Rutherford Portfolio Review (Tranche 1): 30 September 2022

New Zealand Landscape/Seascape – North Island

It was another down week for US equities with the S&P 500 down another ~2.5%:

We closed the week just below the June lows (B) that raises the question as to whether this will hold as support and allow us to bounce into a Santa Claus rally to the end of the year – or whether the Grinch will spoil Christmas and we continue the downtrend. If the downtrend does continue (and support doesn’t seem to be too strong) then it’s a little difficult to find the next potential support level/zone. My best guess would be at ~3200 – that would give us a ~30% pullback/drawdown on the year. The 3200 level corresponds to the support level seen in 2020 (left side of chart) and is a 100% technical Fibonnaci extension level and completion of a basic ABCD pattern. Unfortunately, with no good economic news on the horizon my vote/guess would be for a continuing decline – so be careful managing your portfolios.

Putting the performance of US equities in perspective with other asset classes:

they again fall in the center of the pack with Gold and Commodities offering the best relative performance and Bonds and Real Estate bringing up the rear. Only Gold showed positive returns on the week.

Let’s take a look at current holdings in the Rutherford Portfolio and focus on Tranche 1 (the focus of this week’s review):

We see that we are holding ~90% in Cash in the total portfolio and only a small allocation (~5%) to AOR (the benchmark Fund) in Tranche 1.

We’ll take our usual look at portfolio performance:

where we see that holding all that cash has helped us stay ahead of the benchmark fund (even though we are not generating positive returns) and relative performance is better than the benchmark.

If we check rankings and recommendations from the BHS model:

we continue to see red across the board with the exception of single short term signal for GLD in the HA3 Column.

Let’s take a look at the rotation graphs:

where we still see little in the desirable top right quadrant. SHY is showing the best relative strength but we know that short-term bonds are going nowhere.

For completeness we take a look at rankings and recommendations from the rotation model:

and it comes as no surprise that we have no encouraging signals/recommendations. As a consequence I will also be selling 110 shares in AOR and moving the proceeds to Cash. This will put me ~95% in Cash in this portfolio.

Although the model has taken this portfolio almost completely into Cash this does not mean that everyone should be in Cash (or maybe they should?) – remember that I am also holding other portfolios (e.g. Hawking) that are designed for income generation (dividends) and are fully invested (even if they are going down in value in the short term). This is why we strongly advocate for system diversification in our portfolios – to dampen the volatility of our total investment holdings.

Remember also, the message from this Rutherford tranched portfolio – Review Date (Timing) Luck plays a major role in determining portfolio performance – no matter what system we may choose to use. Each Tranche in this portfolio selects from the same list of assets and uses the same system for selecting which assets to buy/sell at review time. However, since the start of the current test (Dec 2020) Tranche 1 is showing a ~2.5% profit and Tranche 5 (only one week apart in their 5-week reviews) is showing a ~15% loss. The total portfolio (all 5 tranches) averages out at ~7.5% loss.

David