Launching The Core-Satellite Dossier: Defensive Positioning For 2020
Summary
- We're excited to announce the launch of the "Core-Satellite Dossier" Marketplace Service right here on Seeking Alpha.
- The service caters to active and semi-active investors with long-term time horizons that also can appreciate an interesting tactical trade idea.
- Our coverage across asset classes seeks to pick out the best funds for a particular market exposure while also highlighting actionable opportunities in stocks that can help drive excess returns.
- The Core-Satellite Dossier uses a data-driven approach to offer model portfolios, exclusive ideas, a weekly newsletter, supported by powerful analysis.
- We have a generally bearish outlook on equities for the year ahead and recommend investors increase exposure to fixed income.
- Looking for a helping hand in the market? Members of Core-Satellite Dossier get exclusive ideas and guidance to navigate any climate. Get started today »
Editors' Note: This article is meant to introduce BOOX Research's Marketplace service, the Core-Satellite Dossier.
BOOX Research, in partnership with Harrison Schwartz, is launching the "Core-Satellite Dossier" Marketplace service. With a publishing history of more than 600 articles between the two of us on this site, we connected as authors sharing not only a similar writing style but also a common market outlook and investing philosophy.
In our discussions, we recognized a need in the community based on follower feedback to bring everything together and formulate a full investment approach. What we mean by this is that beyond simply covering a stock or ETF with an opinion, we want to present a framework for how these ideas can fit within a diversified portfolio.
We came up with the Core-Satellite Dossier which is based on the academically recognized core-satellite portfolio construction method. The idea here is to combine a passive diversified "core" with a more active "satellite" for tactical exposure to help manage risks and potentially generate excess returns.
We use a data-driven approach to sort through4,000 ETFs/CEFs along with 16,000 U.S. stocks/ADRs to find the best trade ideas.
- The Dossier highlights the best-in-class funds that can serve as the core or foundation to a diversified portfolio to track the market with a superior risk-adjusted return profile.
- We also go a step further to present unique trade opportunities in stocks that can help add alpha through a smaller tactical position or satellite allocation.
Highlighting the Best-In-Class Funds
For the core group, we like diversification and that means going beyond the basic "60/40" approach. We identify the highest quality funds by asset class including equities and fixed-income across all market segments that can be used to build a higher-quality portfolio.
We break down the universe of ETFs to explain why a fund is our top pick for any particular exposure. We believe an effort at due diligence and fundamental analysis can result in better investment decisions. We do the work for you considering the relative characteristics of each fund within the category to answer the following questions:
- Performance history - why is the fund under/overperforming?
- Risk metrics - how did the fund perform during stress environments like the 2018 Q4 market crash?
- Diversification profile - is the concentration by sector/geography/ credit exposure appropriate?
- Income characteristics - is there a sustainable yield advantage?
- Dividend growth - what are the trends in the fund dividend rate?
- Cost and expense ratio - is the strategy worth it?
Take a look at some examples of our existing ETF and CEF coverage.
- 10 SWAN Monthly Dividend 'Cash-Alternative' Bond ETFs
- Vanguard FTSE Developed Markets ETF: A Segmentation That Is Losing Relevance
- Invesco BuyBack Achievers ETF: Unconvincing Strategy As Implemented
- ARKW: An Unconstrained Tech Fund In Disguise
- PALL: The Palladium Price Bubble Could Quickly Bring The Metal To $2600+
- PFFD Is A Great Preferred Equity ETF, But Preferred Equity Fundamentals Are Very Bearish
- WisdomTree MidCap Dividend ETF: Outperforms Segment And Pays Monthly
- YINN: Inaccurate Coronavirus Data To Continue To Plague Leveraged ETFs
- Vanguard Utilities ETF: Caution As Valuation Appears Pricey
- Miller/Howard High Income Equity Fund: Bearish As Market Price Diverges From NAV
Show Me the Alpha!
The core-satellite approach offers flexibility to allocate a smaller position (we recommend between 5%-15%) toward short-term opportunities. We believe that in the context of a diversified portfolio, there's room for tactical higher risk and speculative plays to boost overall returns. By this measure, our service is targeted at semi-active or active investors that have a long-term outlook but can appreciate a good trade idea.
The highlight of the Core-Satellite Dossier is our weekly newsletter which presents unique researched trade ideas along with commentary for the week ahead. Every stock discussed is tracked in our performance worksheet with regularly updated targets and notes.
Here are some recent big winners.
Name (Article Link) | Ticker | date | Price at Publication | Gain as of 2/28/20 |
(SBGL) | Buy 9/17/2019 | $4.72 | 159% | |
(PRPL) | Buy 11/8/2019 | $8.84 | 54% | |
(W) | Sell 5/13/2016 | $137.80 | 59% | |
(BGG) | Sell 11/9/2019 | $7.52 | 59% | |
(CARS) | Sell 6/5/2019 | $20.51 | 58% | |
(TPIC) | Buy 12/19/2019 | $18.40 | 29% | |
| (LIND) | Sell 10/9/2019 | $16.98 | 32% | |
| (LTHM) | Buy 11/23/2019 | $7.60 | 17% | |
| (STAR) | Buy 12/6/2019 | $13.27 | 14% | |
| (UNFI) | Sell 1/21/2020 | $7.90 | 22% | |
| (CCS) | Buy 1/21/2020 | $29.37 | 11% | |
| (SPG) | Sell 6/5/2019 | $164.95 | 22% |
To be clear, we're not suggesting every pick is going to be a home run, but we invite readers to follow along and join the discussion. Daily, we are adding notes on various stocks that have been previously covered with updates on developments and upcoming catalysts. Our commitment is to share the best ideas with subscribers first.
