Carson Sector BPI Portfolio Review: 7 August 2023

“The Sower” near Lhasa, Tibet.

Carson is the Sector BPI portfolio up for review this morning and it is due for an update as cash is available for reinvesting.  The Carson continues to hold three sector ETFs and two of the three are working on TSLOs.  Based on the latest BPI data both Energy (VDE) and Financial (VFH) are overbought.  If these two sector ETFs are sold we end up with a high percentage of the portfolio in cash.  It is this situation where a bull market will leave the portfolio wanting.  This is why the adjustment or portfolio “tweak” to add equity options such as VOO and SPY were added to the investment quiver.  Follow the analysis to see exactly how the Carson is managed.

Carson Investment Quiver and Holdings

Below is the investment quiver and holdings for the Carson portfolio.  As mentioned above, TSLOs were set a few weeks back to protect the gains in Energy and Financial sectors.  Several sectors such as Utilities (VPU) were sold recently leaving the Carson with nearly $13,000 to be reinvested.  Where do we go with this cash?

Before moving to the next screenshot, check the Strategic or Max AA column for the sector ETFs.  For example, how do I come up with 10.5% for VCR?  I use a three-year average of VCR’s volatility and then apply what I call a volatility coefficient so that the sum of the sector ETFs add to something close to 100%.  The percentages for VCR through VNQ sum to close to 100%.  This is a rather recent addition to the Kipling spreadsheet and that is why VDE current is oversubscribed as it constitutes 23.17% of the total portfolio.

The Max AA percentages assigned to VTI, SPY, VOO, ESGV, VEA, VWO, BND, AGG, and SHV are my choices.

Carson Security Recommendations

The following worksheet from the Kipling spreadsheet provides guidance as to how to allocate available cash.  Since I am using the LRPC investing model (see purple arrow) and the default look-back periods (red arrow) I use the Rank found in the 4th column from the left rather than the 5th column from the right.

Placing the sector ETFs aside as none are recommended for purchase, I find the recommended order is as follows.

1. ESGV at #5
2. VTI at #7
3. VOO at #8
4. SPY at #9

VEA, VWO, BND, AGG, and SHV are all a Sell so we eliminate then from consideration.

Carson Manual Risk Adjustments

Now we move to the manual risk worksheet to find out how many shares to purchase of each ETF that show up as a Buy.

• ESGV holds exactly the number of shares recommended.
• VTI is next to fill and the recommended number of shares is 19.  I prefer to round to the nearest five (5) shares so buying 10 more shares will bring VTI up to 20 shares.
• VOO already hold 15 shares when only 10 are recommended so we move on to SPY.
• Nine shares are recommended for SPY so I round to ten shares.  Purchasing five more shares will bring SPY up to 10 shares.
• The above additions leave cash available so I move to the “overflow” ETF, BIL.  I can purchase 90 shares of BIL if prices do not change significantly by the time I set the above orders.
• One more move is to set in place TSLOs to protect capital.  Once the orders are activated for equity ETFs such as SPY, VTI, VOO, and ESGV, I set 8% TSLOs under each.  This move is to limit losses to no more than 8% of the portfolio.

Carson Performance Data

Since 12/31/2021 the Carson has an annualized IRR of 10.7% while the SPY benchmark lost 2.8%.  Checking the data below, the delta between the Carson and other possible benchmarks is even greater.  Thus far the Sector BPI Plus investing model is working as planned.

Carson Risk Ratios

While the Jensen Alpha did not hit its highest point in July or August, at 12.5 the value is extremely high.  Since the last update the slope of the Jensen flipped from negative to positive.

The Information Ratio is also a high 2.7 and will be difficult to maintain.  High values tend to return to the mean so don’t expect to see these high values continue.

Buying Guidelines For BPI Model Portfolios: 9 December 2022