“The relationship between market risk and expected return is an essential one.” – Richard A. Ferri
Other than holding 22.9% in cash the Pauling is well positioned as we enter the spring and summer months. The investment quiver is focused on the eleven sectors plus two U.S. Equity ETFs, VTI and VOO. Utilities (VPU) falls one percent short of the 9.8% goal, a minor issue.
The Pauling has been operating under the Sector BPI model for approximately five (5) months so we do not have a lot of data to judge how well the model is working. This is where I defer to the composite data published in the last screenshot of Saturday’s Bullish Percent Indicator blog post.
Pauling Security Holdings
Below is the concentrated investment quiver and the current holdings within the Pauling portfolio.
Pauling Manual Risk Adjustments
The SD Multiplier is set to 2.15 so the Stop Loss for VTI is 8.0%. This is my first risk control move when working with this worksheet within the Kipling spreadsheet. The other risk control is the Maximum Trade Position Risk, currently 1.2% which will leave $133.26 in cash if I purchase 8 more shares of VTI and 22 more shares of VOO. Obviously these values will change as prices will vary after the market opens this morning.
Limit orders are in place to pick up more shares of VTI and VOO as no sectors are in the oversold zone.
I also have 8.0% TSLOs set under the 11 shares of VTI and 63 shares of VOO. This is to protect capital in case of a major downturn.
If I set a TSLO at 8.0% on an ETF I frequently set a purchase order for the same ETF at 10% to 12% below the current price.
Pauling Performance Data
Since 12/31/2021 the Pauling lags the SPY benchmark. Formerly the Pauling was operating using the Dual Momentum™ model. I was not satisfied with the performance and that is the primary reason for moving over to the Sector BPI model. As you will see in the Risk Ratio table, this move looks promising.
Pauling Risk Ratios
Over the last few months the Jensen Alpha value has been improving. The slope of the Jensen is positive (0.69), another indicator the Sector BPI model is encouraging for the Pauling.
One major goal is to see the Information Ratio in positive territory, something that has not happened over the past year.
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