August was a tale of two halves: continued upward momentum from July in the first half of the month, then pivoting mid-August and sharply declining after the 26th. By month’s end: another terrible, bad, no good month for all portfolios. Stability continues to be the cleanest dirty shirt, though.
I thought we were cruising in August. July was a great month, and the good vibes continued in the first two weeks. It may not have been noticed by many readers but I even made the out-of-character step of advancing a weak prediction that the stable, low-expected return portfolios like the RPC Stability would soon give way to the more aggressive ones. I also said the RPC Growth portfolio could find its way out of tenth place and beat out the Stability portfolio by January. I’m a big believer here in the mantra of “prepare, don’t predict” but six weeks of sun after months of rain had me thinking I could put away the umbrella.
Should have known better!
I guess I tempted fate. I wrote that guess on the 19th, just as August was giving back its two good weeks and then some. It was a bad month that turned into a horrible one for the portfolios after Jerome Powell’s speech at Jackson Hole, Wyoming on the 26th. He acknowledged that there would be “some pain” in the economy in the process of getting inflation under control. That’s Fed-speak for thinking that a storm is coming, and one they can even seed by raising interest rates. Markets responded with a huge sell-off after the speech, and the month ended with all portfolios down between 3 and almost 7%.
Of the twenty assets that make up the portfolio, eighteen had negative months, with the two holdouts being DBMF (+2.72%) and VPU (+.69%). This one, the Vanguard Utilities Index ETF, was the new fund I added to the RPC Income portfolio based on the series on REITs I finished in August. I made the decision to sell off half of my exposure to VNQ in that portfolio and replace it with Utilities on the grounds that it would be more stable, more diversified, and possibly more lucrative. It was, and that certainly was one small gratification for the month.
That was counterbalanced by dismal, two-digit negative performances by five funds: TYD (-12.1%), UPRO (-13.3%), GDLC (-14%), TMF (-14.5), and worst of all, DRN (-17%). That's four leveraged funds, plus the sinking ship that is cryptocurrency.
No surprise, then, that portfolios with leverage were the big losers for the month, while the conservative ones did better. I should say “less badly,” since it wasn’t a good month even for the winners. The RPC Stability was down 3%, and the Golden Butterfly came in second, down 3.6%. The worst was the RPC Growth, down 7%, followed by the Qian portfolio (-6.7%) and then the Levered Seasons (-6.1%).
Overall, there was no change with the leaderboard. The RPC Stability is still in first; the Golden Butterfly is still in second. Meanwhile, the question of whether RP or traditional portfolios are better is a mixed bag. On the safe end, Risk Parity-style portfolios continue to hold a very, very slight edge on their traditional counterparts, but the 80/20 and the 100% Equities are both besting their RP counterparts due to the existence of embedded leverage ETFs in the RP portfolios.