In January I outlined a portfolio that could help insulate against a bumpy U.S. stock market -- and it seems to have held up fairly well so far.
The goal was just to build a diversified portfolio out of a few holdings with the hope it would have less volatility in both directions.
The portfolio includes:
Since that last article, the U.S. stock market has endured a lot of news and big moves in both directions, providing a good test for the concept. Many people want low maintenance without a lot of volatility, but the risk of that sort of portfolio is that it caters too far in the direction of low volatility and ends up lagging a bull cycle by a large amount.From January 22, the portfolio's inception, to last Thursday, the S&P 500 was down 3.66% while the portfolio was up 0.71% (neither result included dividends). From inception to May 19, when the S&P 500's bear-market rally peaked with an 8.8% gain, the portfolio was up 7.2%. From that May 19 peak, the S&P 500 is down 11.50%, while the portfolio has dropped 6.05%. The holding that turned out to be the biggest disappointment was the Nakoma Absolute Return Fund. From mid-February to early May it dropped by 7.57%, which although not awful, clearly was a drag on the portfolio. While it's difficult to know for sure, based on how the holdings are reported, I suspect the velocity of the energy shorts going against them exceeded their expectations. Since bottoming in May, the fund has retraced almost half of that decline.