Rutherford Portfolio Review (Tranche 4) – 01 October 2021

Rock Plants – Zion National Park

It was another week of relatively high (>20%) volatility in US equity markets:

After a quiet day on Monday, Tuesday started with a gap down on the open and a significant drift lower for the remainder of the day resulting in a close significantly outside the weekly Expected Range as calculated from Options’ Implied Volatility. The weakness continued on Wednesday and Thursday before a bounce on Friday – but the Index closed below the Expected Range on four of the five days and is sitting in the support/resistance range at ~4400. This seems to confirm the breakout of the positive trend channel that has built since the beginning of the year. If this continues we can expect to see a test of the ~4200 support/resistance zone that built up in July – this would be a ~7.5% pullback.

Let’s see how the assets in the Rutherford quiver fared in the past week:

with the exception of commodities (DBC and GLD) every other asset class saw a decline. This is why we include commodities in our portfolios – to help minimize total portfolio volatility even when (normally) inversely correlated assets (equities and bonds) move together.

Although my TSLOs for this portfolio were set at 1.65 Standard Deviations (giving a 10% probability of getting hit) these orders were hit for VNQ, TLT and AOR following the stop-out of PCY last week. Unfortunately, this means that I missed out on collecting quarterly dividends from TLT and AOR although the stops were hit after the ex-dividend date for PCY and VNQ so I have picked up those distributions.

If we check performance:

we see a general decline similar to that evident in the benchmark AOR fund. We also see the poor performance of Tranche 2 that is now showing a small loss year-to-date due to the impact of timing/review-date luck. Don’t under-estimate the significance of this effect.

Let’s take a look at what this all means in terms of current holdings:

where we see that the portfolio has been significantly impacted and that we are now sitting with ~75% in Cash. Focusing on Tranche 4 (the subject of this week’s review) we see that our only holding is in VTI that is still held despite the recent weakness in US Equities.

Checking the rankings and recommendations from the BHS model we see the following:

with a Hold recommendation for VTI. We have no Buy recommendations (Scores of 9 or 10) for this model – so let’s check the rotation graphs:

with only DBC showing strength in the top right quadrant. Emerging Markets (VWO) continues to show an improvement in relative strength although it is still a distance from the vertical positive axis. If we zoom in on the tangled mess near the origin of the plots:

we get a clearer picture of the recent strength in DBC and the demise of just about everything else.

Looking at recommendations from a rotation model:

we see that DBC remains a recommended Buy -so I’ll add an additional 210 shares to the portfolio and keep the balance in cash:

David