Saturday, April 25, 2009
Returns for week ending 4/24/09
Model portfolio, hypothetical returns for past…
1 week: -2.8%
52 weeks: +19.8%
Value of $10,000 invested at inception in 2003: $52,908
S&P 500 Index, returns (with dividends) for past…
52 weeks: -36.0%
Comment regarding past few week's performance: The model portfolio has not participated in the market gains since the March bottom. This is disappointing of course, but not a complete surprise due to the nature of the current rally, rebounding sharply off of a historic market sell-off.
Market technicians have noted that this rally has been largely fueled by "short covering" as evidenced by the tepid trading volume. This means that the formerly "most heavily sold" stocks with the biggest 52-week losses are now seeing the greatest gains. In other words, the market's lagging sectors have been leading this rally. There is a saying that "even turkeys can try to fly in a windstorm."
It is important to note that the Strategic Growth Model is purposely designed to deliver non-correlated returns over time, and its short term performance will often not mirror the market trend. Of course, when market conditions are poor, this is a very good thing, as evidenced by the model portfolio's 52 week returns vs. the S&P 500 index. The Strategic Growth Model has continued to perform within its design thresholds, even making a new high water mark a few weeks ago.
As for the current rally, market internals currently indicate it is a bear rally and prone to failure. At some point market internals will become more robust and capital will favor growth stocks over the market laggards. At that time, I expect the Strategic Growth Model will again outperform the market as it detects the leading stocks in the ascendant sectors where growth capital is flowing.
In the meantime, the model's stock selection engine is finding very few growth stocks meeting its strict selection criteria. As a result the model portfolio is now holding more than 50% cash which will reduce the portfolio's risk as we await improved market conditions.