WMA Portfolio Strategies Description and Latest Report
  • April 01, 2018 07:49 pm
  • by Bill Cara

The following WMA Portfolio Strategies are managed by Owen Williams and Bill Cara. Commencing April 1, 2018, Dr. Owen Williams PhD, CFA, is senior portfolio manager for both Williams Market Analytics LLC and Cara Portfolio Management Limited.

A- Top Picks Portfolio

The WMA Top-Picks Portfolio seeks to relatively out-perform the broad U.S. equity market, as measured by the Russell 3000 Index.  The selection relies on the WMA Total Market Techno-Fundamental Allocation Model, which screens a comprehensive list of companies of all market capitalizations. Based on a fundamental scoring methodology, companies are ranked according to three thematic categories: Value, Growth, & Yield.  A quantitative overlay is then applied to eliminate stocks whose absolute share price or relative price are in weekly intermediate/long-term downtrends.

The portfolio selection attempts to maintain a blended allocation, with approximately one-third of assets invested in each of the three thematic categories (for investors interested in a specific thematic — Ultra Yield, Ultra Growth, or Ultra Value — we run dedicated portfolios in each of these themes, contact us for info).  Stocks are entered the portfolio on an equally-weighted basis with a maximum of 25 to 30 position. With a more than three-month targeted holding period for investments, this strategy best suits investors seeking long-term capital appreciation and income.

The latest monthly report is shown below (click on PDF link below if image does not appear). Use the pop-out tool  and zoom (+) to better view.

 

B- Ultra-Yield Portfolio

The WMA Ultra-Yield Portfolio seeks to relatively out-perform the S&P High Dividend Yield Index.  The selection relies on the WMA Total Market Techno-Fundamental Allocation Model, which screens a comprehensive list of companies of all market capitalizations. The selection of securities for the Ultra-Yield portfolio is a subset of high yield stocks from our Top Picks portfolio. The Ultra-Yield portfolio remains invested in 20 companies which meet our fundamental selection criteria and offer a dividend yield significantly higher than that of the broad equity market.

The latest monthly report is shown below (click on PDF link below if image does not appear). Use the pop-out tool  and zoom (+) to better view.

 

C- Natural Resources Portfolio

The WMA Natural Resources Portfolio Strategy offers exposure to precious and industrial metals, and other basic materials required by a growing world economy such as oil, natural gas, oil & gas refining, frac sand, uranium, solar, copper and wood, among others.  Using rigorous investment analysis, we invest in a portfolio of 12 to 24 fundamentally attractive companies. Market entry and exit timing is based on proprietary trend & cycle studies. By participating in equity markets when sentiment is bullish while preserving capital during negative environments, our long-term plan is to achieve higher risk-adjusted returns than passive buy and hold strategies such as the S&P North American Natural Resources Index benchmark. We also seek to provide diversification benefits through low correlation to traditional asset classes.

The latest monthly report is shown below (click on PDF link below if image does not appear). Use the pop-out tool  and zoom (+) to better view.

 

D- Dynamic Global Index Rotation Portfolio — Global Equities

Strategy Objectives

The trend-based strategy seeks to outperform a global equity benchmark index (MSCI All-World) both in bull markets and in bear markets. The investment universe is global equities, with no restrictions across countries and a non-benchmarked allocation. The strategy invests in both national indexes and in sector indexes from all regions (U.S., European, Asian and Emerging Market). Our universe contains around 200 global indexes with an associated “investable” ETF (dollar-denominated, high daily volume, tight bid/ask spread). This universe is chosen to minimize the problem of asymmetric information inherent in trading individual or less liquid stocks, where knowledge of the company and/or insider information is critical. The strategy primarily invests in long equity positions with a maximum holding of 100% of assets (no leverage, no short positions). Remaining fully invested is necessary to outperform the indexes in bull markets. The cash balance is discretionary and reflects the overall risk environment. While the objective is to maintain a minimal cash holding (100% long equities), a deterioration of risk conditions signaled by the models allows the manager to raise cash in line with the risk indicator. The strategy depends on a dynamic rotation into outperforming nations or sectors.

In employing the strategy, we attempt to remain invested in positions that are both in absolute up trends and are outperforming the global benchmark index. Given the use of index funds, which are diversified by definition, the maximum position size is generally 8% of fund value (or about 12 holdings). Past performance suggests that the average position is turned (or rotated) between 8 to 15 times per year. The fund’s base currency is U.S. dollars. While the strategy does not take outright foreign exchange positions, global investing entails assuming currency risk. Both local currency and dollar-denominated prices for each index are analyzed in our models to detect currency weakness in foreign stock positions. For example, the strength or weakness of the peso versus the dollar will be reflected in our dual analysis of the Bolsa Index and the Dow Jones USD Mexico Index. Considering this method, currency hedging (or use of a currency-hedged ETF) is only undertaken if there is a compelling reason to invest in foreign stocks whose underlying currency is negatively-oriented.

Implementation of the Strategy

We first select investable indexes or stock from our 200-index universe. Scanning the WMA Sector Rotation Model output provides a short-list on candidates for investment. Outperforming indexes/ETFs, as well as improving indexes (moving from underperformance to outperformance), are candidates for investment. Given multiple signals of outperformance across several indexes or individual stocks, we attempt to respect the principles of diversification. For example, the strategy will avoid holding simultaneous positions on a financial sector index, an insurance index, a regional bank index and a REIT index, even if the model generates positive signals on all four, as these sectors are all particularly sensitive to interest rate changes. The second step is to confirm the entry/exit point by running the selected indexes/ETFs in the WMA Trend Model to verify the absolute trend readings. Short- and medium-term composite readings are produced for each asset reflecting “Over-Weight” to “Under-Weight signals.  Full positions or half positions for a given asset may be taken based on confirmation/non-confirmation of the model’s signals over the two horizons. Stop-losses are not used as the model imposes a strict sell discipline. Positions that lose their relative outperforming status or that flash sell signals on all horizons of the composite indicator are liquidated upon the market close. Conversely, profit-taking occurs when the relative outperformance of a position begins to weaken, even if the absolute trend remains up.

The latest monthly report is shown below (click on PDF link below if image does not appear). Use the pop-out tool  and zoom (+) to better view.

 


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