Author: Brendan Ruchert-Dixon
Covestor models: Alpha Trapper, Beta Blocker
Disclosures: Long ASFI, BSV, VTI, VWO
July was the first full month for the Beta Blocker model, established in early June. Since I intend to make trades less frequently in this model than in its longer running companion Alpha Trapper, I might not have something to report every month. But I’ll give an overview here of what I hope to accomplish long-term and how the positions I’ve taken fit with that goal.
I plan to use many of the same strategies in this model that I have developed in my personal investments and in the other Covestor model, but the focus here will be more heavily on limiting risk / preserving capital. Ideally, I’d like to achieve similar annual returns with volatility significantly less than half that of the S&P 500.
The positions I have established in the model so far reflect these goals. The largest allocation by far is the Vanguard short-term bond ETF (NYSE: BSV). The returns are fairly low at this point, but the risks are relatively low as well. Having a large pool invested there should stabilize returns and provide me with a source of capital to draw from if I do see some much better opportunities.
I have coupled this with an investment in Wisdom Tree Emerging Markets Local Debt ETF (NYSE: NLD), which carries bonds as well but is not tied to the value of the dollar. Smaller allocations have been given to the stock markets of the US and emerging markets with Vanguard Total Stock Market ETF (NYSE: VTI) and Vanguard MSCI Emerging Markets ETF (NYSE: VWO).
As of July 29, I also have some money allocated to ASFI, which I see as a value story right now. ASFI is an exception to how I intend to normally run the model. I won’t invest in individual stocks unless I see a very compelling reason, as in this case.
The model’s short positions are across a variety of asset classes and are intended to capture leveraged or contango-related decay. I have kept each individual short position fairly small to limit the risk of each one running away to the upside. Some of these positions are bullish/bearish pairs of leveraged ETFs (e.g. UCO/SCO and AGQ/ZSL), which further limits the risk, since one will always be down when the other is up.
See more about my new model: Beta Blocker