March 12, 2021: The InvesTech Gorilla Index has displayed continued weakness relative to the S&P 500 in recent weeks…
As a result, we are making the following change to the Model Fund Portfolio to further protect against the risks posed by the mega-cap momentum stocks:
· Replace the current 6% position in Consumer Discretionary Select Sector SPDR ETF (symbol: XLY) with a 6% position in the Invesco S&P 500 Equal Weight Consumer Discretionary ETF (symbol: RCD).
Moving to an equal-weighted fund in the Consumer Discretionary space will help to address the concentration and valuation risk in Amazon and Tesla, which account for nearly 40% of the XLY ETF.
The passage of the $1.9 trillion COVID-19 relief bill and further relaxing of COVID-19 restrictions led to gains in the S&P 500 this week.
Economically-speaking, this week’s reports showed that attitudes are improving as they relate to the economy. Consumer Sentiment from the University of Michigan rose to the highest level in a year, while NFIB Small Business Optimism improved for the first time in five months.
The technical environment remains stable, but with key areas to watch. The Gorilla Index has been our primary focus, as it continued to break down early this week. While our Gorilla Index has yet to register a warning flag, continued underperformance by these mega-cap darlings warrants watching closely.
Strategy: The move to an equal-weighted Consumer Discretionary fund will help to further fortify our defenses by reducing our exposure to concentration and valuation risks. The Model Fund Portfolio remains moderately defensive with an 80% invested allocation.