GOLD - The All-Weather Portfolio: The Good The Bad And The Ugly

2023-07-06 06:32:51 ET

Summary

• It was an exciting quarter, and many tech stocks outperformed the market significantly.
• Unfortunately, not everything was like tech, and many segments underperformed in Q2.
• While the AWP's tech holdings shot up by 23.5%, other sectors dragged down returns in the quarter.
• Here's what I'm doing as we advance to Q3 and beyond.

This year has been a rollercoaster ride (in a good sense), and Q2 was an excellent quarter. What I find fascinating is the wide range of returns we see when we look at the major averages. For instance, tech has been on fire this year, with the Nasdaq skyrocketing by nearly 13% in Q2 and approximately 32% in the first half of this year. On the other hand, the DJIA was up by only around 3.5% last quarter and about 4% for the first half of the year. The NYSE Composite achieved similar results, while the S&P 500/SPX gained about 8% last quarter and roughly 16% in the year's first half.

Therefore, we see a significant outperformance in the tech sector, while the more cyclical slower moving industrial, material, energy/other segments lag. However, technology remains the place for revenue growth prospects and significant profitability potential. Thus, I'm continuing with my overweight position in technology as we enter Q3 and the second half of 2023.

Tech: All-Weather Portfolio's Best-Performing Sector

The All-Weather Portfolio's "AWP" tech segment was the best-performing segment last quarter, appreciating by approximately 23.5% ( including covered called dividends "CCDs" ) in Q2, beating the Nasdaq composite by nearly 100%. Therefore, if we talk about the good, we need to discuss technology first and foremost.

Tech Plus Segment - 33% of Portfolio Holdings

It's mainly about the core positions, and the AWP's core tech positions include Alphabet ( GOOG ) ( GOOGL ), Amazon ( AMZN ), AMD ( AMD ), Palantir ( PLTR ), and Tesla ( TSLA ). These several stocks achieved gains of about 16%, 26%, 40%, 82%, and 57%, respectively. Despite several positions being exercised at lower levels, our covered call hedging strategy accounted for about 17% of the tech segment's income in the quarter. The AWP's most significant position (Palantir) was also one of its best, with a roughly 82% gain in the second quarter.

As we advance - I'm keeping the tech segment heavy going into Q3 and the second half of the year. While we've seen a significant run-up in technology stocks in the first half of the year, the innovative tech sector continues to offer remarkable growth opportunities. Moreover, technology should continue leading the stock market as we advance. Therefore, my top Q3 positions (16% of portfolio weight) include Palantir, Google, Amazon, and other high-quality tech stocks.

The China Segment - 12% of Portfolio Holdings

Now, let's discuss the bad. The AWP's China segment includes several high-quality companies that are dirt cheap. Baidu ( BIDU ) and Alibaba ( BABA ) were the China segment's most significant holdings in Q2. However, the sector's other holdings included JD.com ( JD ), Pinduoduo ( PDD ), XPeng ( XPEV ), and NIO ( NIO ). This sector remained volatile in Q2, declining by roughly 5.5% in the second quarter.

As we advance - The AWP's China segment remains a priority as there is enormous growth potential for the world's second-largest economy. Moreover, Chinese stocks are exceptionally cheap and, despite the risks, offer tremendous risk/reward potential now.

Energy/Oil - 2% of Portfolio Holdings

I cut most energy holdings early in Q2, which enabled capital to flow to better-performing sectors in the quarter. The AWP holds an alternative energy position worth roughly 1.8% of portfolio holdings. Due to the early sales in energy, the segment was down by only around 2% in Q2.

As we advance - I will look for opportunities to add to energy holdings as we move forward. It's only a matter of time until quality alternative energy names take off. Therefore, I will increase current holdings and enter new positions in the solar/alt energy space. Also, I will consider scaling back into traditional oil and energy stocks once oil bottoms or establishes a new uptrend. However, I do not want to miss opportunities due to heavy allocation to stagnant or lower-moving oil stocks.

