At the beginning of May, I did de-risk the portfolio via shorts in the Dow Jones and also some well out of the money put options in the S&P 500. Currently this decision is looking unnecessary, with May seeing risk appetite being fine.
The market taking a relatively hawkish Fed in its stride and the Gold price seeing a pull back. The cash equivalents I increased to 34% then, now it is 32% after some individual stock decisions that took my interest on the long side, of which there is more detail recently under the relevant section on the blog. Although bear in mind this weighting does not count the out of the money put options. After a boom in LICs a year or so ago there are slowly some that offer ok value. A lot of money was raised with SMSF being the buyers and this was a sign to be very cautious back then. It saw me realise gains from discount compression and the overall bull market and I exited the likes of MFF, TGG, HHV, PGF, AGF, GVF to name a few. Whilst there is a fair chance I may get stopped out on these indices shorts I may be able to make more on some recent trades buying GVF, HHV, AGF anyway if the bull market continues. I am also working a buy order in another. These LIC portfolios however also have the possibility of performing positively in a bear market. AGF may be a bit contentious me saying that but the correlation of China’s stock market versus others is quite weak. I will write more on AGF as I update the blog with some other portfolio holdings news later in the week. If I am stopped out note that my cash equivalents weight would fall to about 24% and my target is about 25%. If I am wrong it is probably because some measures of investor sentiment are displaying a lot of caution, and that any sort of caution has probably been unnecessary for over 7 years now. We could soon see many of the more bearish investors admit defeat and just buy some more equities. In that scenario the Chinese stock market may well do ok, I noticed the CAPE ratio back below levels before the huge recent boom began.
Gold has had a good breather and if I was an investor who didn’t have much exposure I would be using this opportunity to buy some. Personally I have just kept holding a few gold exposures that have been written about at the beginning of the year that are well in the money. The recent decline off the highs does not faze me as I mark these at my trailing stop levels, so I never consider the highs and how much dollars they were worth to begin with. I sometimes employ this strategy more as protection from the management of these companies in the resources sector that don’t have a great record through the cycle in my opinion.