All portfolios are constructed with a theory of what you need, then you go out to find positions that fulfill the mission, states Steve Reitmeister of Reitmeister Total Return.
In the case of the long side of our hedge, we want defensive/conservative positions that should fall less than the average stock during a bear market. This way the gains for the inverse ETFs pile up in the portfolio.
Great theory and working well in general, but some of our picks are not properly playing their part that is why we are making the following trades this morning:
- Sell all shares of Albertsons (ACI)
- Sell all shares of Invesco S&P 500 Equal Weighted Utilities (RYU)
- Buy 8% allocation to Casey's General Store (CASY)
- Buy 11.5% allocation to Healthcare Select Sector SPDR Fund (XLV)
The three most common defensive plays in a bear market are consumer staples, utilities, and healthcare. We have access to consumer staples via FXG and now CASY.
Utilities is a bust that lost about two times more than FXG. So that's gotta hit the bricks and is now replaced with the third defensive group healthcare via XLV.
Going back to CASY it is replacing ACI (the same move that I made in the POWR Value portfolio). Honestly, ACI started out great in the portfolio. But the last two weeks have been downright miserable for these shares and can't stomach it any longer.
Gladly looking back the past one-month, three-month, and full-year CASY has been much more stalwart in its price action versus ACI...and that is why it is the better choice now for the hedge.
As noted in my Friday commentary for POWR Value, the bears are probably exhausted given a long run to new lows. It would not surprise me to see the bulls enjoy a little relief rally...like a 3-5% bounce before we start exploring further downside.
However, the full slate of economic reports this week will have something to say about that. Meaning plenty of risk remains to the downside. And thus a good time to reinforce the hedge with these trades.