July 2020: Most Efficient Rebalance Ever

by | Jul 2, 2020 | Market Updates

Why You Don’t Need to Trade This Quarter

When it ain’t broke…don’t fix it. There hasn’t been a better quarter to drive this point home.

Our objective is to sufficiently compound capital with little exposure to drawdown.  Our portfolios have shown the ability to do just that. These simple points are to thank:

  • More Stocks, Less Bonds. We believe stocks have far greater potential to compound capital moving forward.  Bonds actually look awful.
  • Owning more stocks creates more risk…so hedged it away dynamically. In heighted uncertainty – get long volatility in some way.
  • Own good businesses. If stocks are simply a claim on a business’ future cash flows, let’s make sure that business is a high-quality business with the ability to grow those cash flows.

Allocation Rebalance

This quarter’s rebalance at the asset allocation level:  Nothing.  Yep, nothing.  This doesn’t mean we are sitting on our hands.  A lot has gone into facilitating nothing.

The Surface vs Everything below

The most critical decision we make is asset allocation: Stocks, Bonds or Cash.  This lives on the surface of our portfolios, visible to all.

Our conviction continues to be less bonds, more stocks with a focus on potential for drawdown. We believe this combination not only addresses drawdown risk explicitly, but also combats longevity risk simply by injecting more potential for return.  In other words, Drawdown Patrol Investing.

It’s the work beneath the surface, the less visible daily activity in our ETFs, that provides the ability to own more stocks and less bonds to improve potential outcomes.

Simple Beats Complex

Our flow of ongoing discussions and process looks something like this:

  1. Returns: Yield + Growth +/- Valuation change is the simple equation of where returns come from. Let’s remember that.
  2. Asset Class Options: Understanding how returns are generated, what options look better than others, and position based on probabilities.
  3. Risks: Let’s hedge away potential for uncomfortable drawdown and focus on the quality of business that support our claims on future cash flows. Roll up the sleeves and do the work at the individual stock level.

Right Now

The majority of work being done by the Aptus team right now lives under the surface.  We are devoting extra attention to our hedges and the quality of holdings we have.  The current levels of uncertainty call for it.

Attention to detail at the strategy level is what that facilitates fewer changes at the portfolio level.

Our work says allocations are as good as we can make them at the moment.  When it comes to portfolio-level trading, less can indeed be more.



Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase of sell any particular security. Forward looking statements cannot be guaranteed.

This commentary offers generalized research, not personalized investment advice. It is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing in this commentary should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment and tax professional before implementing any investment strategy.

Aptus Capital Advisors, LLC is a Registered Investment Advisor (RIA) registered with the Securities and Exchange Commission and is headquartered in Fairhope, Alabama. Registration does not imply a certain level of skill or training. More information about the advisor, and its investment strategies and objectives, is included in the firm’s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. The Funds are distributed by Quasar Distributors LLC, which is not affiliated with Aptus Capital Advisors, LLc. The information provided is not intended for trading purposes, and should not be considered investment advice. Please carefully read the prospectus before making an investment decision.

Investing involves risk. Principal loss is possible. Investing in ETFs is subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of the shares may trade at a discount to its net asset value(“NAV), an active secondary market may not develop or be maintained, or trading may be halted by the exchange in which they trade, which may impact a fund’s ability to sell its shares. Shares of any ETF are bought and sold at Market Price (not NAV) and are not individually redeemed from the fund. Brokerage commissions will reduce returns. Market returns are based on the midpoint of the bid/ask spread at 4:00pm Eastern Time (when NAV is normally determined for most ETFs), and do not represent the returns you would receive if you traded shares at other times. Diversification is not a guarantee of performance, and may not protect against loss of investment principal. ACA-20-155.

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