2013 Performance Review
I’ve dreaded writing this post, much like the child who gets all “D”s and “F”s on their report card is reluctant to reveal his grades to his parents. However, at the mid-year point of 2014 it is time to end the procrastination.
2013 was a year of the wrong turn (for the SMA Portfolio). Of course these are unnatural times in which an unprecedented salvo of central bank intervention (manipulation) has occurred. That’s the convenient excuse. While Fed QE has certainly led to more risk taking behavior, performance by the equity indexes in 2013 was unusual, but not unprecedented.
There was one TTS signal generated last year, a sell on April 29, 2013, which was not a great time to reduce equity exposure as it turned out [link].
In a year where investments in fixed income translated into fixed losses any allocation in this direction was a tremendous drag on performance as shown below:
It has been a long time since a typical 10% correction; which occurs every 18 months on average. It’s problematic for a timing system to outperform when downside volatility is nearly non-existent. However, to underperform by 30 basis points in any year is difficult to recover from. This horrible year will dog the long-term performance numbers for quite some time.
Back in 2009, the 10 year performance of the SMA Portfolio was quite impressive, but is now absolutely underwhelming.
Given the dismal performance of the SMA Portfolio in 2013 I’ve contemplated abandoning the Tactical Timing System (TTS), but believe it still has promise and will hopefully shine when normal market volatility reasserts itself.
The ability to identify black ice and consequently drive slower means you will lag various others speeding along, but it also means you are more likely to reach your destination. Some would argue that 10 years is too short a timeframe to judge the efficacy of a investment strategy and I will cling to that reasoning with all my might.
Investors should always have some exposure to equities as an inflation hedge; although even that is a difficult argument to make at current market levels, with stocks spending a record amount of time above their 200 day moving average.
As an independent operator beholden to no one I have complete freedom to allow the TTS to take its natural course. However, this is one of my retirement accounts and I’ve decided to allow some leeway as opportunities presents themselves. I will place prudent limitations on these moves so as not to alter the target allocations unduly. This experiment will continue, albeit in a slightly altered state.
The move into a couple of closed-end fixed income funds whose discounts to NAV had widened toward the end of 2013 was quite successful [link].
In recent months I’ve taken liberties by adding a Business Development Company (BDC) to the SMA portfolio. This has yet to prove to be a good trade. Shortly after purchasing Prospect Capital (PSEC) news regarding an SEC inquiry resulted in the stock plunging over 15% in a couple of weeks. Talk about bad timing. I subsequently identified a couple of other opportunities and even wrote draft posts, but failed to pull the trigger in a timely manner and the opportunities were lost as the stocks shot up.
There are more important things in life, but I will be continue to be on the lookout for suitable opportunities for profit, for it is in my nature to do so.