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Portfolio Update - End of January

January 31, 2022

Today is the last day of January and it is a re-balance day for our Alpha DNA portfolios.  You may notice at the end of today that the portfolios hold a few more stocks than they usually hold. This is an intentional change we have implemented to make the portfolios slightly more diversified in this time of elevated volatility.

In the All Caps strategy, we now hold more than 115 stocks when we usually hold around 90. The All Caps strategy is made up of the Large Cap and the Mid-Small Cap strategies. The Large Cap holds just under 30 stocks and the Mid-Small cap portfolio holds just under 90. 

We expect this change to persist with the elevated volatility and will internally evaluate whether the change has added value over the coming months. We will post on this blog about the results of the change.

Taking Profits from Hedges

You might also notice that we took profits in our IWM (Russell 2000 ETF) hedges last Friday (January 28th) and reset the hedges to a lower strike. The discipline to harvest profits from hedges is a key part of managing a hedged equity strategy. When our hedges go in the money, it means there has been a material decline in the markets - which means we can re-deploy the cash from those profits in to equities that are likely trading lower with the market.

A well built hedged equity strategy should emerge on the other side of any sell off with more shares of stock than it went in to the sell off holding. This is one of the advantages of hedging that when (if) the markets return to their pre-sell off levels, the portfolio will gain the appreciation of the extra shares that are bought.

We used today's re-balance to purchase those extra shares. This occured in the two separate manager accounts strategies that use the IWM hedges: the All Cap Hedged Equity strategy and the Mid-Small cap hedged equity strategy. The ETF we manage (ticker SENT) also sold its IWM hedges and used the proceeds to purchase more shares today.

As usual, if you have any questions about the portfolios, please call us at 443-288-6444 or email me at Wayne.Ferbert@alphadnaim.com

Thanks

Wayne Ferbert

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