I have been waiting to reposition the Conservative Growth/Balanced model somewhat over the past couple of weeks and have decided to take most of the actions I had been considering or to at least move in that direction. We have been carrying one name that has done very well since we bought it in February - it is overbought now and offers just over 20% price return to my one-year target. Not bad, but not prudent to hold so much in my view. We are trimming that as well as a recent Tech name add that worked out very well. This one has a higher projected return but is somewhat overbought and is at resistance. I hold it in Top 20 still - I think it is going higher. On the adds, we are buying a consumer staples name with commodity exposure - surprisingly, it hasn't bounced though it seems to be on support. It has 40% upside to my one-year out price target. We are also adding to a Tech name that offers about 45% upside. In these buys and sells, we are increasing expected return and also moving away from overbought and into neutral or even slightly oversold. Finally, we are repurchasing some of our Energy position that we had trimmed in April at a nice discount to that sale price. I would like to buy more of this one - will be patient. It offers 40% or so to my one-year target and has corrected an overbought and extended condition that had prompted me to reduce exposure. These trades are just as much about risk reduction as they are about improving return.
We are also paring our bond exposure. I am sticking to my forecast that the returns for bonds this year will be roughly flat. With the recent rally (since we added to our exposure), the near-term outlook is slightly negative in my view. Our cash position will rise to reflect bonds heading towards our minimum 10%. My guess is that we will get a chance later this year to buy them back cheaper. If I am wrong, I don't expect the cost to be material. Dividend-paying stocks are a much better deal than bonds in my view, and our portfolio reflects this sentiment. I might have added short-term emerging market bonds (there is an ETF), but I think that its not clear that they fit in a conservative portfolio. I would sure value your input if you have an opinion, as I believe that a 5% position would be consistent with the mandate of the model. It offers an inflation hedge to some degree due to the currency angle.
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