Sufficient additions or modifications have occurred since launching the original Sector BPI investment model that it now makes sense to summarize how one manages these portfolios. Here is the step by step process I go through when I review or update a Sector BPI Plus portfolio.
- Update the BPI spreadsheet to see if there are any changes in either overbought or oversold sectors. I’ve been posting BPI data each week and in addition, if there is a major market move in either direction I’ll check on sectors that are close to either the 30% or 70% bullish zone.
- Before making any further decisions I update the Kipling spreadsheet and the Investment Account Manager software so ETF prices are current.
- Within the Main Menu of the Kipling spreadsheet I adjust the Volatility Coefficient so the volatility percentages for the eleven sectors adds up to 100%. This adjustment is so I know the minimum percentage to invest in any oversold ETFs.
- If a sector drops into the oversold zone (30% bullish or lower) a limit order is placed to purchase the required number of shares. The number of shares guidance is available within the Manual Risk Adjustment worksheet found within the Kipling spreadsheet.
- If a sector moves into the overbought zone (70% or higher) I place a 3% Trailing Stop Loss Order (TSLO). If the BPI reaches 80% a 2% TSLO is set. I explain this in more detail when the different Sector BPI Plus portfolios are reviewed. The tighter TSLOs are designed to protect capital.
- It is common for unused cash to remain as it is rare for all sectors to be oversold at the same time. What to do with the remaining cash is a cogent question? Once more we return to the Kipling spreadsheet to see if any U.S. Equity ETFs are recommended for purchase. I follow the Kipling for guidance. If no ETFs are recommended the cash remains in the money market. Number 6 is where the Plus comes into play for the Sector BPI Plus investment model.
- The latest tweak comes out of a recent discussion as to what ETFs to use to populate a portfolio. Should one use cap-weighted ETFs such as the Vanguard securities I’ve been using or should one use equal-weighted ETFs? I plan to experiment with at least one portfolio where I will use a combination of both.
- When a sector is oversold, run a five-year return comparison between the cap-weighted and equal-weight ETFs. Invest in the better performer. The Sector BPI portfolio will more than likely end up with a combination of ETFs.
Examples of this process will show up next week as the McClintock and Bohr portfolios are scheduled for review.
Questions and comments are always welcome.