| Good afternoon, In our continued effort to keep you updated regarding the markets and our portfolio positioning we have provided this summary for those who missed the update video from David Burrows last week. Additionally the video link can be found below (best to use google Chrome): https://www.youtube.com/watch?v=0_uWDBi9wh8&feature=youtu.be Barometer March 27th Video Summary. We have experienced a difficult three weeks, everyone is being bombarded with information on markets and the economy. Our job is to be focused day to day on the portfolios, to understand and manage our way through a difficult time. So far we have managed volatility fairly well and portfolios are in pretty good shape. Big interruptions like this can happen, although never on this scale. Which is why we believe in being tactical and active with our decisions about exposure. In good times , focusing on finding securities and themes that are performing well, finding leadership, and opportunities that are being revalued. We don’t want to be everywhere, we want to pick our spots. Recognizing and adjusting to times of change, like we find ourselves in now, and being prepared to play defense, is what we have done the last three weeks.Follow our process step by step. Stop losses on positions. When market work points to less constructive environments we stop putting on new positions and protect portfolios.Maintain Flexibility for ever changing markets to move forward. The bad news, S&P sold off 34% in 23 days, happens to be the fastest and deepest waterfall decline in history. There are things we can take away from a waterfall decline, if we manage it properly we will have an opportunity to take advantage of a generational opportunities to build portfolios and capture the rally coming out the other side. What We Need To See |
| A week ago we said the risks are balanced. In an environment where upside risk, the market could rally sharply or downside risk, where the market could sell off our job is to be balanced. Extreme Oversold Conditions S&P 500 last Friday, was trading close to 30% below its long term moving average which has happened only a handful of times only in history |
| Apocalyptic Sentiment |
| Contraction in # of stocks making new lows – Indicating the systemic issue is starting to become less important – Tells us that good stocks have started to separate from bad stocks – Panic selling to dissipate |
Falling Correlations – As the market made a lower low, only 19% of stocks went back and made lower lows |
| Unmistakably Strong Breadth – Tuesday, we had a 13 to 1 up day , meaning 13 companies went up for every 1 down. |
| Emergence of Risk Seeking Leadership – Additionally, 94% of the volume on Tuesday, was up volume. |
| Positive Divergences from Credit Markets – Credit spreads have started to come in. People are more comfortable with credit risk – Last week, we have seen unprecedented monetary and fiscal stimulus |
Where We Are Today We are not going to push a lot of money into the market because bottoms take time to evolve after the type of decline we have seen. Markets are likely to remain volatile for the foreseeable future. We are defensively positioned with bonds and cash exposure as well as equity securities that have held up well through the decline. While we don’t expect to push a lot of money into the market right away, we also don’t expect to sell much more, we want to be balanced. Ensuring flexibility to move either way depending on market conditions. Watching how things evolve going forward certainly, but right now we are positioned to have low volatility in the portfolios until we get more information. We will be watching to see when the market pulls back what holds up in price and what sells back off again.As we test lows, the market will start to show us where the leadership is.Make no mistake, this selloff will have created a generational opportunity to add positions and build the portfolios as markets recover. The portfolios have held up far better than markets going through this decline. It is important to make money in a good market but more important to manage money in difficult markets. Sector Positioning as of March 30th, 2020 |