Weekly Update

April 29, 2016 Update

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Slow and steady with our “balanced” portfolio

Most of you are likely followers of our Turbo Model signals. It’s an active trading model for aggressive investors. You may not be aware that we also have many other models that serve investors who have less aggressive objectives. An example of that is what we consider to be the best “balanced” portfolio available to investors. That portfolio can be found indirectly at our FPResearch website. There, we display two portfolios – All-Equity and Equity-Income. The All-Equity portfolio largely tracks the returns of the S&P 500 while sidestepping the awful plunges that are a natural part of stock market investing. Substantially all of the stock market upside without the horrible downside. Sounds pretty nice we think.

However, some investors are even more skittish when it comes to investing. They are willing to accept returns a bit less than the stock market in exchange for a much smoother ride. Our “balanced” portfolio is tailor-made for them. By combining the All-Equity and Equity-Income portfolios into one we can get an exceptionally smooth performance. While the stock market routinely suffers -10%, -20%, or more declines, this balanced portfolio has never experienced worse than a decline of -7%. And it still delivers a +10% annualized return. We have found nothing better for investors looking for outstanding returns with minimal risk.

The portfolio is diversified using a roughly 70% stock and 30% bond mix with the stock piece incorporating a wide range of stock market sectors and indexes. Each component/sector/asset class of the portfolio has an independent timing model. This allows us to exit bonds when they are weak, exit emerging markets when its uptrend is over, etc. The independent models give us lots of flexibility to adjust as markets change, insuring that we are minimally exposed when a particular sector blows up – and they all blow up at some point.

Here’s the performance compared to the S&P 500. Over the past 15+ years, nearly 5x the return of the stock market with only a fraction of the downside (e.g. a maximum loss of -7% versus -52% for the stock market). These two statistics are highlighted in yellow. Getting an extra +8% per year of return gives you 3 TIMES as much money after a 15 year period. That is just a massive difference in your wealth.

Charts 1: FPResearch “balanced” portfolio dramatically outperforms the stock market


Chart 2: … and with substantially lower risk

 ... and with substantially lower risk

But how does our balanced portfolio compare to other balanced funds? Below we compare the results to the Dodge & Cox Balanced Fund (symbol: DODBX) and Fidelity’s Balanced Fund (FBALX). These are two of the most widely used balanced funds. You can see that their blend of stocks and bonds has done better than the stock market return of the S&P 500 shown above. But our balanced fund beats them both handily.

Chart 3 and 4: FPResearch “balanced” portfolio outperforms other Balanced Funds


As you can see, there is no better way to get a +10% return over time with such low risk. If you’d rather not do it yourself, our friends at MarketTrend Advisors and QuantAdvisor will begin offering this exact portfolio beginning May 1st. MarketTrend Advisors is a full-service investment advisory firm with fees consistent with the industry norm. QuantAdvisor is built for folks who don’t mind an entirely online process in exchange for a low 0.75% management fee (a process often referred to as a “robo-advisor”).

Will stocks follow earnings downward?

Corporate earnings are falling with the original decline in energy sectors being joined by weakness in various other sectors. This decline has not yet brought down stock prices like it has done in the past. Is it only a matter of time? Or will the earnings ship right itself before stocks take the plunge?

Chart : Corporate earnings

Corporate earnings

S&P 500 is the brown line on top. Earnings is the blue line on the bottom. Dashed blue vertical line denotes stock market peak. Blue arrows show earnings peak.

Market Update

The last week of April was busy on all fronts. Investors received a heavy batch of economic data and earnings, but it was two central bank meetings that stole the attention. Wednesday’s Federal Reserve meeting contained no hints of an impending rate hike causing stocks to rally into the afternoon. The Bank of Japan followed the Fed, releasing its policy statement late Wednesday evening. The central bank made no changes to its interest rate surprising markets which expected further stimulus. The sharp rally in the yen carried into Friday as investors adopted a mostly risk-off attitude Thursday and Friday.
Stocks stumbled Thursday afternoon with Apple (AAPL) receiving a lot of attention after Carl Icahn revealed that he closed his position in the stock. Earlier in the week, the company reported disappointing results for the second quarter leading to a -10% loss on the week for the heavily weighted stock. In other tech earnings, Alphabet (GOOGL) and Microsoft(MSFT) missed bottom-line estimates while Facebook (FB) beat expectations. The technology sector was the weakest performer during the last week of April as investors continued to shift money into energy and materials.

Warm wishes and until next week.