PORTFOLIO UPDATE: Sold QQQJ, SLV, GDX, ARKK; Bought TLT, BTAL

Last week, I trimmed some speculative positions and began adding to Treasuries again.

Author:
David Dierking
Publish date:
Sep 22, 2022

Ahead of this week's quarterly Fed meeting, I made a few trades to take some risk off the table and position my portfolio more defensively. Although we may not be in an actual recession yet, despite what GDP growth and unemployment numbers tell us, it certainly seems like we're heading in that direction.

I made six trades in all. None of them resulted in any major shift in my overall portfolio allocation (which is still roughly 90/10, although the 90 includes some long/short, hedge and rotation strategies). Here's my thought process behind each of them.

Sold iShares Silver ETF (SLV) & VanEck Gold Miners ETF (GDX)

Prior to this, I had exposure to gold, silver and gold miners. After this, I maintained my position in the iShares Gold ETF (GLD), halved my position in GDX and sold out of SLV altogether.

I'm disappointed like everyone else that gold hasn't responded better to the high inflation environment, but I think that, if nothing else, it makes an excellent risk hedge heading into what looks like the next recession.

Silver is really more of an industrial metal than a pure precious metal and will be more affected by cyclical developments. Because of this, I'm exiting silver for now, but I think there's still some value to be had in this asset class. This is one I'll monitor closely and be ready to buy again once the inflation outlook becomes a little clearer.

GDX is another ETF that has some good value as well, but ultimately this is a highly volatile asset class and I'm not sure I want a lot of volatility in my portfolio over the next six months. Cutting this position in half allows me to both reduce risk just a bit while maintaining some exposure to an attractively valued segment of the market.

Sold Invesco Nasdaq Next Gen 100 ETF (QQQJ)

I'm still a believer in the "bubbling under" Nasdaq names, but now's just not the right time. The backtest on this group, the 100 largest non-financial stocks outside of the Nasdaq 100, looks really good and I still think this is a good long-term holding. Growth has gotten hit hard already, but I think there's still a ways to go before we hit a bottom. I don't think tech will make a sustainable comeback until the Fed is ready to take its foot off the gas on interest rate policy. The August inflation report and recent Fed meeting show that we're still not near that point.

Sold ARK Innovation ETF (ARKK)

I dipped my toes back in the water on ARKK when it was down 50% from its highs thinking it was a much better entry point for a long-term holding. Clearly, I still got in much too early. I was willing to give this trade a little more leeway to move given its high volatility, but in hindsight I should have put in a stop at a much higher price than I ended up selling.

For the record, I still own my position in the ARK Fintech ETF (ARKF). In terms of returns, it's obviously still in the same boat as ARKK, but I'm a believer in where this industry is going long-term. Halving my position in ARK as a whole still gives me some exposure to the disruptive innovation trade even if it's not in favor right now.

Bought iShares 20+ Year Treasury Bond ETF (TLT)

Treasuries have been a miserable trade throughout 2022, but here's why I think the worst may be coming to an end. In the past, inflation data releases and Fed rate hikes were consistently met with selling in government bonds. The last few instances have seen a different reaction in long-term Treasuries.

Long-term yields didn't rise in the last two rate hike announcements. In fact, long-term Treasuries actually rallied this week following the hike. The hotter-than-expected inflation reading earlier this month also failed to elicit a big down move in Treasury bonds. Whereas Treasury yields responded almost exclusively to inflation and the Fed for most of 2022, I think long-term bonds are starting to react to recession risk as well.

In recessions, of course, Treasuries tend to rally. Investing in TLT offers the biggest upside potential in that scenario. It's still early and this trade has yet to pay off, but I think long-term yields end up at a much lower level a year from now. This may not be the bottom, but the risk/reward looks really attractive to me.

Bought AGFiQ U.S. Market Neutral Anti Beta ETF (BTAL)

For those not familiar, BTAL is an ETF that goes long low volatility stocks and shorts high beta. In essence, this fund produces gains whenever low vol outperforms high beta. BTAL is up 12% year-to-date as high beta has gotten slammed.

This is another recession trade, but on the equity side. This isn't just a safe haven trade like the TLT trade is. It's a chance to generate gains if stocks keep falling. For the record, BTAL is also a great ETF to pair with the S&P 500. Over history, a 75/25 split between SPY and BTAL has produced above average risk-adjusted returns.