Mt. Lassen in Northern California.
This morning I am reviewing one of five Sector BPI portfolios, the Franklin. The Franklin has been using the Sector BPI model for nearly two years so we are beginning to gain some respect for the results. Portfolios using the Sector BPI model are not for everyone as it requires more attention than many investors are willing to put into the investing process. If seeking a hands-off approach, by all means using the Schrodinger or Copernicus as your models. One advantage the Sector BPI model has over the hands-off approach is that there is downside protection during recessions or even worse.
The Sector BPI model follows the bullish signals for eleven sectors. When checking this morning, Energy is still in the oversold zone. What this means is that within the Energy sector, fewer than 30% of the stocks are bullish when each is examined using Point and Figure (PnF) graphs. What does a PnF graph look like? The BPI for VDE can be found at the bottom of this blog post. PnF graphs are an entirely different way to track security price changes. Note that this morning, Energy is only 27.27% bullish. This is an oversold condition so we want to hold as much as 10.6% of the Franklin portfolio in Energy (VDE).
Franklin Investment Quiver and Current Holdings
Below is the investment quiver for the Franklin. Based on three-year volatility values, the goal is to hold 10.6% of the portfolio in Energy (VDE) since it is the only sector currently oversold. The cash position of $3,000 needs some attention. More on this later.
- Since Energy is to occupy 10.6% of the portfolio and we currently hold 9.4%, limit orders are in place to pick up three (3) more shares of VDE.
- This still leaves cash so limit orders are in place to purchase more shares of VOO. The goal of the Franklin is to outperform the S&P 500 and the best way to do this is to invest in shares of VOO, which is a mirror of the S&P 500 index.
Note: I forgot to delete the 5 shares of VGT from the following table. VGT was sold out of the Franklin since the last review.
Franklin Manual Risk Adjustments
The following worksheet comes out of the Kipling spreadsheet. By adding three (3) more shares of VDE we bring Energy into balance or a tad above the recommended 10.6 percentage. Check the third column from the right. I see where I need to correct the spelling of balance.
After adding three shares of VDE there is still cash available. I have limit orders in place to purchase five (5) more shares of VOO.
Franklin Performance Data
Since 12/31/2021 the Franklin has outpaced the S&P 500 ETF (SPY) by a small margin. It is interesting how much better the ETF (SPY) is performing than the index itself. SPY is a proxy for the index and one does not purchase the actual index. Instead we use an ETF that is constructed so as to mirror the S&P 500 index. That ETF is SPY.
Franklin Risk Ratios
On a risk adjusted basis the Franklin has an acceptable record. The slope of the Jensen is positive and all the risk ratios have been positive since last May.
Tweaking Sector BPI Plus Investing Model: Part II
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Market action tied to large-cap stocks skews what is happening to the broad market. Gains from BND, BNDX, VEA, VWO, VB, VO, VNQ, VNQI, etc. are much more modest than what we see from VOO.
Lowell
Lowell,
Is this a feature you are adding to the BPI strategy, namely adding additional shares of a sector as it’s % remains below 30%? This requires recalculating the volatility based % holding.
Bob W.
Bob W.,
I generally do not add more shares to a particular sector once the initial purchase is made. In a situation such as occurred with the Franklin I was below target. When this happens I’ll add a few more shares to make up the difference. Resetting the TSLO generally does not make much difference. I don’t recall ever setting two different TSLOs to account for the different purchases.
Lowell
Lowell,
I see VCR is getting close to a sell 68.52% today.
Bob W.
Bob W.,
Thanks for the tip. Will check my BPI values.
Lowell
Lowell,
72.77% as I look at it this morning. I’m setting a 2.7% TSLO.
Bob W.
Typo 72.22%
Bob W.
Bob W.
I set some at 3%. Need to take another look at VCR.
Lowell
Bob W.,
I went through the five Sector BPI portfolios and set TSLOs for VCR.
Thank you for the advanced tip.
Lowell