Portfolio manager isn't convinced of the current rally's staying power. But he's sticking to his guns.
Roger Nusbaum says he isn’t convinced that the current three-month-old stock rally is more than a brief respite from a longer-term secular bear market.
But that isn’t stopping the portfolio manager at Phoenix-based Your Source Financial from seizing opportunities when they present themselves. Nusbaum last week increased his clients’ exposure to the iShares Dow Jones U.S. Technology ETF (NYSE: IYW).
His client portfolios still generally have around 20% in cash. At one point last fall, that was up to 25% in cash. It was the largest amount on a percentage basis that Nusbaum has ever held out of circulation, he says.
“I’m skeptical for a whole host of reasons that a new cyclical bull market has started,” said Nusbaum. “The extent to which the Fed and Treasury have printed money, issued debt and are monetizing some of that debt makes for a very unattractive proposition.”
Also, he sees another enormous wave of repossessions coming. “That’s very scary,” said Nusbaum, who points to recent research by economist and fund manager John Hussman as evidence.
Playing For The Long Term
Despite his own rather stark short-term views, Nusbaum says he feels it’s important to stick to the facts when investing. For him, that means using all sorts of different fundamental factors to evaluate where markets are in any given economic cycle.
He also incorporates a broad technical indicator into his investing toolbox. Nusbaum watches where prices are at any given time for the S&P 500 relative to its 200-day moving average. When the blue chip benchmark is above that level, as it is now, he notes that market conditions are generally positive.
“Despite my concern over market fundamentals going forward, I’m sticking with a disciplined approach,” said Nusbaum. “Instead of trying to guess when markets will turn, I listen to what the market is telling me. And right now, the 200-day moving average on the S&P is indicating that demand is becoming healthier.”
So he’s lightening up on his cash positions in corners of the market that look most appealing to him. One of those is tech, which Nusbaum has been underweighting for quite awhile. “Tech usually has more volatility than the broader market,” he said. “So increasing our weightings there slightly actually will allow our clients to get more bang for their buck as markets turn around.”
Nusbaum added: “This current rally may be a head fake. But even by moving a bit more into tech, we’ve still got about a three-quarter weight [under] the S&P 500.”
And by moving from an extreme underweight to a slight underweight position, he says, “allows me to keep more in cash with the rest of the portfolio in case I’m wrong about a turnaround in the market.”
The point of such a move, says Nusbaum, is to remain flexible enough to retain long-term risk-reward profiles for his client portfolios and not resort to trying to outguess the market.