The Undiscovered Portfolio within ETF Strategist is delivering exactly the kind of return we’d hope to see in a down market, with three of four funds showing gains as of Thursday.
As you see in the table below, even the fourth fund has only a small loss of less than 2%. That’s well ahead of recent performance in the major indexes.
| Undiscovered | Symbol | Date Bought | Price Bought | Price on 6/7/22 | Dividends | Gain/ Loss % | Allocation |
| Invesco Dow Jones Industrial Average Dividend ETF | DJD | 04/08/22 | 46.35 | 45.65 | 0 | -1.51% | 0.4 |
| VanEck Morningstar International Moat ETF | BTAL | 04/26/22 | 19.86 | 20.44 | 0 | 2.92% | 0.3 |
| Direxion Daily S&P 500 Bear 1X Shares | SPDN | 02/18/22 | 15.27 | 15.91 | 0.018 | 4.31% | 0.2 |
| Invesco S&P SmallCap Energy ETF | PSCE | 03/28/22 | 10.05 | 11.64 | 0.01358 | 15.96% | 0.1 |
So what do each of these asset classes mean, in terms of the allocations?
- Anchor: 40% Base equity position to build around
- Tilt: 30% Tactical position to supplement the Anchor
- Hedge: 20% Main defensive position to provide balance
- Wildcard: 10% Rotating position in a more volatile ETF
As you see, there’s no traditional asset allocation in the sense that we’re adding funds to track a specific market cap, region, sector or theme. Instead, we’re looking at each slot to play a particular role.
For example, for the 40% slot, we’re choosing from a wide number of ETFs, some dividend-oriented, but others not. While many investors focus simply on price appreciation, that’s a mistake, as dividends often comprise a significant percentage of broad index returns. You can think of dividends as rent payments you get on stocks or ETFs that you own. The underlying “property” belongs to you, and you receive regular payments as an owner, regardless of the security’s current market price.
In the 30% slot, we want a supporting position with a tilt toward another asset class showing an upward trajectory across multiple time frames. We choose from a number of asset classes that may accomplish this.
The 20% slot, as noted above, is to allow for an ETF that’s not highly correlated with the broader equity market. Currently, the S&P 500 inverse ETF serves that purpose. This serves as a control for volatility and market correction.
The 10% slot allows us to capture returns from an ETF with a higher risk profile. Here, you see that we’re capitalizing on the upside risk inherent in the small-cap energy sector.
And to clarify a point that I’ve gotten some questions about: ETF Strategist gives subscribers the trades to make, via trade alerts. You are not responsible for poring over charts and indicators to determine buys, sells and holds. We do that for you.
However, many readers have asked for a little background on how these decisions are made.
While we don’t make trades in this portfolio on some kind of pre-determined basis, we do use an algorithm based on various moving averages, such as the 20-day and 50-day.
We also evaluate how an ETF is performing over shorter time frames, since the market tends to move very fast these days. Short time frames, such as hourly vs. daily, can show you institutional buying and selling in nearly real-time.
Trend lines also help us evaluate whether a trade has the potential to overcome resistance, or whether it appears more likely to break support and crater.
The Undiscovered Portfolio, constructed with lesser-known or smaller ETFs, gives you an opportunity to nab gains regardless of what the market is doing, as it’s not based on traditional asset-allocation principals.
If you have more questions about this, feel free to contact me at kate@cabotwealth.com.