For the year 2012 our Core Long / Cash portfolio gained 5.42%. For tracking purposes we simply use the S&P 500 Index (SPX) as the long portion of the portfolio, however, you can use the core portfolio signals to increase or decrease exposure to an actively managed portfolio of stocks.
Our Long / Cash portfolio that uses our market risk indicator gained 7.0% in 2012. It outperformed or Core portfolio due to a couple of instances where it went to cash just before a market decline. As expected, for a year where the market is in a choppy uptrend the two Long / Cash portfolios under performed SPX. We feel both portfolios had a good year considering the possible tail risk events in 2012.
The chart above compares SPX to our two strategies. The black line represents SPX, the green line represents our Core Long / Cash strategy, and the red line represents our Long / Cash strategy incorporating our market risk indicator. If you look closely at the chart you’ll see the portfolios are reacting to the market in the same way as they did during 2004, 2005, and again in 2007 where our market risk indicator wouldn’t cooperate with the Core market health indicators.
The Chart below shows the portfolio changes we made during 2012 in our Core portfolio. The green lines represent adding longs while the yellow lines represent raising cash.
The next chart shows changes to our Long / Cash portfolio that utilizes our market risk indicator. Green is going long, while yellow is raising cash.