Facing Portfolio Reality

Ulli Uncategorized Contact

With the markets having been in a rally mode for the past 9 months, some of your no load fund/ETF holdings are most likely showing different gains. If you listen to some of the media, however, you should sell your laggards and load up on the winners.

While it’s certainly advisable during an uptrend to sell an underperformer (I have done that too by liquidating SWHEX), it is not smart to swap a large portion of your portfolio for the latest and greatest no load fund or ETF. While it may be tempting to play performance catch-up, this can be a two-edged sword. Just because your best friend was fortunate enough to pick better performers than you did last year, doesn’t mean that it is the right thing for you to do at this time.


For one, when the market turns, and it will, those top performers will be hardest hit and can turn your slowly accumulated gains into losses. Two: if the market defies all odds and continues its upward path, you may see some sector rotation due to the ever changing economy, which may cause some of your laggards to pick up some steam.

So, when is the time to make major adjustments? If you’re following my trend tracking approach, the best time is at the beginning of a Buy cycle. That’s when you need to determine your risk tolerance before you select the funds/ETFs to be invested in.

Remember, this is not a life or death decision in that you’re not holding these funds forever (as you might with Buy & Hold). Your plan should be to select those with a focus on an average Buy cycle duration, which historically has been some 14 months.

I have to say that in my advisor practice (with the benefit of hindsight) my selections last year were very much on the conservative side, and I have made some adjustments to account for stronger performing sectors. However, trying to revamp an entire portfolio at these lofty levels, by shifting into a more aggressive mode, would be a disservice to my clients and would definitely not be in their best long-term interests.

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Comments 2

  1. Ulli,
    It doesn’t seem to make sense that you would use SWHEX in a trend tracking system. As a long-short fund, this investment is designed to reduce volitality and do well in up and down markets. Due to it’s make-up, it is likely to underperform in a bull market, and would tend to have less momentum than other funds. Please explain how such a fund became one of your holdings. Thanks.

  2. After last year’s May/June market melt down, and our subsequent Buy signals, I looked at some funds with low MaxDD% numbers, meaning that they had an above average ability to resist market corrections. SWHEX was the fund I added to some clients’ portfolios.

    As the upward momentum continued, this fund lagged behind others, as you already said it might, but it also did not hold up better during pullbacks. I gave it a fair chance, but after being behind by some 50% in performance, I liquidated it in April for a meager gain of 6.5%.

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