Over the past several weeks, the markets have begun to demonstrate a few changes in trends that may prove to be helpful. First, the start of an advancing trend in foreign emerging markets (such as China, Russia, India, Brazil, and yes Greece) has strengthened, enabling us to bring our allocation to this area up to a fully invested position (which is 20%). This is currently our largest single holding in many portfolios, and is finally producing meaningful gains after several months of severe volatility and uncertainty.
We also hold half-positions in most of our other major market segments: U.S. Large Cap Value (Russell 1000 Value), U.S. Large Cap Growth (NASDAQ 100), U.S. Large Cap Blend (S&P 500), and U.S. Commercial Real Estate (Dow Jones Real Estate Index). Together, this brings our current allocation to approximately 55% invested and 45% cash. We currently hold no bear market indexes (designed to go up when the market is falling), nor do we currently hold any high yield bond position (which at most would be 10% of our portfolios).
The result lately has been to participate more in the markets. Last week was one of our best in several years (and probably our best in 2011). Lately, our portfolios have participated in a bit more upside than would be expected. But that’s how we’ve built them: once a sustained trend takes hold it would not be unusual to narrow that gap between where the markets are for the year and where we are, relatively speaking. With an encouraging fundamental backdrop (lower U.S. unemployment rate, better-than-expected Thanksgiving sales figures, and most importantly signs that Europe is taking steps to address their credit woes), there may finally be a light at the end of this year’s winding and very dark economic “tunnel.”
The market remains very volatile as you’re no doubt keenly aware. How could you miss it? It’s on the news everywhere, and as a result it’s on the mind of practically everyone as we head into the end of the year. I’ve said for years that bad news tends to create worse news and good news tends to create better news. The trend is shifting slightly from a slough of bad news to just a bit more optimistic, and we’ll take it. The reality is that right now there’s so much bad news already figured into the markets that and good news is given the “royal treatment:” fireworks, heralds of trumpets, cheers and bright lights. Good news when none is expected is perfect for this time of the year.
Makes sense. ‘Tis the season to be jolly, after all!