Kepler Portfolio Review: 10 July 2023

Carson House – Now a private club – Eureka, CA

Kepler is the portfolio up for review this morning.  Committed readers of this blog likely noticed that over the past several months I’ve been simplifying most of the portfolios.  When the last performance table was posted three portfolio investment styles stood out.  Investing only in U.S. Equities as modeled by the Copernicus was number one.  The Schrodinger, a computer managed portfolio, continues to rank in the top third.  As a group the Sector BPI Plus model continues to show up very well with the Carson holding down the number 2 position.  Kepler ranks #14 or next to last.  Hence the need for a change.

In this review of the Kepler, readers will see a move to something closer to the Copernicus, but with the option of more diversity for times when the market is operating within a recession or a well defined bear market.  Securities such as BND, AGG, BIL, and SHV are ETFs where one can retreat when equities are faltering.  Kepler is not a “Buy Only” portfolio as is the case with the Copernicus.  There will be periods when the Kepler is out of equities and into bonds (BIL, BND or AGG) or short-term treasuries (SHV).

Kepler Security Recommendations

Based on current recommendations, with the investment style set to Buy-Hold-Sell (BHS) and the look-back period combination at 60- and 100-trading days, the ETF guidance is to hold all four major U.S. Equity ETFs.

The first order is to fill ESGV as it holds the #1 rank.  Next we move to VOO, then SPY at #3, and finally VTI if cash is still available.  As you will see in a moment, VOO holds more than the recommended number of shares so no action is required.

Kepler Manual Risk Adjustments

I first adjusted the SD Multiplier to 1.12 so the Stop Loss percentage for VTI comes in at 8.0%.  This is one way to control portfolio risk.  The Maximum Portfolio Risk is 8.6% and is this high so the Total New Cash ($618.05) uses most of the cash.  If the Maximum Portfolio Risk is adjusted to 6% (my ideal maximum percentage) there would be excess cash sitting in the money market after all the Buy orders are struck.

Limit orders are in place to push ESGV up to 450 shares, SPY to 110 shares and VTI to 150 shares.  The recommendation for VOO is to hold 121 shares and the Kepler already holds 150 shares.  Since VOO is oversubscribed we do nothing with VOO.

Kepler Performance Data

Over the past 18.3 months the Kepler lags SPY by a considerable percentage.  Pay no attention to VT, AOA, and AOR as those -100% values are incomplete.  Over the next few months one needs to see if the Kepler closes the gap on SPY or continues to under perform.

Kepler Risk Ratios

These five risk ratios will help readers know if the Kepler is gaining or losing ground.  Based on the Jensen Alpha data, the Kepler is now ahead of where it was last January.  The Information Ratio is still a very weak -0.43.  It will be several months before we know if the simplification of the Kepler is making a significant difference.