Rutherford Portfolio Review (Tranche 2): 1 September 2023

Small Boutique Hotel in Bangkok, Thailand

The past week was a bullish week for US equities:

with SPX showing a  2.5% gain on the week. We have bounced nicely off the lower 1 SD boundary of the bullish channel and the 4300 support area and headed for the centre line – that is encouraging. However, the bearish candles of the past 2 days may be a clue that we are at the upper 1 SD boundary of a new downtrend channel. Who knows? – we’ll just have to see how next week plays out.

In the meantime a look at the performance:

of current holdings:

shows a recent divergence of performance of the individual tranches with a slightly poorer performance of the portfolio relative to the benchmark AOR Fund. This indicates a rather high degree of uncertainty.

In terms of performance relative to other major asset classes US equities came out on top:

although only long-term US treasuries (TLT) generated a negative return.

I am going to make a minor tweak to the management of this portfolio. If you check my earlier post on the Darwin Portfolio you will see that I have suggested investors consider adding a small allocation of their holdings to a Volatility ETF – specifically SVXY, an inverse volatility product (i.e. SVXY makes money when volatility decreases – with some subtle technical details related to “drag” in futures pricing). I am therefore going to follow my own advice and allocate 10% of portfolio value to SVXY in the Rutherford Portfolio. This is a little risky at the present time since Volatility is relatively low in comparison to recent prices (although not necessarily so on a historical basis). I will therefore dollar cost average these aquisitions over the next 4 weeks as I adjust the individual tranches.

In addition. rather than equal weighting of the recommended assets (I am not changing the rotation model recommendations)  I shall be allocating funds based on Risk Parity with a 3% target volatility for each asset. I am guessing that this should result in an overall volatility for the total portfolio of ~8% – but we’ll see as I will track this as we move forward once these management/allocation changes have been applied to all 4 tranches.

Starting this new management scheme I check the rotation graphs:

where we see DBC with the strongest long-term momentum – furthest to the right (but dropping in the shorter term) followed by VTI (and strengthening in the shorter term).

Checking the recommendations from the Tranche 4 sheet (the focus of this week’s review):

we see that DBC has a recommended Buy recommendation and VTI is recommended as a Hold. AOR, despite it’s max 10 Score, is  recommended as a Sell due to the fact that the 13EMA is below the 49 EMA.

Consequently my plan is to adjust as follows:

i.e I will sell 76 shares of AOR and Buy 49 shares of DBC. These allocations are based on Risk Parity (with 3% target volatility). The allocations are not too different from the equal weight allocations (compare the numbers in the column with the white background – Shares to HOLD – to the numbers in the column to the left). Because I have to pay commissions on the sale of shares I will not adjust the VTI position at this time. The other action will be to Buy 21 shares of SVXY (~10% Tranche value).

Let’s see how this goes once I have all 4 tranches adjusted to the new allocation model.

David