure. One thing I will need to keep in mind is that the market may go below the 200 DMA by ten points and then embark on a screaming rally. First things first, should the market tank in the last two days of the quarter I will give it a chance to reverse the quarter end in the first week or so of April. Quarter end and options expirations tend to go in one direction before the day and reverse that direction after the day. The key for me is to reduce equity exposure. Long time readers will know I use inverse index funds to hedge market exposure. Primarily I use the ProFunds Ultra Bear (URPIX) which correlates to twice the inverse move of the S+P 500, meaning that if SPX...

ETF Reply

Tim Middleton replied to my email about my earlier posting. Here’s what he had to say. i tried to answer at your blog but it didn’t take. > here’s my observation …>> i took note of energy at the end of the third > quarter> last year, saying at the time i thought it was a> better short than a long. it corrected in the fourth> quarter and looked good for the first. it still> looks> good, and few other domestic holdings are as> appealing.>> i remarked on CNBC that energy is, for the time> being,> the new health care–a growth sector. it is> ultimately> cyclical, of course, but the supply/demand imbalance> is so great at the moment i think it needs to be> overweighted. the whiff of inflation in the air will> help this fund, as well; it owns gold and other> resources as well as energy.>> cheers,> tim I take from his reply that he is not concerned with such a large weighting in energy. Hopefully his readers take the time to understand this. I maintain an overweight position in energy stocks for clients but by only a couple of percentage points, compared to the S+P 500. I still stick by my original thought that his portfolio will either lag badly or beat by a lot. The bigger point is to understand how to analyze these types of portfolios. IGE is not the only energy exposure his portfolio has. When you read about other portfolios like this by other people I would suggest taking the time to pick it...

All ETF Portfolio

Tim Middleton has maintained an all ETF portfolio and he posted an article today that talks about the changes he is making for the second quarter. He is increasing his weight in energy stocks. He believes that oils stocks will continue to do well because he says demand in the second quarter is usually high. His proxy for energy is the iShares Goldman Sachs Natural Resource (IGE) which has a 82% weight in energy. IGE makes up 7.5% of the portfolio. The other components of the portfolio are S&P SPDR (SPY) 10%, iShares Dividend Index (DVY) 18%, iShares EAFE (EFA) 20%, iShares Russell 2000 (IWM) 5.9%, QQQQ 5.4%, iShares Emerging Markets (EEM) 5.1%. Equity based ETFs make up 71.6% of assets in the portfolio. By my calculation energy makes up 14.3% of the equity component, factoring in the energy weightings of all the funds. The energy weight in the SPX is 8.7%. Whether he realizes it or not he is making a huge bet on energy, in my opinion. I would think this portfolio will either lag the market by a lot or beat it by a lot. We’ll see. Huge, unrealized weightings are very common in these types of portfolios. Since Tim did not mention it I have to assume he does not realize. There will be flaws in any type of all anything portfolio. This is why I believe in making use of different types of tools. I will email this to Tim and see if he...