The bounce in the second half of March seems to indicate so. Bullish analysts celebrated when the S&P 500 pushed above its 50- and 200-day moving averages earlier in the quarter. However, it was short-lived, as the last couple of trading days took the S&P 500 back below those levels.
Volatility is the central theme, and our current client-approved newsletter frames what investors are experiencing in the context of an amusement part. The wild ride started on the first trading day of January as the S&P 500 hit a new record high. After trading to a record high on the first trading day of January, the S&P 500 then fell 13% to its closing low in early March before rallying 11% from its closing low right up until the third to last trading day of the quarter. It’s not that often that you see a 10% move in either direction within a given quarter, but seeing 10% moves in both directions indicates just how hectic of a quarter it was!
Fortis Portfolio Solutions: Q1 Performance
Fortis Leaders 50 Stock and Fortis Alpha 40 Stock Strategy
Our focus in both strategies is to replace stocks that show a strong bullish trend, strong sales growth over the past 12-months, and more sub-industry diversification. Additionally, we selected stocks in industries that we believe are currently more technically strong and removed stocks that had weak trends.
The advance-decline (A/D) line is one of many critical technical indicators to measure market breadth. The Advance/Decline Line counts the number of advancing stocks less the number of declining stocks for a given index or sector. The cumulative A/D line is insightful to signal confirmation of a trend by indicating broad participation of the underlying stocks in a particular index or sector.
Based of this logic, we sold several positions in Health Care and Information Technology. We bought several positions in Energy, Utilities, and Consumer Staples. These notable shifts have prompted us to weigh the stocks in the portfolio towards a less value-oriented status and back into growth stocks. Notably, Alpha 40 contains a high percentage of growth stocks, the market sector that has performed the worst year to date. However, the tech sector is starting to show signs of a turnaround, and we anticipate portfolio returns above the index in the coming quarters. Fortis Leaders 50 aligns more defensively; the value tilt has worked well in the first part of the year, and we decided to capture profits and begin to build back more growth-oriented stock positions.
Fortis Active/Passive ETF Strategy
The model continues to favor a strong allocation to Real Assets and Fixed Income with less emphasis on Equities. While there are early signs of the beginning of a rally, we need confirmation of this trend to move more heavily into stocks. Equity allocation is hovering around 40% for all versions of the Active Passive. (100%, 80%, 60%, 40% Max Equity) and the allocation is mostly concentrated in large, mid, and small-cap stocks. A slight tilt to value remains, and international allocations are almost non-existent.
Corporate Bonds and TIPS account for most of the allocation for Fixed Income across all risk strategies, and Commodities, Gold, and Real Estate occupy the holdings in the Real Asset category. Hindsight is always 20/20, but in the case of adding back Real Assets to the model in May of 2021, the results have been outstanding.
Rolling 1 Year Returns (as of 4/4/22)
GSG ( +62.88 % )
GLD ( +18.39%)
USRT ( +22.31%)
Some of our clients were caught off guard by the K-1 issued late for 2021 tax filings. – hopefully, the impressive performance in this position helps lessen the sting.
Recently, we removed the VXX position from our Real Asset allocation model in March, locking in a +32.2% gain for the year. Our exit came about when suspicion that the issuer, Barclay’s, would no longer issue new shares. The position plummeted and is now down 2.4% for the year, so paying attention to our research paid off! We are re-evaluating the role of volatility-driven ETFs in the asset allocation model. At this time, we feel the fluctuations and risks are too significant.
