Mid-April, 2014: Conservative with continued exposure to utilities and heavy in bonds
The mid April reallocation remained conservative with continued exposure to utilities and heavy in bonds across the majority of PCM indexes. The PCM Global Tactical Index is now allocated 20% each to utilities, the Aussie dollar, preferred stocks, U.S. Treasuries and emerging market bonds. The Alpha One Index remained in U.S. preferred equities, as it has been for the majority of 2014. The PCM Commodities Index moved to a 50% allocation to natural gas and a 50% exposure to oil, a possible following of the money on the back of continued unrest in Ukraine. The PCM U.S. Industries Index hit another all time high at the end of March and holds 25% in each of medical devices, food and beverage, consumer staples and utilities, being an interesting mix of consumer "needs" vs "wants".
On the bond side, the PCM US Bond Index allocation changed slightly with 25% staying in each of high yield corporates, investment grade corporates, and 20+ year U.S. Treasuries. The remaining 25% moved to the longer end of the yield curve on U.S. Treasuries, specifically from the 1-3 year and into the 7-10 year.The PCM Absolute Bond Index held a 50% exposure to emerging market bonds, rotating the other 50% to 20 year U.S. Treasuries. As we wrap up the first quarter and begin performance reporting to the many research firms that track our index models, we look forward to seeing if we will be recognized as a top performer for Q1, 2014.
Due in part to the multi-directional ability of our indexes, the PCM Absolute Bond Index composite was again ranked as achieving "Top Guns" status within the Informa Investment Solutions' manager ranking database; this time for the 4Q 2013 after receiving the award in 2Q and 3Q 2013 as well. We are very proud to be able to offer the Absolute Bond Index as a solution to consider for clients who have maturing bonds or high exposure to a bond portfolio with a long duration. To view Morningstar Fact sheets of all of our index models updated through 12/31/2013, please visit our website at www.pcminvestment.com under the "indexes" tab.
By: Melissa Wieder, CFP®, Director Institutional Services
Collaborative insight provided by Co-CIO's Michael Chapman and Todd Wood.
The views and strategies described herein are for illustrative purposes only and may not be suitable for all investors. The information is not based on any particularized financial situation, or need, and is not intended to be, and should not be construed as investment advice or a recommendation for any specific PCM or other strategy, product or service. Investors should consult their financial advisor prior to making an investment decision. There is no guarantee that these investment strategies will work under all market conditions and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. This material contains the current opinions of the author(s) but not necessarily those of PCM and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission. Provident Capital Management, Inc, PCM and Absolute Return Index are trademarks or registered trademarks of Provident Capital Management, Inc., in the United States.©2013, PCM.
About "PCM Quant Coalescence"
Welcome to Provident's bi monthly "Quant Coalescence" communication. We suspect that many of you are no different than us. That is to say that when our quantitative models rebalance every 2 weeks for some indexes or once a month for other indexes, you sometimes find yourselves asking "What is behind a rotation into that ETF?" This communication is our opportunity to "unite for a common end" with our clients and partners; keeping you updated on our thoughts and perspectives. As you know, our indexes are based on an absolute approach: we strive to make money in up markets or down markets, while trying to greatly minimize loss in any market environment.
Our indexes are also quantitative, reflective of our systematic, unbiased and technical approach. Since our indexes are unbiased, the quantitative models would obviously at times rotate into positions that cause us to scratch our heads. Nevertheless, being so close to the analysis as it unfolds, allows us to quickly begin to validate the fundamental reasons behind the quantitative "following of the money." At other times, the trades are not validated right away; the story unfolds as the days pass. We have been very excited about many of these "validations" and "ah ha" moments. We had another "ah ha" moment when we decided that these insights would also be interesting to those who have entrusted us with their financial peace of mind. Our goal is to be short and to the point, specific to what is happening in our indexes rather than a lengthy macroeconomic perspective.