This has been a fairly active month in terms of portfolio changes.
As mentioned previously, we have been busy selling off technology stocks and positioning ourselves in new companies and sectors that we believe will come to warrant the market’s attention.
We have already acknowledged that our sale of tech stocks might have been too early. However, we were heavily overweight the sector. The rise in tech equity prices, coupled with underperformance in other sectors, has resulted in a reevaluation of opportunity cost, and as such, we have acted accordingly.
One particular advantage of our absolute return investment philosophy is that we do not ever have to own anything. All components of our portfolios target a specific desired outcome and are also balanced so that we should rarely be forced to sell anything. As such, we would rather sell in a seller’s market, pause, and look to find the next set of opportunities.
Proper diversification means owning uncorrelated quality assets that will generate long term returns, while reducing portfolio volatility. As such we have recently moved money into to two sectors with very different characteristics that should nevertheless generate very nice risk-adjusted returns.
The first sector is US Energy Infrastructure. The second is the biotechnology sector (where we are increasing our exposure).
In US Energy Infrastructure, we are buying assets that have high barriers to entry and will continue to be in high demand to due the aggressive development of US hydrocarbon supply. The steady nature of cash flows and high dividend payments should mean that this sector will continue to attract investors that seek out bond-like returns in a low interest rate environment.
We have added to our biotechnology holdings because they have lagged the current market rally and because we believe that this sector will bring forth the most significant innovations of the foreseeable future.
It is worth mentioning that Dennis Gartman recently surrendered to the powerful move in technology stocks, now giving them precedence over his previous gospel of owning the producers of physical goods (LINK: Gartman on Tech). This is a notable reversal that ostensibly equates to a high priest changing religions. However, market sectors are not religions and we will take this as a contrarian clue to start investigating mining stocks and the producers of physical goods…