2019 Year in Review

Paul Wildberger |

2019 was a significant year for the stock market with the S&P 500 gaining 29% in a move that caught even the “experts” off guard.  As you know, I certainly did not anticipate this performance as I moved our portfolios into a more risk-averse, defensive portfolio in May 2019.  As I stated then, my only fear was moving too early, which I did.  However, as this stock market continues to flirt with levels of bubble-exuberance, I’m more convinced than ever that our strategy is well-grounded and we are on the right track.

With our average portfolio +12.2% for 2019, I would normally be happy with such a performance; however, compared to the S&P 500’s blowout year, I am disappointed.  I will be sending each client a year-end summary, but want to review the components of our portfolio, and the strength I see in our portfolio throughout 2020.  Remember, our Recession Portfolio was designed based upon thorough research of WHAT MADE MONEY in both declines of 2000 and 2008.

  1. Gold: With an +18% gain in 2019,  gold was our strongest portfolio component. 
    1. We invest in gold via 2 ETFs: GDX (Gold Miner Index) and IAU (Gold price tracker).  GDX is more volatile and prone to greater gains and declines, whereas IAU is a more “pure” gold price tracker and much less volatile.  Combined, these positions represent between 10-15% of the average portfolio. 
    2. Many market pundits agree that gold is positioned for a strong rally in the foreseeable future.  After declining and stabilizing around $1450/oz, it is currently $1580/oz, based upon fundamental strength, and of course, the Iran situation.  My forecast for gold price is $1750/oz over the next 12 months.
  1. Bonds: Strong gains were realized in our bond positions.  
    1. With the benchmark 10-yr US Treasury yield dropping from 2.70% in Jan 2019, to 1.90% at year-end, we saw the largest annual drop since 2011.  (Bond values go up when yields go down.)  Our bond positions are determined by whether your acct is an IRA or taxable individual/joint acct.  Our IRA positions are AGG (Aggregate bond index with 7-10yr maturity range) and BLV (long-term >20yr maturities).  Combined average gain was 9.75%.  For the taxable accts, we use municipal, federal tax-free ETFs: PZA and MUB.  Combined average gain was 5.0%.  We only invest in high quality, investment grade bonds – NO JUNK!  Combined, these positions represent 50% of the average portfolio.
    2. Expectations for the 10-yr Treasury in 2020 are quite diverse, ranging from 1.50% -- 2.50%.  My forecast is for the 10-yr to retreat back to the 1.50% range by yearend as the economy slows. 
  1. Structured Notes: Above average yields received.
    1. We currently have two Notes: 1) Oil/gas exploration ETF link = 16.75%/yr yield; 2) Gold miner ETF link = 11.90%/yr yield.  These positions comprise 15-20% of the average portfolio.
    2. Each of these have a 15-mo maturity, but can be called after 6 months if the linked ETF has risen >10%.  My forecast is that we will see each of these called prior to maturity, at which time we will analyze available offerings.
  1. Short: Under-performer in 2019 with stock market rally
    1. This ETF “shorts” stocks that are determined to be overvalued.  “Shorting” makes money if the underlying stock GOES DOWN (not up).  We took a small position of 5-10% in the average portfolio for DWSH.
    2. This position was down -16% for the year.  My forecast is for DWSH to be strongly higher at yearend as we see the stock market decline over this period.
  1. Preferred stocks: Our only focused stock market position
    1. PFF is used primarily for its high dividend yield, currently 5.3%/yr.  Conservative portfolios maintain a 20% position, all others is only a 5% level.
    2. This position saw a +7.5% gain in 2019, and my forecast is for a flat, 0% gain for 2020; again, purpose is for dividend, not growth.

I anticipate a more volatile year ahead, but rest assured, your portfolio is positioned for stability in the storm.  If you have any questions or concerns about our portfolio strategy, please let me know!  Looking forward to our upcoming 2020 strategy meetings,