Arches National Park
Gauss is the Sector BPI Plus portfolio up for review this morning. A month or so ago I added a “tweak” to the original Sector BPI model in an effort to patch up what was a likely problem when a sector was sold and then returned to the overbought zone. The patch added several equity ETFs to the investment quiver for times when cash became available if no sectors were recommended for purchase. If this is somewhat confusing, the concept will become clear when faced with this decision over the next few months.
While we have a set of rules to set TSLOs when the sector ETF is purchased, there are no rules for selling the alternative equity ETFs when they are purchased. In the following blog I’ll pose a solution as to what to do with equities such as SPY or VTI when they are held in the Gauss and other Sector BPI model portfolios.
Six of the eleven sectors are currently overbought. They are: Discretionary (VCR), Energy (VDE), Financial (VFH), Industrial (VIS), Technology (VGT), and Real Estate (VNQ).
Gauss Security Recommendations
Below is the worksheet from the Kipling spreadsheet where we see the ETFs that are currently recommended for purchase. None of the sector ETFs are currently oversold so we are not purchasing any of the ETFs with the dark gray background. Energy (VDE) and Financial (VFH) are part of the portfolio so limit orders will be set for both these securities. These two sectors are oversold based on BPI data I updated this morning.
Cash is available so we will move on to equities such as VOO, ESGV, and SPY to add to the Gauss portfolio.
Gauss Manual Risk Adjustments
The SD Multiplier was adjusted to 1.13 so the Stop Loss percentage for VTI is 8.0%. The Maximum Portfolio Risk is 6.0%, another adjustment to control portfolio risk.
After setting Trailing Stop Loss Orders (TSLOs) for VDE and VFH, I will then begin to fill VOO, ESGV, and SPY using available cash. It appears as if sufficient cash will permit purchase of VTI, ranked #8.
While we have rules for selling sector ETFs when they reach the overbought zone, no such rules are in place to know what to do with holdings in ETFs such as ESGV, VTI, and VEA. I plan to set TSLOs of 3% for each of these current holdings in order to preserve capital. While I am not a huge fan of TSLOs, they do work well to set a sell floor under a security while permitting the investment to increase in value.
If you have further questions, drop them in the Comment section provided below.
Gauss Performance Data
Over the past 18.5 months the Gauss outperformed the SPY benchmark by a very small margin. The delta is much greater for both AOA and AOR as well as other potential benchmarks.
Gauss Risk Ratios
The slope of the Jensen Alpha is essentially flat. Another ratio to watch carefully is the Information. Anything above zero is very good and the higher the better. The Gauss is hanging on to a slight lead over the benchmark.
Tweaking Sector BPI Plus Model: 20 May 2023
This review of the Gauss adds another tweak or patch to the Sector BPI Plus investing model.
Gauss Portfolio Update: 19 March 2023
Discover more from ITA Wealth Management
Subscribe to get the latest posts sent to your email.
I try to limit multiple, highly-correlated ETF’s from my portfolio as a way to simplify without limiting financial potential. So in my mind I would pick one from ESGV, VOO, VTI and SPY since they are .99 to 1.00 correlated. What is your logic for having all of these available in a portfolio?
Thanks for the education, Steve
Steven,
My logic is weak. But here goes.
VTI includes small- and mid-cap stocks that are missing in the other three.
ESGV employs a social responsible component – missing from the other three. Also, it is least expensive so I can purchase a few shares and use up excess cash.
VOO and SPY overlap more than the others, although all are highly correlated as you state.
If I had to pick one it would likely be VOO as it is cost effective.
When using the Kipling spreadsheet, there are times when one or the other is the better performer.
I would not use four securities if I paid for commissions as was the case 20 years ago.
Lowell