We’re adding exposure to our portfolios today. Our measures of market quality improved enough to cause this change. On February 22nd, our indicators reacted to the weakness in price and fear of market participants that a correction had started. This caused us to raise cash and add more shorts in our portfolios. This added some protection just in case the sell off accelerated, but also left us with some exposure to the market if it rallied.
As you know, our portfolios are designed to participate in up trends, but also protect us from any unrecoverable declines. This was an example of getting cautious that in hindsight was unnecessary, however in our opinion prudent. We don’t mind paying for insurance when the market is uncertain. Our portfolios still participated in almost half the gain of the recent rally, which is enough for us during any period of market uncertainty. We’re now adding more long stock exposure on the expectation of higher prices.
Both of our Long/Cash portfolios now have allocations of 60% long and 40% cash. On the chart below the yellow lines represent raising cash and the green lines represent adding long exposure.
Our hedged portfolio is now 80% long and 20% short. The short continues to be a simple short of the S&P 500 index. On the chart below the yellow lines represent reducing longs and adding shorts (simple short of the S&P 500 Index similar to SH or shorting SPY). The green lines represent adding longs and reducing shorts. The red lines represent an aggressive hedge (put options, mid-term volatility, or a managed short fund) that completely cover our longs with the expectation of out performance in a steep down turn.
I’ll update the charts and add them to the site sometime over the weekend. Note: charts and more commentary added 3/9/13.