A Moderately-Bearish Outlook For 2020 and Beyond
The Core-Satellite Dossier is taking an overall cautious and even moderately-bearish outlook on equities for the year ahead based on the convergence of some high-level themes we expect to continue.
- Increasing Recessionary Risk: We sense that the economic growth outlook has deteriorated over the past year despite the strong performance in the stock market to end 2019. Even as recent indicators in the U.S. such as the housing market data and employment figures remain robust, we see these as backward-looking metrics that could begin to lose momentum at this stage in the cycle. Recognizing that much of the exuberance in recent months has been based on the hope of a rebound to global trade benefiting from progress in the U.S.-China trade dispute, the emergence of the coronavirus outbreak has potentially invalidated the market's thesis of a sentiment renaissance. We point to more concerning trends in global industrial production and manufacturing that may now represent a structural weakness and pressure other parts of the economy.
- Election Year Uncertainty: The 2020 U.S. presidential election represents a new layer of risk that the market has yet to recognize. Regardless of whether President Trump or an opposition Democrat candidate is elected in November, the concern here is a greater level of policy uncertainty that should lead to higher volatility, all else equal. The implications can be significant across healthcare industries, energy, and tax policy.
- Stretched Valuations: We see several areas of the market that appear to be priced aggressively and trading at historically high valuations which adds to downside risks should these segments correct lower. From traditionally "value" sectors like utilities and real estate, we sense that the market has bid up the share prices driven by declining interest rates and a search for yield. We're also seeing valuations of technology giants pushing toward extreme levels based on an unsustainable narrative "endless growth." Today, many of these companies are faced with increasing regulatory risks and heightened competition already pressuring pricing power. We believe this trend is coming to an end which is likely to result in large declines for some of the most popular stocks. Should recessionary risks intensify, a large correction could represent a significant risk for "overvalued" shares forcing them to return to historical valuation multiples and even overshoot to the downside.
We expect the ongoing coronavirus outbreak to remain a major theme in the market for the foreseeable future. Harrison Schwartz has been producing some top-notch research since the emergence of the Coronavirus outbreak and readers can expect more exclusive insight.
Here are some example of related articles:
- What The Market Is Telling Us About The Coronavirus
- Coronavirus May Be The Catalyst That Will Pop China's Massive Property Bubble
- Coronavirus PBOC Liquidity Injection May Cause Large Yuan Devaluation
- Starbucks: Coronavirus Risk Overshadows Q1 Results
The bearish case for the markets is that a turn lower in consumer sentiment and business confidence can pressure labor market trends, leading to at least a technical recession. We see the market lows from Q4 2018 representing 25%-30% downside from current levels in play for the year ahead.
That being said, we still think there are some bullish trends in key sectors like gold and precious metals miners. Optimistically, we think the current pullback in the market may create some excellent opportunities in high-quality names down the line and we can look forward to turning bullish.
Manage Portfolio Risk with Allocation Bond ETFs
We recommend increasing exposure to fixed-income and bond ETFs. As the interest rates approach record low levels, there's also the risk that increased volatility in rates exposes investors, potentially significant looses in long-dated notes. The Core-Satellite Dossier suggests a lower duration of fixed income exposure which leads us to use short-term and intermediate-maturity bond ETFs in our model portfolios.
A gradual rotation toward an allocation between 30%-60% in bonds is a defensive approach that would limit portfolio risk while still maintaining limited equity exposure. We think investors can outperform the market to the downside and be well positioned to eventually find some deep value opportunities after the market corrects lower.
If you agree with the market outlook, consider joining the Core-Satellite Dossier now as we explore these topics with an eye on risk management.
What exactly will I get with my membership?
Access to model portfolios: Our model portfolios are meant as a framework for how to apply the core-satellite portfolio construction method, each with a different strategic focus. We include commentary on the components that investors are free to customize or track. We currently have four examples but plan to release different strategies over time. Come take a look to see what a core position can look like across equities and fixed-income through ETFs and CEFs:
- Balanced Diversification - Our flagship model with tracked performance
- Dividend Income+
- Conservative/ Low-Risk
- Gold and Commodity Focus
The Core Satellite Dossier ETF/CEFs "VIP Dashboard": The Dashboard includes a list of 150 curated funds sorted by asset class, market segment, and strategy that highlights our picks for the best fund by exposure.
A Tracked Trade Idea Blotter: Every call we make is tracked on a spreadsheet for members to view with "live" trades, price alerts, targets, and commentary. This is hosted via Google Sheets and is regularly updated with new positions.
Exclusive Research Ideas: Members will receive at least two in-depth long or short ideas covering a stock or fund where we are taking a directional opinion. Subscribers also get access to the existing library of coverage by BOOX Research and Harrison Schwartz
Weekly Newsletter: Our flagship newsletter sets the tone for the week ahead, keeping you up to date on current developments, market catalysts, featured earnings, and the big-picture trends.
But Wait, There's More!
Every paying subscriber to the Core-Satellite Dossier is offered the opportunity to select a stock or fund every month to be covered by us in an article published on the public Seeking Alpha Site. This is a unique feature to the Core-Satellite Dossier that we hope members will enjoy.
People who sign up this week will get 15% off the first year. It's just $33.65 per month for an annual subscription. Take advantage of our 2-week free trial offer.
This article was written by
Dan Victor, CFA is a market professional with more than 15 years of investment management experience across major financial institutions in research, strategy, and trading roles.
Dan leads the investing group Conviction Dossier, where his focus is on helping investors stay ahead of market trends and inflection points. Dan’s investing vehicles of choice are growth stocks, tactical exchange-traded funds, and option spreads. He shares model portfolios and research to help investors make better decisions, via his Investing Group’s active chat room.
Analyst’s Disclosure: I am/we are long GDX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
The author is long and or short various stocks and ETFs mentioned in the article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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