Portfolio Review

By: Guy Lerner | Mon, Apr 5, 2010
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This is a real time portfolio managing real money. The portfolio is managed by ARL Advisers, LLC, the publisher of TheTechnicalTake blog. The ARL Advisers investment strategy is a global asset allocation strategy that is strategic, balanced, and targeted. The portfolio is designed to produce equity like returns with bond like volatility.

This is an actively managed strategy where investment funds are allocated toward asset classes with the highest potential for appreciation and away from asset classes with greater potential for loss. In essence, an element of market timing (i.e. using proprietary models) is added to a simple asset allocation model.

The portfolio is constructed with highly liquid exchange traded funds (i.e., ETF's). Our universe of assets includes: 1) international and domestic Treasury bond ETF's; 2) corporate bond ETF's; 3) currency ETF's; 4) commodity ETF's; 5) US Equity ETF's (i.e., style and sector); 6) foreign developed and emerging market ETF's.

The portfolio has been live since January 1, 2009, and it is currently being monitored by kaChing, a website that brings investment managers to the public. To view the performance of the portfolio and the current holdings, please click here: PORTFOLIO.

To invest with ARL Advisers, LLC via the kaChing platform and mirror this portfolio, you can click here: INVEST.

As always, if you have questions or would like to discuss your individual investing needs, please contact me via E-MAIL.

Portfolio Performance for Week: 0.75% gain

General Comments

The portfolio is positioned defensively with a 50% weighting in currency and gold. I do not have any long US equity exposure, and in fact, the portfolio is short US equities, and this position has a 30% weighting in the portfolio. The S&P500 gained about 1% for the week, and despite this short position against the S&P500, the portfolio managed a 0.75% gain.

Portfolio Purchases


The United States Oil Fund (USO) had a strong day on Thursday, and in fact, the much awaited break out appears to be upon us. Oil fundamentals aren't driving prices higher as supply and demand imbalances appear to be non-existent. Speculation and hope that the global economic recovery is taking hold appear to be the reasons for oil's bid. Regardless of the cause, USO is now trading above $40.45, a key pivot point from October, 2008. See figure 1 a daily chart of the USO. This key pivot point has served as resistance and there have been three prior failures in this area (labeled 1, 2, 3). This will be the 4th attempt to scale these levels. Maybe the buyers can punch through taking this to the next level at $51.58. Also noteworthy from a technical perspective is the series of higher lows (see blue up arrows).

Figure 1. USO/ weekly
United States Oil Fund Weekly Chart

There are several headwinds including a rising Dollar and an equity rally that is running out of steam. Then again, most market watchers would agree that fundamentals have little to do with the markets these days.

Last week's purchase represented around 5% of the portfolio, and I would look to increase this holding to about a 15% weighting on a pullback to the $40.50 area.

Portfolio Sells


Other Important Positions


I discussed this position in the article "On Dealing With A Bad Trade". This is the Ultra Short S&P500 ProShares (symbol: SDS), and this is a 2x leveraged product that "tracks" the S&P500. This position has been nothing but angst as the market only knows one direction: up. The rationale - overly bullish sentiment + extremes in the trends of gold, crude oil, and Treasury yields = bad outcome -for the strategy remains sound, and if anything, the collective trends in gold, crude oil and Treasury have become stronger. Equities will be prone to air pockets. From a portfolio perspective or is it just wishful thinking, wouldn't a spike in crude oil that kills the equity rally be a wonderful thing?

SDS has a 30% weighting in the portfolio.


I believe we are getting some resolution to the bond v. yield issue as the yield on the 30 year Treasury has remained above support levels.

On a cash basis, the Ultra Short Lehman 20 plus Year Treasury Fund (symbol: TBT) is 13.5% of the portfolio, and being this is a 2x leverage product that bets on higher Treasury yields, this gives me a 27% effective weighting in the portfolio.

I reviewed the technical rationale in this article, "Higher Yields, Lower Equities?", and I believe the technical characteristics are present that could lead to a spike - not a slow climb - in Treasury yields.


Proshares Ultra Short Yen (symbol: YCS) has been a portfolio holding for sometime. Back on January 29, 2010, I stated the following:

"The US Dollar should outperform the Japanese Yen, which is on the cusp of a secular down trend."

There is no question that the Yen is going lower, yet don't expect this to occur in a straight line. I expect the YCS to run into resistance at $22.87. As we are expecting a secular move, I expect YCS to be a portfolio holding for a long while.


My other currency position is in the SPDR Gold Trust (symbol: GLD). This represents about 18% of the portfolio. Gold and other risk assets (crude oil, equities) appear to have benefited last week from weakness in the Dollar.

One would think that rising Treasury yields would be a Dollar positive in an environment where there is a lot of debt. After all, if interest rates are rising, you want to pay that debt down as quickly as possible. On the other hand, if you don't have the Dollars on hand to pay down your debt, I guess you just print them. Until the tough medicine (higher interest rates, fiscal responsibility, debt reduction, etc) is really doled out, the perception will always be that the Federal Reserve has one option and that is to inflate the debt away. This kind of thinking is gold positive. To a large degree, the Dollar Index continues to dictate market direction. Last week's Dollar weakness was Euro positive but by the end of the week, there was no trend reversal in the EURUSD cross rate. The trend favors the Dollar continuing on its upward path, and there might be an opportunity to buy GLD at lower prices. Support remains at 106.82 on the GLD.



Guy Lerner

Author: Guy Lerner

Guy M. Lerner

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