Mid-April 2013: Tactical Allocations Move to Hedge Downside Risk
Over the last few weeks, PCM’s Global Tactical Index saw a consistent rotation into the long U. S. defensive equity side, specifically into healthcare, utilities and consumer staples. The mid-April allocation in PCM’s Global Tactical Index saw a further commitment to this defensive posture through the allocation into the 3-7 year U. S. Treasuries and 20 year U.S. Treasuries. Despite being defensive during this time period, the index has continued to hit new all-time highs.
Commodities stayed in a profitable natural gas position, while at the same time cutting losses in oil to move into cocoa. Perhaps this is an indication that investors are in need of comfort foods.
After spending two months in the Dow Jones Select Dividend ETF, the PCM Alpha One Index moved into 7-10 year U. S. Treasuries. Our U.S. Sector Index and U.S. Industries Index again hit all-time highs in the last two weeks; these being our only two indexes that can be appropriately benchmarked against the S&P 500.
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 QuantCoalescence"
Welcome to Provident's bi monthly "QuantCoalescence" 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.