Rutherford Portfolio Review (Tranche 5): 2 December 2022

The Old and the New – Rudesheim, Germany.

Although US equities tried to reverse direction at the beginning of the week, Fed Chairman Powell boosted investor confidence on Wednesday suggesting that rate hikes might be lower than expected. Equities bounced strongly on the announcement and closed the week a little over 1% higher:

This extends the short-term bullish trend and takes prices a little further outside the upper boundary of the longer term 1 Standard Deviation bearish channel – but still not far enough for us to have confirmation of a trend reversal – we are still, technically, in a corrective wave within a major downtrend. From here, it would still not be a surprise to see a test of the recent lows at ~3500 and maybe even a drop to the 3300 level. We need to close above ~4325 before we can feel more confident of a longer-term trend reversal.

In terms of the performance of US equities relative to other asset classes:

the week’s performance was not that strong – with Bonds still showing good performance and, maybe a little surprisingly, Emerging Market equities showing the strongest performance of all major asset classes.

Over the past 3 weeks we have seen the Rutherford portfolio gradually move from 100% Cash and back into the markets:

This has helped us to at least move the portfolio in the same direction as our benchmark AOR Fund:

.. so, it is time to check current rankings and recommendation to see what we might do with the Cash sitting in Tranche 5 (the focus of this week’s review). First we’ll check on recommendations from the BHS model:

where we still see no Buy recommendations. It is this slow response to changing market conditions that has influenced my move to a rotation model – even though I have little evidence (from back-tests) that this model may be any better (at least over the long term) than the BHS model.

Current rotation graphs look like this:

where we see VEA moving nicely in the top right quadrant. Regular readers of this blog may be aware that both Lowell and myself have bought shares in (non-US) Developed Market equities over the past month or so.

Checking on the recommendations:

VEA is joined by VTI, PCY and AOR as suggested Buys – the same recommendations that we have seen for the past 2 weeks.

Again, I will go with these recommendations to give me something like this:

Because I have almost completed the move from the BHS model to the rotation model I will probably adjust the tranche allocation numbers next week so as to track the relative tranche performance if using the rotation model. To date, over the past ~2 years, we have seen the impact of review-date (timing) luck on performance when using the BHS model. Next year we’ll take a look at this for the rotation model.

David