The S&P 500 Index is up about 80 points (3.5%) since last month’s review and Hawking Portfolio performance is shown graphically below:
The unhedged portfolio (green line) shows a modest increase in value but the hedged portfolio is devastated by my serious error in mis-sizing the hedge. After exiting the hedge the total loss on the position was $26,840 – this is partially documented in other posts but 50% was due to holding the spread through expiration and the “quirks” of SPX Option settlements with the remaining loss being due to normal market movement. Thus, the loss (had I exited the day before expiration) should only have been ~$14,000 – or $1,400 on a correctly sized hedge position (not 10x too large) – this would be an understandable risk. I leave this picture as a reminder to be careful and alert at all times and as an example as to why it is so important to think through every trade position.
In tabular format the picture looks as follows:
Thus, the performance now trails that of the custom ITA benchmark Index.
Current holdings in this portfolio are AMLP (Energy Limited Partnership ETF), SLV (Silver), EWZ (Brazil), LIT (Lithium “sector” ETF) and DBC (Commodities) with ~$40,000 in Cash. This is strongly biased towards commodities.
When we look at rankings we see that commodities (particularly DBC) have dropped significantly in the rankings over the past month. Top ETFs making the cut to the “Final Asset List” are shown below:
EWZ, one of the current holdings, remains at the top of the list but DBC is in the dog house at the bottom of the list.
Let’s take a look at the tranche spreadsheet to see how rankings have moved over the past 12 days:
EWZ has been a consistent leader and SLV has been reasonably strong but maybe showing signs of weakening (with negative absolute acceleration). Recent new additions to the top rankings are VWO and DEM (both highly correlated Emerging Markets ETFs). EWT (Taiwan) has shown up sporadically and is showing recent strength through high absolute acceleration value.
Recommendations coming out of the position sizing sheet are shown below:
Thus, this shows recommendations to sell all holdings in DBC and LIT, reduce holdings in SLV and EWZ and make new purchases in ITB (Home Construction sector), EWT, DEM and VWO.
From the above, it is evident that DBC should be sold out of the portfolio. However, I have this position “collared” with Options (expiring August 19) so I know that I am guaranteed $14 on exit and that I do not need to sell immediately – so will be looking for a better price. Also, I am intrigued by LIT and, although this is not highly ranked, it still ranks well above SHY in the 12th spot. High volatility makes this a difficult ETF to evaluate with a high negative absolute acceleration even though sitting well above all EMAs. I shall make a discretionary decision to hold this ETF, although a “strict” follower of the system should probably sell.
The following figure shows my planned adjustments:
I will reduce my holdings in SLV and add new positions in ITB, EWT and VWO (slightly higher holding than recommended but ignoring highly correlated DEM). Holdings in AMLP and EWZ remain unchanged.
Because I am choosing to hold DBC and LIT my portfolio risk is a little high at 9.6% – but hopefully this will be sensibly hedged 🙂
I will update this post as orders are filled.