In Top 20, I am adding to two names as I had suggested yesterday, taking them from about average to above average. Of course, this means we have to sell something, and I actually really like what I am selling. So, let me explain my thinking. Our 2 buys, which take the names to slightly above average, have projected returns in excess of 60%. Our 2 sells, on the other hand, which take the names from above average to about average for the holdings in terms of allocation, have projected returns of 47%. So, the trades allow us to tweak the portfolio modestly. My guess is that our sells will go up, but maybe we get an opportunity to add to them later at better prices. The road is not straight, that's for sure, as both of our adds on Tuesday are to stocks we trimmed at higher levels in the past few months.
On Sector Selector, we are punting one of our S&P 500 sectors that we had already trimmed. When I launched the model, this sector was on fire already, and I allocated to it because of momentum. At this point, I think it's pretty much played out in terms of relative performance. We are adding to another sector that is quite downtrodden in my view. I hope that my timing is right here. We are also adding to our Mega-Cap exposure. This trade positions the model to correspond with my view that this flight to quality (certain sectors and Treasuries) is over, with investors likely to reenter "risk" trades soon. An ETF that I have added to my watchlist and should have just bought LAST week is one that invests in Micro-Caps, which have really had a rough time lately. Unlike Small-Caps, which have moved to all-time highs, they sit about 15% below the 2007 peak. When I see more signs that the lows are in, I anticipate adding a small position.
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