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Cornerstone Portfolio Pulse – 2Q18

Cornerstone Portfolio Pulse – 2Q18

A summary of portfolio positions and holdings in the CornerstoneAMS tactical portfolios

April 24, 2018

“There can (and likely will) be bumps along that road, but continued growth from the stock market seems expected. -Excerpt from January 2018, 1Q18 Portfolio Pulse

As we noted in January’s Portfolio Pulse for the 1st quarter – an uptick in volatility was certainly overdue.  And it certainly delivered as the volatile 1st quarter came to an end in March!  The stock market experienced its first 10% correction – in what seemed like forever – at the beginning of February and slowly settled into a trading range environment for the balance of the quarter.

First noted in internal research meetings on January 18th and 22nd we began to see the market ‘not acting right’ even in the face of very strong economic news and on January 31st we concluded that as a general firm opinion – we would not add further equity positions at that juncture until things cleaned up a bit.

If you’re a frequent reader of our research, you’re familiar with Ken Reinhart’s Volatility Recipe as he’s offered it several times throughout the last quarter as a topic in his weekly emails.  Its first official mention came on 2/5/18 as he outlined that the current market environment was lining up for some volatility.  You can read more here. He and I theorized and discussed at the beginning of February that this volatility could lead us into a trading range that could potentially span several months (we offered until perhaps the next cycle of earnings releases came about in mid-April).

Today, we still sit squarely in the middle of the trading range – with a couple tests of the lows of that range behind us.  We question what might be the driver for the market to kick us out of this range as the earnings calendar nears its end.  We believe that being completely open-minded to two polar opposite potentials is an absolute must. Preparation for a move higher and equal preparation for a move lower – whichever wins will drive allocations for the 2nd quarter.

CAMS Capstone Portfolio As outlined above, our buying has been limited to say the least since the end of January. We’ve maintained our discipline and were able to hold most of our allocations throughout the quarter, not triggering sell stops. The Technology sector has been our largest weighting for the year so far. A sell of the Rydex Electronics fund with a gain of nearly 10% as volatility picked up brought cash allocation up to roughly 30%.

1Q18 Performance (net of fees): CAMS Capstone Portfolio, +0.05% S&P 500, -1.22%

CAMS Cornerstone Portfolio Similarly to Capstone, a portfolio allocation of roughly 70/30 has been held for the Cornerstone portfolio. A broader, more diverse holdings mix is the allocation, but relative strength in the Technology sector has kept us there as the largest single sector holding.

1Q18 Performance (net of fees): CAMS Cornerstone Portfolio, -0.06% S&P 500, -1.22%

CAMS Foundation Portfolio The CAMS Foundation Portfolio, being more conservatively managed, has maintained a 50/50 allocation going into the 2nd quarter.  A single Technology holding and Small Cap Growth holding are the offense in that portfolio so far. Traditional style box investments like Large Cap Value being out of favor at this time have held back this more conservative portfolio.

1Q18 Performance (net of fees): CAMS Foundation Portfolio, -2.15% S&P 500, -1.22%

CAMS Managed Bond Portfolio An additional challenge being faced by the markets is being squarely in a rising interest rate environment. Certainly a challenge for a bond portfolio, but one we’re managing through quite well so far.  Allocations to floating rate funds, a rising rate fund hedge position and elimination of any duration exposure, have allowed us to minimize the interest rate risk to the portfolio. If you’re not considering tactical management in your fixed income allocations, why not?

1Q18 Performance (net of fees): CAMS Managed Bond Portfolio, 0.00% Bloomberg Barclays US Aggregate Bond Index, -1.46%

CAMS Equity Rotation Portfolio The CAMS Equity Rotation Portfolio has been completely redesigned heading into 2018.  A new portfolio construct now allows for purchase of individual stocks in addition to ETF’s and mutual funds. It is built to leverage the full capacity of the CAMS research universe and seek aggressive opportunities. Capitalizing on one of our high priority & high impact themes – Cybersecurity in the advance of the technology revolution 2.0 (ask for more details if you’re curious what I mean by that) we have added positions in that space in addition to several other ‘tech 2.0’ stocks.

1Q18 Performance (net of fees): CAMS Equity Rotation Portfolio, 1.78% S&P 500, -1.22%

For information on any of the other Cornerstone tactical portfolios – specifically the ‘Fund Family portfolios from American Funds, Invesco Funds, Oppenheimer Funds, Pioneer Funds or Franklin Funds, just reach out to me at: nick@cornerstoneassetmgmt.com.

Our allocations can and do change quite frequently, so the above allocations may have changed significantly since the writing of this summary.

As always, keep an open mind, value your research and trade the data.

Nicholas Anastasakis

Senior Vice President

Portfolio Manager

Footnote:

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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