As you know (and we have preached), investing in the stock and bond markets is a long-term game that requires patience.
That said, we have set our portfolios up defensively for the summer in anticipation of some downward pressure on the market. We look to take advantage of that opportunity should it come to pass.
So far, we are having a great year. Our CEA portfolios are up 7.0% net of fees vs. 2.6% for the S&P 500 Index year to date through 6/10/16. Our corporate bond portfolios are up 4.6% net of fees year to date through 6/10/16.
The changes that we made at the end of 2015 are bearing fruit. We now have twenty-four as opposed to twenty-two stocks (at the end of 2015) in our portfolios and will to add a couple of new positions should the price be right. We are more diversified. We have sold out two Chinese stocks (at considerable profit). We have greatly diminished the cyclical holdings in our portfolios. We have raised cash. In a word, our equity portfolios are very buttoned down, and we would welcome some downward pressure in the market.
On the bond side, we are buying smaller positions for additional diversification. We sold one position that we thought might run into a credit problem down the road. Our bond accounts are very “clean”, running well, and throwing off a lot of cash. Please don’t overlook this product. The product is a corporate bond portfolio with a 4.4 year duration that has a yield to maturity of 5.7%. In comparison, the five year treasury yields 1.17%.
So, we watch and wait and play defense for a bit and look to find some bargains if it is the stormy summer that I expect.
Edwin M. “Tim” Johnston III
Founder | Managing Partner