While it might seem odd that we are buying back most of the stock we sold a week ago, active portfolio management is one of the tools I use to preserve capital in CG/B. The stock we had trimmed was the worst performer in the model subsequently, declining 3.4% during the week (the stock we bought rose 7.8% during the week). The two stocks we are trimming are among our largest holdings.
As I look at my current one-year projected price returns, the stock we are buying offers 38%, while the two we are trimming offer 40% and 31%. They are both also moderately overbought. After the trades, the stock we are buying will still be somewhat smaller than the two we are trimming.
The net effect of the trades from 10/31 and 10/24 is to increase our Consumer Discretionary exposure and to modestly reduce our Energy and Technology exposures while also increasing cash slightly. I don't attempt to manage to a specific desired sector exposure, but I do monitor it to control risk. I view Consumer Discretionary names as more volatile and thus providing more trading opportunities, as is the case currently with the three names we own. To be clear, these names are all consistent with the goals of CG/B (income, growth & capital preservation), but their prices tend to be more volatile. One reason that I believe it may be appropriate at this time to have relatively high exposure to the sector for CG/B is that these domestic names provide some diversification in terms of foreign currency exposure. The Dollar weakened rather dramatically against the Euro following last week's plan, but there is a chance that we could see reversals ahead as the ECB potentially cuts rates.
Here is how we look with respect to sectors after the trades:
- Consumer Discretionary: 23.2% (+12.7% vs. S&P 500)
- Tech: 21.2% (+1.7%)
- Health: 18.4% (+7.0%)
- Financials: 16.4% (+2.2%)
- Consumer Staples: 7.0% (-3.9%)
- Energy: 7.0% (-5.6%)
- Industrials: 6.7% (-3.9%)
- Telecom: 0% (-3.0%)
- Materials: 0% (-3.6%)
- Utilities: 0% (-3.6%)
