A week ago Thursday I disclosed selling our position in ProShares UltraShort S&P 500 (NYSEARCA:SDS) due in part to believing that after a very fast decline in the market, an equally fast snapback was possible. By the time Friday morning rolled around the SPX was trading near 1250 - up a lot for the day, again, perhaps due to the jobs numbers.
So in the face of a 7.7% lift in the SPX in about a week (based on the Friday open which is when we placed our trade), we sold our position in WisdomTree Global Natural Resources (NYSEARCA:GNAT) for large accounts. GNAT used to be the WisdomTree International Energy Sector ETF (DKA). GNAT is more volatile than DKA used to be. GNAT is still a good proxy for the sector and so we still own shares for mid size accounts that generally own an ETF or two for each sector.
I had this trade in mind for a while if we needed to sell something in this context. Our energy sector exposure in large accounts is pretty volatile and so after selling GNAT at the open, I plan on replacing it with something less volatile and with more yield - but I will hold off as I think some sort of swing down like from a couple of weeks ago is plausible.
As I said with the SDS sale, the GNAT sale looks good relative to Friday's trading but if the market rockets higher from here (obviously not my expectation), then selling GNAT will have been poorly timed; if the market stalls out or reverses, then it will look like a good sale. This is true with every trade but the strategy here is to reduce volatility a little while people are feeling pretty good about the market.
On the post disclosing the SDS sale, someone commented that it was pure speculation on my part and maybe they will be back again. Depending on how you define speculation, then yes, it was; or maybe, no it was not, again depending on how you define it. Obviously the portfolios I manage are actively managed. The site is in part a look over my shoulder as I try to navigate cycles. As I have said many times, an actively managed portfolio is a series of decisions, some of which will be right and some of which will be wrong.
Not everyone, obviously, who tries to manage an active portfolio will be correct often enough to be successful with it, but there are enough examples to show it is very possible to have success with active management. One objective here is sharing process so that you can take little bits of my process (if you're so inclined) and also collect little bits from other people's process to build your own process. My way is right for me and should be right for anyone who hires our firm. You need your own process as that will be right for you or if you choose to hire someone then you need to be sure their process is right for you.