The tumble in global markets that took hold in October was widespread, leaving few investments untainted, explains Bob Carlson, editor of Retirement Watch.
Because we strive to be diversified and hold assets with margins of safety, many of our positions held up better than the market indexes. We won’t need to clean house in our portfolios this month, because we haven’t been chasing market leaders.
We added Leuthold Core Investment (LCORX) to the portfolio after stocks slid from their record highs in January. It was time to increase our margin of safety and protect ourselves from significant losses, while maintaining some exposure to U.S. stocks.
This is a tactical allocation fund. The managers shift the portfolio among U.S. stocks, international stocks, global bonds, cash and commodities. Plus, the managers also can short stocks or hedge stock positions to protect the fund in overvalued markets.
The fund’s been doing its job. It had a significant stock position, about 67% of the fund’s portfolio in U.S. stocks, at the start of the year. Stocks were reduced during the decline early in 2018 and increased a bit after stocks bottomed.
More recently, the fund was about 57% invested in U.S. stocks but also had 14% hedging and short positions, for a net 42% exposure to U.S. stocks. It has held very few non-U.S. stocks recently. The managers also have been concerned about higher interest rates, so the bond position of about 17% was among its lowest ever.
The fund recently was about 36% in cash. Because of the conservative allocation, the fund lagged as markets hit new record highs over the summer. But it held up well in October’s downturn. The fund is down only 2.83% in the last four weeks and 2.26% for the year to date.
