Posted by kdadmin on September 20th, 2013.
When I was growing up, a common, Saturday morning cartoon television commercial would tell me, “You can’t have cookies for breakfast, but you can have Cookie Crisp!” Usually, I would have had breakfast by the time I saw this commercial. However, if I hadn’t, I would promptly go upstairs and eat cookies for breakfast just to spite that stupid cartoon wizard. No kooky wizard was going to tell me what I couldn’t eat for breakfast… Though I no longer regularly watch television, eating cookies for breakfast is something I still occasionally enjoy to to this day.
Sometimes, it just feels like a “Cookies for Breakfast” sort of day. With the markets in a presumptive frenzy and the Feds ready to release their “to be or not to be” buying bonds expose, Wednesday was one of those days. Almost two months ago, I dropped longer duration bonds and our exposure to the SPY ETF. However, I kept our exposure to small and madcap stock ETFs. This meant that I wanted to be ready to capitalize on a market recovery in September but also defensive enough that should it not materialize, we wouldn’t be pummeled.
If you look at the attached image, the S&P 500 is the shaded area. The brown line is a midcap ETF, the light green line is a small cap ETF, the light blue line is the high yield bond fund, the redline is your benchmark. Over the last two months, you owned more than 2.5 times as much of the mid and small cap ETFs than the high yield bond. In other words, you owned much more of the winners than the high yield bond hedge. So, you outperformed your benchmark in a volatile market. Excellent … (Source: yahoo.com)
Since July, the small and midcap ETF’s have performed admirably (though with lots of volatility), the high yield bonds have recovered and the short term high yields are off their record highs. Our cash positions have been a nice anchor in the storm.
That being said, it’s time to get back in. Over the next several days, you will receive trade confirms as we get out of cash and back into the thick of things. My plans still hold fast for more short duration, high yield bonds. I’m considering a bit of foreign exposure but think it may prove premature (more on this later). As for our stock position overweight, I’m probably going to use a Wilshire 5000 based ETF. I want broad exposure to the stock market consistent with a larger representation of small and midcap classes. Maybe we’ll be more specific in a few months, for now, the broad market seems to be enjoying the end of summer vacation.