Monday, December 15, 2014

The 2014 Global Rejects for 2015

Based on the positive feedback from the imaginary "2013 Global Rejects Portfolio: Only For People Who Hate Money" (posted here), I have decided to do a quick imaginary "2014 Global Rejects Portfolio: Money To Burn"

There is a challenge however: going solely off YTD and loss from 52-week high would present a gigantic bet on commodities/USD weakness, be it producers or whole countries. The 2013 rejects were a more diversified bunch. So I am still sticking with Rejects (down 5% to 52% down from the 52-week high as of Friday Dec 12 2014) but not everything is from the very bottom. I am also going with 5% picks only.

Here it is by broad category:

Commodity-driven industry sector ETFs (7): FCG nat gas equities, OIH oil services, GDX gold miners, SLX steel producers, SIL silver miners, KOL coal miners, AMLP MLPs

Weak US sector ETFs (3): SOCL social media, ITB homebuilders, KBE regional banks

International ETFs (3): ELD EM local debt, EMCB EM corporate debt, IPS international consumer staples

US fixed income ETF (1): JNK high yield

Country ETFs (6): RXSJ Russia small caps, GREK Greece, BRF Brazil small caps, EWI Italy, EWP Spain, ARGT Argentina

(The imaginary nemesis, call it the "2014 Global All Stars: The Mo Bro" could be something like 10% each: TLT LT Treasury, PFF US Preferreds, XLU US Utilities, VNQ US REITs, LQD US IG Corporates, XLY US Discretionary, IBB Biotechs, EPHE Philippines, ENZL New Zealand, EPI India)

Saturday, December 13, 2014

The Imaginary "Barbarian Capital All-Star Global Rejects 2013" Portfolio

About a year ago, bond manager, herbal tea enthusiast*, Boston** sports fanatic and occasional blogger @DavidSchawel emailed me (and several other people) to crowdsource portfolio ideas for a blog post. The blog post never came but I had already saved the portfolio that I submitted: The Barbarian Capital All-Star Global Rejects 2013: ONLY for people who hate money.

The simplistic portfolio approach was to buy the worst performing global assets in 2013 via ETFs available in the US. If you remember, interest rates were rising in the US so US fixed income and real estate had not done well. Internationally, we had weakness in several markets, some commodity driven. We also had weakness in precious metals and coal.

So the portfolio was 15% each GDX gold miners, KOL global coal, TLT long US bonds, IYR US Real Estate, and 5% each ECH Chile, BRF Brazil Small Cap, IDX Indonesia, TUR Turkey, EPI India, THD Thailand, REM Mortgage REITs and PFF US Preferred Stocks.

How did it do? Not bad actually: up a little over 8% after 365 days even with train wrecks likea Coal and Brazil. Most of the performance was driven by declining US rates (helped TLT IYR REM and PFF), as well as a breakout in India. An equally weighted portfolio would have done a little better, at 9.8%.

What can you learn from it? Nothing: it shows momentum, mean-reversion and luck. May be a case for diversification.

Screenshot of the portfolio and the original email below.

*,**- Schawel actually likes coffee and Chicago sports