We mentioned last week that we wanted to spend this time going into 2 of the strategies we have in our portfolios. As we have seen over the last few weeks, previous unknowns are now potential knowns. This includes the President-elect, the US Congress, and a mostly effective vaccine for COVID-19. This checks a lot of the unknown boxes which allows us the ability to move into opportunity areas within our rules-based investments.
The first strategy we talked about is the Economic Gold Rotation. This strategy applies to our moderate and growth portfolios. It has a single signal that is unique to this strategy so there is no overlap with our other signals. This is important because it provides signal diversity. We watch the Conference Board Leading Economic Indicators (LEI.) We take this month’s number and compare it to 12 months prior. If the number today is higher, we are in equities, if the number is lower, we are in gold. If we are in equities we look to momentum because the trend is your friend. First, we allocate 60% to the top-performing sector of the previous 6 months. Second, we allocate 40% to the 2nd best performing sector over the same time period. This is a long-term trend that helps a portfolio in two major ways. It can allow the opportunity to properly chase growth in performing sectors while giving exposure to the commodities sector as a strong inflation hedge.
The second strategy we talked about was our Dynamic Fixed Income. A third of the portfolio is anchored in an aggregate of US bonds. The other two-thirds rotate depending on a credit spread between high yield and treasury bonds. If the difference between the two numbers is widening, we rotate away from high yield bonds into high-quality treasury bonds, because we believe this is signaling a flight to safety in bonds. If the difference between the two numbers is narrowing, we rotate out of the treasury into high yield bonds. In this case, we are taking on more historically calculated risk to be in an asset class that tends to mimic large-cap value stocks while producing a quality yield. This strategy has the ability to partially rotate weekly and internally it can rotate daily. As you can see it is very dynamic and thus why it earned its name. It is a fixed income that provides an attractive yield while potentially growing like value stocks.
We look forward to talking to you next week. Please go and check out The Chase Podcast. We have been working hard on this as a team and Chris takes us deeper to talk about what God has said about purpose and finance.
As always we are grateful for the trust you place in us here at Sound. We don’t take that lightly. And we are always opened to try to cover your specific question on our weekly podcast, but always feel free to call to speak with your advisor at 601.856.3825 or email us at firstname.lastname@example.org.
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