Rutherford Portfolio Review (Tranche 1) – 15 October 2021

Inquisitive Raven

It was an active week in the US Equity markets with the SPX (S&P 500 Index) closing up ~1.8%  from last week’s close and outside the weekly Expected Move as calculated from the Implied Volatility of Option prices:

As we can see in the above screenshot we broke out of the downward trend channel on Thursday (vertical green line) and blew through the potential resistance zone at ~4440 on Friday. Implied Volatility dropped to it’s lowest level in the six weeks since the previous (all-time) high. We will have to wait and see whether we continue this upward trend to re-test that high.

US equities was not the only asset class to show strength last week:

…. in fact it was in the lower half of the assets carried in the Rutherford quiver with Real Estate topping the list with 3.5% gains. All asset classes showed positive returns.

Unfortunately, this didn’t help the Rutherford portfolio since I had been stopped out of all assets with the exception of DBC (Commodities):

and, even with a 3% gain on the week, this was not sufficient to enable the portfolio to keep up with the benchmark AOR fund:

Now you can see why I’m not a big fan of stop-loss orders 🙁 . To add to my pain here’s a look at my hedging portfolio:

This is an Option account that I use to hedge my portfolios – so, in a bull market, I don’t expect to make money (I just want cheap insurance in the case of a market decline). Nevertheless, you can imagine that I was very happy on 9 September when the portfolio was up 47% on the year, and not quite as happy now, having lost a significant portion of that gain. I have included this example here just to demonstrate the desirability of including strategy diversification in one’s investment portfolio(s). Despite the volatility in this portfolio, when combined with other core, momentum and income portfolios, the combined volatility of total holdings is quite low. The thing that hurts most is the fact that the loss was not offset by gains in the Rutherford portfolio as a result of using stop-loss orders. I would have been happier with something closer to the performance of the AOR benchmark. However, I still have the core and income portfolios fully invested so, in total it’s ok – just annoying and frustrating. But, that’s investing 🙂

Now, let’s get back to the Rutherford and check on current rankings and recommendations from the BHS (momentum) model:

Last week we had no Buy recommendations but this week we see a Buy recommendation for VTI. In addition, although not triggering Buy recommendations, there’s a lot of green in the short-term HA signal columns.

So, let’s check the rotation graphs:

where we see DBC blasting away into space. VTI and VNQ are showing short-term strength (upward movement) but, although showing positive long-term momentum relative to the benchmark AOR fund are losing out a little on a relative basis (moving right to left).

Checking the recommendations of a rotation model:

we see Buy recommendations for VTI, VNQ and DBC in addition to the AOR benchmark. With Tranche 1 currently holding 100% in Cash I will follow the rotation recommendations and adjust the portfolio as follows:

We’ll see where this takes us next week as I try to rebuild the portfolio holdings.

David