Following the recent upheavals in the stock market, I have decided to further strengthen my tactical asset allocation strategy. The adjustments made last year as part of my portfolio diversification have borne fruit since thanks to them I was able to limit the damage (-2.5% against -5% on the market over the last month). However, given that I am considering a correction of greater magnitude and over a longer period, I have undertaken some fundamental adaptations in the management of my portfolio which should allow it to adapt even better in the future to different market situations. My objective is as much to prevent risks as to seize opportunities.
From now on I will first distinguish the equity positions of developed countries according to the regions: Switzerland, Europe, USA and Japan. Thus, if trend reversals only appear in certain places, we will be able to detect the signal early enough and reduce positions or move to cash, according to Meb Faber's approach. This can also be a leading indicator for other regions. As with other assets, I use different moving averages depending on the positions. I have indeed found that the 10-month average recommended by Meb Faber does not work optimally for all assets and indices.
As a reminder, I am not a huge fan of these technical indicators, however, as a good Swiss, I am also pragmatic. Having done many tests and as much research, I found that Meb Faber's methodology worked quite well. Nothing extraordinary in terms of profitability (only slightly better than buy&hold), but rather in terms of risk reduction. That being said, I wanted to go a little further, by adding fundamental criteria to weight the allocation of the different positions. So now, in addition to moving averages, I also use the Price-to-Book ratio to determine the distribution of stocks between developed and emerging countries. In addition, I now also take into account 10-year bond rates (Swiss Confederation) to decide the overall distribution between stocks and bonds, according to B. Graham's principles.
J'ai également décidé d'ajouter deux petites positions relatives à des stratégies de type alternatives, comme celles utilisées par les hedge funds. Jusqu'à présent j'ai toujours considéré que ces approches devaient être utilisée séparément d'un portefeuille avec allocations d'actifs, mais les récents événements me font penser qu'elles peuvent permettre de diminuer la volatilité du portefeuille, en particulier en cas de baisse du marché, ou au contraire de profiter des opportunités lors d'un mouvement de reprise.
The first alternative approach is the long/short strategy, which consists of either taking long positions on some stocks and short positions ("short selling") on others, or alternating long/short positions depending on the market. Personally, I have fun with ETF pairs like SPY (1x) / SH (-1x) and SSO (2x) / SDS (-2x). Be careful, it is better to know what you are doing when you venture into this. If you do not want to take too much trouble, but still use a strategy of this type to reduce the volatility of your portfolio while maintaining good profitability, you can turn to the FTLS ETF which plays in both directions using a fundamental approach, and which does not do too badly (5 stars on Morningstar).
The second alternative approach is to take advantage of opportunities, using a leveraged ETF, in this case UPRO (3x). To determine whether the position is invested or cash, I use both Meb Faber's moving average approach and the fundamental Price-to-Book ratio approach. This means that this position is invested only during uptrends and its weighting varies from zero to several percent depending on the market valuation. In July 2009 for example, this position would have gone from cash to invested with a weighting of 10%.
What are the effects of these adjustments on my asset allocation? First, the target allocation for the four developed country regions (Switzerland, Europe, North America and Japan) is slightly decreasing, to 60% in total. I have decided not to break down the percentage for each of these locations. What matters is the total weighting in equities and the selection of quality stocks at low valuations. After all, we are looking for the best deals, whether they are from here or elsewhere. However, in order to help in this quest, I now give a rating out of five stars for each region, ranging from the least attractive (one star) to the most attractive (five stars). It should be noted, however, that it is possible to find opportunities in overvalued indices. The reverse is also true.
En ce qui concerne les pays émergents par contre je continue à les pondérer séparément. Je les considère en effet comme une classe d'actifs légèrement différente. Etant donné leur valorisation assez attractive du point de vue du P/B ratio, la pondération monte légèrement, à 8%.
Apart from Europe, all equity positions remain invested, as malgré la récente baisse, la tendance à long terme est toujours positive. Pour les titre européens, il faut soit vendre l'ETF correspondant soit commencer à alléger les positions en actions, c'est-à-dire se séparer des moins bons élèves. En ce qui me concerne il y a British American Tobacco qui en fait les frais. Cette position commençait à devenir grosse car j'avais il y a déjà bien longtemps du Lorillard qui a été acheté par Reynolds American, qui a été racheté son tour par BAT. De plus le dividende a baissé en 2017. Je me sépare aussi d'Astaldi pour raison de manque de liquidités. Désolé pour les lecteurs qui m'ont suivi sur ce coup l'année passée.
More generally, given the valuation of the market as a whole, it is appropriate, as always, to focus on stocks with low valuation ratios. There are not many left, at least in Switzerland and the USA. On the other hand, in Japan there is still plenty to do.
Pour les obligations longues, la position reste cash, car la tendance est baissière et il y a de mauvaises perspectives à l'horizon en termes d'inflation et donc de hausse de taux d'intérêt. La pondération tactique a également baissé de 10% à 6%, vu que je tiens compte désormais également des taux à 10 ans de la Confédération pour répartir la part actions et obligations.
Regarding gold, the position is also still invested and I am happy to have started it last year. No monstrous gain certainly, but it feels good in a portfolio when the markets are volatile. Same for real estate!
To conclude, I have only one regret, that of not having shorted bitcoin last December. And to think that I hesitated for a long time 🙂 ... But rest assured, it won't be here tomorrow!
| Target Tactical Asset Allocation | Position | ETF | Target |
| CH Actions * | Invested (Equities or ETFs) | CHSPI | 60% |
| Actions Europe *** | Light (Stocks) or Cash (ETF) | CSSX5E | |
| USA Actions * | Invested (Equities or ETFs) | CSSPX | |
| Japan Actions **** | Invested (Equities or ETFs) | SJPA | |
| Emerging country actions *** | Investment (ETF) | IEMS | 8% |
| Real Estate CH | Investment (ETF) | SRFCHA | 15% |
| CH Confederation Bonds 7-15 years | Cash | CSBGC0 | 6% |
| Gold | Investment (ETF) | AUCHAH | 5% |
| Long/short strategy | Invested (Equities or ETFs) | FTLS | 5% |
| Leverage strategy | Cash | UPRO | 0% |
| *Rating: 1* (very expensive) to 5* (very affordable) | |||
Discover more from dividendes
Subscribe to get the latest posts sent to your email.
The big question is indeed: Are we at the beginning of a major correction? Personally, I expect a decline of at least 10% from current levels, but it is hard to know what will happen next.
In any case, I remain faithful to my philosophy and I am not selling shares massively. On the contrary, I hope to be able to acquire new positions in the coming months at more interesting prices. And I am impatiently waiting for April – May to receive my 14th salary 🙂
Regarding BAT: I read that they changed their dividend distribution method from 2 or 3 to 4 tranches per year. If I understood correctly, part of last year's dividend will still be paid in early 2018. So I don't think the dividend has decreased, but we should check.
Maybe so, but I still preferred to close the position because some of my other indicators were not at their best.
So I'm starting to reduce the sails a little. Like you, I'm not going to sell massively either but rather take advantage of it to do a little more cleaning. It's going well, it's almost spring... Well, we have to believe it!