We are making trades in six of seven Powerfund Portfolios. Broadly speaking these trades are: 1) to remove some closed end funds that are no longer a bargain because the discounts have gone away 2) to lock in large gains from shorting commodities 3) to increase our stock allocations slightly.
This is our third trade in less than a year – very active for us. We tend to buy as prices fall, and, well, let’s just say the market made us do it.
With these trades our portfolios have been getting more aggressive across the board. So far our downside has been significantly less than the S&P 500 even during two very bad years for stocks – 2002 and 2008. We feel these moves will allow us to beat the S&P 500 on the way down AND the eventual way back up, much like they have through these portfolios history (although with increased risk our portfolios could fall almost as much or perhaps even more than the market in major down moves). We have more ideas if the market truly erodes to depression era levels – say Dow 5,000. At that point we may go ‘all in’ and make significant risk increases in our lower risk portfolios because frankly, at Dow 5,000 stocks just aren’t that risky. While a move to 5,000 is unlikely, it is possible, and we’ll have more to say on this in our next newsletter.
<b>Selling</b>
BlackRock MuniAssets Fund (MUA) now trades at a premium to NAV as investors have flocked back into muni bonds and closed end funds due to ebbing fears of state defaults and massive government handouts to troubled states. One benefit of buying a closed end fund at a discount is the opportunity to make double whammy profits of price improvement in the fund’s holdings and a reduction in the gap between market price and NAV. This fund has a higher price then when we bought it – particularly for those that bought right when our alert went out – and has paid a healthy tax free dividend along the way far in excess of current low CD or money market returns. Lately the fund has been very hot, with a roughly 10% return in February alone. There is no point owning closed end funds at premiums to NAV.
<b>Buying</b>
Financial Select Sector SPDR (XLF) captures the down and out financial services industry and has taken a licking, but hasn’t kept on ticking. Companies in this index are becoming wards of the state. We were worried about financial services in general a few years ago as the whole business of financing became too big a piece of the economy. Something had to give, and it has. We don’t think all the companies in this index are going to go belly up – though we think about half will effectively wipe out shareholders (which is ok if the rest triple over the next few years). Currently financial services are less than 10% of the S&P 500 by market cap and we think it is unlikely that percentage will go below 5% - a level where we would add more here and build up our allocation to financial services companies. This index is down about 80% from the high and could hit 90%. Like the Nasdaq in 2002, these are levels worth stepping in.
We’re adding to our Harbor Bond (HABDX) and Nakoma Absolute Return (NARFX) positions for their relative safety until even better opportunities arise.
AGGRESSIVE
We are making trades in six of seven Powerfund Portfolios. Broadly speaking these trades are: 1) to remove some closed end funds that are no longer a bargain because the discounts have gone away 2) to lock in large gains from shorting commodities 3) to increase our stock allocations slightly.
This is our third trade in less than a year – very active for us. We tend to buy as prices fall, and, well, let’s just say the market made us do it.
With these trades our portfolios have been getting more aggressive across the board. So far our downside has been significantly less than the S&P 500 even during two very bad years for stocks – 2002 and 2008. We feel these moves will allow us to beat the S&P 500 on the way down AND the eventual way back up, much like they have through these portfolios history (although with increased risk our portfolios could fall almost as much or perhaps even more than the market in major down moves). We have more ideas if the market truly erodes to depression era levels – say Dow 5,000. At that point we may go ‘all in’ and make significant risk increases in our lower risk portfolios because frankly, at Dow 5,000 stocks just aren’t that risky. While a move to 5,000 is unlikely, it is possible, and we’ll have more to say on this in our next newsletter.
<b>Selling</b>
PowerShares DB Commodity Double Short ETN (DEE) is now officially the highest performing fund in the history of the Powerfund Portfolios, recently it delivered around a 400% return in less than a year. Unlike other inverse ETFs, this one worked for us. Though our ideas with the other shorts – real estate and emerging markets- where dead on, the ETFs were a big letdown.
Western Asset Managed High Income Fund (MHY) essentially doubled within a few days of our trade, which created a dangerous situation for new investors (we noted new investors should buy an alternate). The fund has settled down but is still at a premium to NAV and it is time for everybody to move on. We’ll miss the double digit yield but will surely find other beaten down junk bond funds in this environment. Junk bonds haven’t even done well since this trade (as investors in our open end junk bond funds can attest) but the compression in the deep discount has made this position profitable.
<b>Buying</b>
We’re adding to Japan through Vanguard Pacific Stock ETF (VPL) in a similar fashion to what we did in 2002 when Japan was falling hard (we eventually sold out after gains and intend to again here.