Industrial/Materials Segment - 8% of Portfolio Holdings

The AWP's material/industrials segment had one clear winner. Livent ( LTHM ) shot up by 27% since added to the AWP in the second quarter. Livent is in a prime position to capitalize in future markets and remains a core holding. However, we saw a significant slide in agriculture stocks in the second quarter. Thus, this segment closed down by about half of one percent.

As we advance - With persistent inflation, increasing demand, and the uncertainty regarding the Ukraine/Russia war and grain shipments , we could see a recovery in agriculture stocks in H2. Therefore, we continue holding several quality agriculture stocks/ETFs like Mosaic ( MOS ) in the AWP. Also, as the EV market continues expanding, the lithium market should continue to heat up. Thus, we have several excellent stocks like Livent and others to play the lithium explosion in the coming years.

Defense Segment - 6% of Portfolio Holdings

The defense segment ended the quarter lower by about 3.5% ( including CCDs ). Despite being the most prominent loser in the second quarter, Spirit AeroSystems ( SPR ) also delivered significant CCDs, helping mitigate the sector's losses last quarter.

As we advance - The war in Ukraine could continue for a long time, and we see other hot spots around the globe. Many nations are increasing their military budgets, and many will probably come to the U.S. for help. The U.S. has the top defense contractors, and these companies could prosper as we advance. While I've cut down the AWP's defense exposure to two companies, I've increased my stake in the companies to more than 2% of portfolio holdings each.

Financials - 5% of Portfolio Holdings

The financial segment closed the quarter down by about 3%. I utilized several buying opportunities to accumulate a significant position in PayPal ( PYPL ) during the second quarter. While many financials had a terrible quarter, the AWP's exposure was minimal.

As we advance - I like PayPal long-term, and the stock could be near a long-term bottom here. Also, I've accumulated a substantial stake in KeyCorp ( KEY ) as its stock declined along with many regional banks. As we advance, these two financial companies and other quality stocks could go substantially higher. While I've cut the financial segment to two positions, the sector's weight is around 5%.

Gold, Silver, Miners "GSMs" - 23% of Portfolio Holdings

The GSM segment was ugly, declining by about 6.6% in Q2. Several positions fell by double digits. However, these declines came after a robust showing in Q1.

As we advance - GSMs remain an integral part of the AWP and should appreciate considerably as gold and silver values increase. Elevated inflation and other favorable market dynamics should provide a constructive backdrop for gold and silver in the coming years.

Agnico Eagle Mines ( AEM ), Barrick Gold ( GOLD ), and Pan American ( PAAS ) remain amongst the most significant holdings in the AWP. If gold can make a decisive move above $2,000, we should see considerable gains in gold, silver, and quality mining stocks in future years.

Cryptocurrency Segment - 9% of Portfolio Holdings

More "good" to talk about - The digital asset segment was the second best-performing sector after technology in Q2. Bitcoin and cryptocurrencies returned 12.56% in the second quarter. One of the most prominent moves came from Bitcoin Cash ( BCH-USD ), enabling it to take 89% and 147% profits in the quarter.

In the future - Bitcoin and digital assets are still relatively new and likely in the early stages of their development cycle. Therefore, we should have significant opportunities to capitalize on the cryptocurrency segment as we move on. Nevertheless, the digital assets arena remains an elevated risk sector, and I'm curbing the segment's weight at 8-10% of portfolio holdings.

The Bottom Line - 8% Q2 Return

The diversified AWP returned 8% in the second quarter, matching the SPX's 8% return. However, in the second quarter, the AWP's stock/ETF segment (not including GSMs) increased by 11.34% once covered call premiums and dividends were factored in. The AWP's YTD/H1 return was 31.5% (on par with the Nasdaq), and we should see significant gains in the second half. 2023 should be excellent for many high-quality stocks, and we could see many significant buying opportunities advancing from here. Due to the better-than-expected economic atmosphere and other robust fundamental, technical, and psychological factors, I raised my 2023 year-end SPX target to the 4,700-5,000 range several weeks ago.

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