From the desk of Willie Delwiche.

As we’ve still yet to see a decisive shift to a risk-on environment, caution remains the general guiding principle for this market. At the same time, there are opportunities in crypto that we’d like to take advantage of. 

In the Cyclical portfolio, we’re shifting domestic equity exposure from small-caps (IJR) to mid-caps (IJH). Small-caps have been stuck below a now-falling 50-day average for nearly two months, and our industry group rankings show small-cap groups losing relative strength versus both large-caps and mid-caps.

Two things to note in the Tactical Opportunity portfolio update – a change that is being made and one that is not being made. First, we’re putting some cash to work by adding a 5% position to Ethereum (ETHE). Breakouts are being seen across the crypto space, and we want to follow that strength. Second, we’re keeping our exposure to commodities (DBC) for now. We’re giving it the benefit of the doubt, as the longer-term up-trend remains intact.

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From the desk of Willie Delwiche.

The overall weight of evidence continues to argue for caution and we have yet to see a decisive shift toward a risk-on environment. But we have made some changes to our dynamic portfolios to stay in harmony with the shifting trends within the equity market.

In the Cyclical portfolio we’ve thrown in the towel on our Energy sector exposure and are positioning to benefit from the resumption of the uptrend on bond yields. Financials and other cyclical value areas appear poised for another round of leadership.

In the Tactical Opportunity portfolio we are putting some of our cash to work (though continue to have a healthy amount on the sidelines – remember cash is an asset class). We are adding to strength within our domestic equity exposure and see an opportunity to add global exposure at a time when many foreign ETF have already been struggling with overhead supply. 

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From the desk of Willie Delwiche.

A DYNAMIC APPROACH TO PORTFOLIO MANAGEMENT

The number one question I have gotten from financial advisors over the course of two-plus decades in this business is “What should I do now?” The answer can sometimes be “nothing”, but it cannot always be “nothing”. Dynamic portfolio management is about finding the right balance between following existing trends and adjusting as necessary to new information. To do this we need to have a good grasp of time frames. Every investor has a timeframe. Every system has a timeframe. Finding harmony between the two helps provide the appropriate balance between action and inaction.

We can think about this in terms of navigation and one of my favorite investing metaphors: sailing. We wouldn’t want to go on a journey with a captain who fiddles with the rigging so much that he cannot hold the wind. We also wouldn’t want to go sailing with one who doesn’t even try to catch the wind in the first place. We want to go sailing with a captain who observes where the wind is actually blowing and positions the boat accordingly. Even once the wind fills the sails and there is a steady hand on the tiller, small adjustments help keep the sails trim and the heading true.

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