Author: Joseph Ollis, Everyday Capital
Covestor portfolio: Everyday Portfolio
The Everyday Portfolio selects up to 11 securities from a diversified basket of asset classes on the final trading day of each month. In basically a flat month full of volatility, the portfolio outperformed the benchmark in November, returning 0.55% versus -0.51% for the S&P500.
The model continues to be conservative due to heavy volatility in the market, but it is introducing equity exposure in leading areas. For the month of December, the model is introducing equity exposure to large cap US, small cap US and our favorite emerging market, Malaysia.
Throughout the month of November, volatility was king. However, under the covers of the volatility, some positives started to emerge.
First as a recap, the Everyday Portfolio ranks all assets by a proprietary measurement which uses an asset return and its volatility. Then it filters to only include assets determined to be in an uptrend and finally uses volatility to allocate percentage positions in the portfolio.
Again, in our latest rebalance for the month of December, the Everyday Portfolio is introducing large cap U.S. and small cap U.S. exposure. Both of these assets are actually leading the U.S. Treasury Bond complex, according to our proprietary measurement. This means that though the equities are displaying extreme volatility, they are also seeing an underlining bid and we expect decent returns. We are initiating small ‘starter’ positions, anticipating a possible rebound. The equity positions are very small due to the continued volatility.
Possibly more interesting is the high beta position of Malaysian equity in our portfolio this month, via EWM. Malaysia was selected as leading high beta assets once already this year, in June. That position resulted in a minor loss. However, according to our work, in the past Malaysia has been a leading tell of shifts toward emerging market equity outperformance.
Still, the portfolio is only weighted about 25% in equities, leaving much bond exposure. This is still a very defensive posture.
Let’s see how December and the remainder of 2011 plays out.