Weekly Update

Major indexes ended the quarter down (only) between 2.5% to 5% because of Friday’s unexpected rally. Eurozone leaders spearheaded the charge by actually agreeing to help troubled European banks, ultimately leading equity markets to post the best June results in twelve years.

 

Index                                    June                      Q2                          YTD

Dow                                       3.93%                    -2.51%                  5.42%

S&P                                        2.03%                    -3.96%                  8.31%

NASDAQ                              3.81%                    -5.06%                  12.66%

FDL                                         5.69%                    6.46%                    8.32%

 

A fundamental objective of my investment approach is to minimize the impact of market pullbacks, and the performance summaries below confirm that my featured portfolios performed as expected last quarter (when compared to the major indexes). Portfolios #1 and #2 below are designed to provide investors with a low level of volatility by utilizing high dividend-paying equity funds as core holdings. Conversely, Marea’s actively managed portfolio is positioned as a growth investment that targets an 8% return, averaging approximately 30% less volatility than the S&P.

 

Buy and Hold Conservative Portfolio #1

Strategic asset allocation: 50% equity, 40% fixed income, 10% cash

3 year standard deviation (measure of risk)                                                         7.58

3 year standard deviation for the S&P 500                                                            16.69

2012 target return:                                                                                                          6.00%

Q2 return:                                                                                                                           -0.28%

Year to date return                                                                                                         3.84%

 

Current Holdings

Symbol Weight                Positions                                                                             YTD

                                                                                                                                                Return

AGG      20%                        iShares Barclays Aggregate Bond                              2.28%

DVY        15%                        iShares Dow Jones Select Dividends                        6.43%

IJH          5%                          iShares Midcap 400                                                         7.86%

DIA         5%                          SPDR Dow Jones Industrial Average                        6.72%

VIG        20%                        Vanguard Dividend Appreciation                              4.87%

BSV        20%                        Vanguard Short Term Bond                                         1.01%

VB          5%                          Vanguard Small Cap                                                        9.05%

SPRXX   10%                        Fidelity Money Market                                                  0.01%

 

 

Buy and Hold Conservative Portfolio #2

Strategic asset allocation: 55% equity, 40% fixed income, 5% cash

3 year standard deviation (measure of risk)                                                         9.33

3 year standard deviation for the S&P 500                                                            16.69

2012 target return:                                                                                                          6.50%

Q2 return:                                                                                                                           -0.22%

Year to date return:                                                                                                        5.40%

 

Current holdings

Symbol Weight                Positions                                                                             YTD

                                                                                                                                                Return

RFG        5%                          Guugenheim S&P Midcap Pure Growth                 7.40%

XLI          5%                          Industrial Select Sector SPDR                                      6.52%

AGG      20%                        iShares Barclays Aggregate Bond                              2.28%

IHE         4%                          iShares Dow US Pharmaceuticals                              14.01%

RWR      3%                          SPDR Dow Jones REIT                                                     14.74%

SPY         15%                        SPDR S&P 500                                                                    12.50%

BSV        20%                        Vanguard Short Term Bond                                         0.43%

VB          5%                          Vanguard Small Cap                                                        9.38%

VOX       3%                          Vanguard Telecom                                                          9.30%

DTN       15%                        Wisdom Tree Dividend Ex Financials                        5.57%

SPRXX   5%                          Fidelity Money Market                                                  0.01%

 

 

Marea’s Actively Managed Growth Portfolio

Current asset allocation: 38% equity, 19% fixed income, 36% cash

3 year standard deviation (measure of risk)                                                         12.10

3 year standard deviation for the S&P 500                                                            16.69

2012 target return:                                                                                                          8.00%

Q2 return:                                                                                                                           -2.00%

Year to date return:                                                                                                        8.38%

 

Current Holdings

Symbol Current                Positions                                                                             YTD

                Weight                                                                                                                 Return

AGG      12%                        iShares Barclays Aggregate Bond                              2.28%

CSJ         7%                          iShares Barclays 1-3 year Credit Bond                      1.67%

PGF        7%                          PowerShares Financial Preferred                              15.34%

DIA         19%                        SPDR Dow Jones Industrial Average                        6.72%

SPY         19%                        SPDR S&P 500                                                                    12.50%

FDRXX   36%                        Fidelity Cash Reserves                                                   0.01%

 

Please note that I sold out of the following positions during Q2.

Industrial Select Sector SPDR (XLI)

Guggenheim S&P 500 Equal Weight (RYF)

Guggenheim S&P Midcap Pure Growth (RFG)

iShares Midcap 400 (IJH)

Vanguard Small Cap (VB)

Vanguard Small Cap Growth (VBK)

 

While I will continue to track the performance of Portfolios 1 and 2 as originally recommended at the beginning of 2012, you may want to consider replacing DVY and DTN with the First Trust Morningstar Dividend Leaders (FDL), which has generated superior performance to DVY and DTN—with considerably less downside risk. FDL has equaled the S&P’s year to date return of 8.3% with approximately 30% less volatility.

 

Marea’s actively managed IRA is currently holding 36% in cash, and at this time, I do not feel a sense of urgency to augment the equity side of the portfolio, as the U.S economy has contracted somewhat, and there has been a recent increase in jobless claims. Additionally, summers are typically flat, culminating with volatile Septembers, which have a history of being the worst performing month of the year.

 

There is also the continuing saga in Europe, and it is becoming somewhat tiresome to view the same cast of characters of this big screen tragicomedy through jaundiced eyes.

 

On a positive note, expectations will not be high this earnings season. Consequently, one potential move in Marea’s portfolio is to invest approximately half of her cash position in a dividend producing equity fund and short term bonds. The bottom line is to remain cautious entering the dog days of summer…

 

and have a great 4^th of July.