Sell in May and go away?

The SP500 fell -8.8% in April, down -13% year to date (YTD). The current chart looks scary enough to warrant a temporary rally. If not there is room below for further correction.

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Should one go to cash or stay invested?
Should one adjust their portfolio and how?
 

Top 3 Strategy Allocations – Free preview

Below is the upcoming allocation for our Top 3 strategies. We are providing these not as investment advice but as an example of how a quantitative-based strategy would allocate given the market.

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Although the strategy is 100% quantitative-based (see how we construct our strategies), it’s interesting to see that allocations are somewhat intuitive and defensive (72% in gold and cash) but allow for some upside via a 21% equity exposure.

• 56% of the portfolio is in GLD. Gold has been a solid performer this year (+3.5%) compared to Equities (-13%) and Treasuries (-19%). It is also a commodity and a safe haven asset.
• 16% of the portfolio is in a money market fund (almost like cash).
• 13% is in blue-chip, stable companies, namely Coca-cola, 3M, McDonalds, and P&G. These are non-tech companies, selling real-world consumer products.
• 8% in Hong Kong. 5% in Malaysia. These are more difficult allocations to intuitively understand. One has to look at our Top World 4 strategy to see how it has lost only -2.5% YTD while providing some upside equity exposure. See the chart below:

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The World Top4 Strategy (-2.5% YTD vs Benchmarks -13 to -19%)

Challenging markets

Let’s get back to the market environment.

TLT, the 30-year Treasury ETF (below) dropped -9.4% in April and is down -19.1% YTD. We are at price levels seen during the crisis 11 years ago and at a -33% draw-own from the 2020 highs.

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The Euro (below) has reached the 1.05 critical level. We have not seen prices below that level since 2003.

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The Yen (below), which is often perceived as a safe heaven, has dropped some 10% YTD against the USD.

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The Vanguard Total Bond Market ETF has dropped 15% from its all-time highs with a quite dramatic move compared to historical ones.

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LI strategies dampen fall

All our non-leveraged strategies protected capital and lost on average 2%- 4% versus 8.8% for the SPY.