Kepler Portfolio Review: 4 January 2023

Jefferson Memorial in Washington D.C.

Kepler, one of two remaining Relative Momentum portfolios, is the account up for review today.  This review comes at a time when the U.S. Congress is a mess and we have concerns such disruptions may work their way into the financial markets.  Readers will note the cautious approach when working with portfolios such as the Kepler.

Kepler Investment Quiver

The following investment quiver is built around the principles of asset allocation and market factors as defined by the Fama-French Five-Factor Model.  The portfolio is heavily tilted toward TIPs as the Kepler currently holds over 2,000 shares of SCHP.

Kepler Security Recommendations

In the following worksheet from the Kipling spreadsheet there are a few critical settings.

• The Target Filter for VTI is turned on so we are looking for securities that are outperforming VTI.  See green arrow.
• The look-back periods use the “default” settings.
• A maximum of five (5) assets are recommended at any single time so the portfolio is both diversified and concentrated.  Diversification comes from using ETFs rather than individual stocks.
• The Kepler is using the Buy-Hold-Sell (BHS) model.

Of the five recommended assets, only two are a Buy while three are a Hold.  In the next screenshot I’ll explain how to implement these recommendations.

Kepler Manual Risk Adjustments

This manual adjustment worksheet is where the recommendations are implemented.  Here is the plan.

• Of the Hold? (blue-gray background) securities I will place TSLOs of 2% to 4% depending of volatility.  I use the percentages found under the Stop Loss column for guidance.
• Of the Hold (yellow background) securities I’ll place TSLO following the Stop Loss percentages.  Example:  The Stop Loss for VTV is 6.0% so I will place a Trailing Stop Loss Order (TSLO) of 6% for VTV.
• I’ll need to wait for available cash before adding shares of VWO and VNQI.

Kepler Performance Data

Since 12/31/2021 the Kepler is slightly behind the AOA benchmark while edging out Vanguard’s Total World Stock Fund (VT).  The Kepler portfolio is on notice.  If the BHS model does not perform better and the Sector BPI portfolios show promise, the Kepler may join the four Sector BPI group.

Kepler Risk Ratios

The following data will only be useful as more months pass as I am using a different starting date.  In addition, it is much too early in January to pay much attention to the January 2023 data.

As mentioned in the first paragraph, too many renegades within the GOP are a danger to U.S. Equities going forward.  With no agenda other than to destroy systems of government this is a time to be prudent.  At least be cautious over the next six months.  Pay attention to whether or not the debt ceiling will be raised.

We expect the FEDs to continue to raise interest rates and so long as this occurs the stock market will have a difficult time behaving like a bull.