Mid-November, 2013: Shifted exposure from international equities to US equities.
The mid November reallocation shifted exposure from international equities to US equities, as tapering fears wane and Washington is out of the way; albeit for a short period of time. PCM's Global Tactical Index has specific US equity exposure to industrials, healthcare and consumer discretionary, as well as the broad US market and dividend payers. After hitting all-time highs at the end of October, the PCM US Industries Total Return Index remains committed 25% each to medical devices, telecommunications, food and beverage, and consumer staples and therefore taking an overall fairly defensive approach.
The PCM US Bond Index is now 25% in each of: 1-3 year US Treasuries, 3-7 year US Treasuries, and high yield corporates. The remaining 25% weighting is in the inverse 20 year US Treasury, which as of this writing appears to have been spot on to again go short the long end of the yield curve. The PCM Absolute Bond Index also allocated 50% into inverse 20 year US Treasuries, while the remaining 50% allocation remained committed to high yield US corporate bonds. Due in part to the multi-directional ability of these 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 3Q 2013 after receiving the award in 2Q 2013 as well. This continues to be a solution to consider for clients who have maturing bonds or high exposure to a bond portfolio with a long duration.
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.