At the request of several clients we would like to give a quick refresher explanation of our “Portfolio Systems”. Clients seem to prefer reminders from time to time just to become fully familiar with our strategies and analysis. We will also produce are quarterly portfolio results. You will have the next one after July 15th.

US Equity Sector Portfolio system explained:

The trading methodology employed with our US Equity Sector Portfolio system is based on supply and demand of the market, not price action or the trend of the price. This strategy responds to the daily volume of the market, something which is rarely considered by investors. Our proprietary system can identify important turning points in the market before they would be identified from price movement. Inspired by the famous economist Robert Schiller, this system is based on trading volumes of large institutions, with emphasis on supply and demand for 36 sectors of the U.S. market.

  • Utilizing algorithmic quantitative equations this system was created to utilize an unbiased net buy versus net sell ratio of the U.S. broad market. When a given number of sectors move in unison to the positive that is the signal to move into a buying position. However, when a number of sectors move in unison to the negative of a given ratio this is an indication to close our long positions and move into selling short the S&P 500 Index.
  • After determining market direction (positive or negative) we identify which market sectors have the highest probability of outperforming the relative broader based indices. In this system, entry and exit signals are produced for all 36 U.S. market sectors.
  • When it is determined to go long into the market, then the 36 sectors are ranked according to the ones with the highest probability of beating the Russell 3000 Index. If at that juncture none of the sectors are ranked ahead of the Russell 3000 Index then the system will revert to fixed income, specifically those that are ahead of the Barclays Aggregate Bond Index. In contrast, when it is determined to be short in the market the reverse strategy is applied; to go purely short and no leverage into S&P 500 ETF, which is SH, from the iShares family of funds.
  • When it is indicated to go long in the market there may be several sectors that are bought at the same time. However, choosing short signals is simply buying one ETF which is SH. Here is why. In the last bull market most of the sectors were positive but there was over a 300% difference between the top performing sector and the lowest performing positive sector. However, in the last two bear markets there was only a difference of 19%from the lowest performing sector in the bear market and the best, with 100% of the sectors being negative. So, with this knowledge, when this system yields buy signals we need to discriminate and only choose the sectors or fixed income that are going to perform at the top end of that 300% dispersion. Conversely, when the decision is made to go short the choice is just the S&P 500 index because historically all sectors move in tandem when falling.
  • So why use this strategy over the competition? The U.S. Equity Sector Portfolio is a dynamic and unconventional system which is always evolving as it does not consider price. It is also not affected by major world events. It takes the unbiased true supply and demand of the broad market to determine not where price is but where price is headed in the future and the probability of it.

Next week we will give you an explanation of our Bond Sector Portfolio.