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We are making trades in six of seven Powerfund Portfolios. Broadly speaking these trades are: 1) to remove some closed end funds that are no longer a bargain because the discounts have gone away 2) to lock in large gains from shorting commodities 3) to increase our stock allocations slightly.
This is our third trade in less than a year – very active for us. We tend to buy as prices fall, and, well, let’s just say the market made us do it.
With these trades our portfolios have been getting more aggressive across the board. So far our downside has been significantly less than the S&P 500 even during two very bad years for stocks – 2002 and 2008. We feel these moves will allow us to beat the S&P 500 on the way down AND the eventual way back up, much like they have through these portfolios history (although with increased risk our portfolios could fall almost as much or perhaps even more than the market in major down moves). We have more ideas if the market truly erodes to depression era levels – say Dow 5,000. At that point we may go ‘all in’ and make significant risk increases in our lower risk portfolios because frankly, at Dow 5,000 stocks just aren’t that risky. While a move to 5,000 is unlikely, it is possible, and we’ll have more to say on this in our next newsletter.
<b>Selling</b>
BlackRock MuniAssets Fund (MUA) now trades at a premium to NAV as investors have flocked back into muni bonds and closed end funds due to ebbing fears of state defaults and massive government handouts to troubled states. One benefit of buying a closed end fund at a discount is the opportunity to make double whammy profits of price improvement in the fund’s holdings and a reduction in the gap between market price and NAV. This fund has a higher price then when we bought it – particularly for those that bought right when our alert went out – and has paid a healthy tax free dividend along the way far in excess of current low CD or money market returns. Lately the fund has been very hot, with a roughly 10% return in February alone. There is no point owning closed end funds at premiums to NAV.
<b>Buying</b>
Financial Select Sector SPDR (XLF) captures the down and out financial services industry and has taken a licking, but hasn’t kept on ticking. Companies in this index are becoming wards of the state. We were worried about financial services in general a few years ago as the whole business of financing became too big a piece of the economy. Something had to give, and it has. We don’t think all the companies in this index are going to go belly up – though we think about half will effectively wipe out shareholders (which is ok if the rest triple over the next few years). Currently financial services are less than 10% of the S&P 500 by market cap and we think it is unlikely that percentage will go below 5% - a level where we would add more here and build up our allocation to financial services companies. This index is down about 80% from the high and could hit 90%. Like the Nasdaq in 2002, these are levels worth stepping in.
We’re adding to our Harbor Bond (HABDX) and Nakoma Absolute Return (NARFX) positions for their relative safety until even better opportunities arise.
AGGRESSIVE
We are making trades in six of seven Powerfund Portfolios. Broadly speaking these trades are: 1) to remove some closed end funds that are no longer a bargain because the discounts have gone away 2) to lock in large gains from shorting commodities 3) to increase our stock allocations slightly.
This is our third trade in less than a year – very active for us. We tend to buy as prices fall, and, well, let’s just say the market made us do it.
With these trades our portfolios have been getting more aggressive across the board. So far our downside has been significantly less than the S&P 500 even during two very bad years for stocks – 2002 and 2008. We feel these moves will allow us to beat the S&P 500 on the way down AND the eventual way back up, much like they have through these portfolios history (although with increased risk our portfolios could fall almost as much or perhaps even more than the market in major down moves). We have more ideas if the market truly erodes to depression era levels – say Dow 5,000. At that point we may go ‘all in’ and make significant risk increases in our lower risk portfolios because frankly, at Dow 5,000 stocks just aren’t that risky. While a move to 5,000 is unlikely, it is possible, and we’ll have more to say on this in our next newsletter.
<b>Selling</b>
PowerShares DB Commodity Double Short ETN (DEE) is now officially the highest performing fund in the history of the Powerfund Portfolios, recently it delivered around a 400% return in less than a year. Unlike other inverse ETFs, this one worked for us. Though our ideas with the other shorts – real estate and emerging markets- where dead on, the ETFs were a big letdown.
Western Asset Managed High Income Fund (MHY) essentially doubled within a few days of our trade, which created a dangerous situation for new investors (we noted new investors should buy an alternate). The fund has settled down but is still at a premium to NAV and it is time for everybody to move on. We’ll miss the double digit yield but will surely find other beaten down junk bond funds in this environment. Junk bonds haven’t even done well since this trade (as investors in our open end junk bond funds can attest) but the compression in the deep discount has made this position profitable.
<b>Buying</b>
We’re adding to Japan through Vanguard Pacific Stock ETF (VPL) in a similar fashion to what we did in 2002 when Japan was falling hard (we eventually sold out after gains and intend to again here.