It may be hard to believe, but the “dog days” of summer are upon us, and we are just a day away from the official halfway point of 2020.  What a second quarter it has been!!  The best for the Dow since 1987… the year I started in the investment advice business at the young age of 29.

Portfolio Review:
The change from one quarter to the next is typically an excellent time to review our clients’ portfolios, providing us with an opportunity to weed out any weak, under-performing holdings and take some profits.  We are focusing on raising cash and re-allocating to new positions that are not likely to be victims of profit-taking in the next correction.

Selling Laggards:
Last week we saw the S&P 500 Index (SPX) fall -2.86% as equity investors still contend with heightened volatility among major U.S. stock indexes. Over the past 90-days, we’ve seen the S&P 500 rally +18.40%.  Yet on a year-to-date basis, the index is still down -6.86%. We have unquestionably experienced an impressive near-term rally with increased participation across the sector groups. That said, even with the recent rally, some stocks have not been able to keep pace, or at least have been faltering from a technical perspective.  Thankfully, we don’t hold many of those stocks. Laggards are typically stocks that are trading in an overall negative trend with weak relative strength. They, therefore, have a low technical attribute reading, carrying a lower expectation of successful outcomes.  It is weaker stocks like these that can be holding back your portfolio returns. For this reason, we want to look at cutting the line on these stocks to free up the capital for more productive uses.
This work is most applicable when the market has seen a rally; therefore, we use it when our main market technical indicator, the Bullish Percent for NYSE (BPNYSE), is in the middle of the field, where it is now, and in both offensive (X’s) and defensive (O’s) times. We are currently seeing a column of O’s and 52% of NYSE stocks on a BUY signal, indicating a defensive position is warranted but risk in not elevated.  We have been selling both full and partial holdings to take some profits off the table as well as selling a small number of laggards.

Buying New Leaders:
We are continuously building and reviewing an active “shopping list” of technically-superior individual stocks, ETF’s, Closed End Funds, REIT’s, and Mutual Funds in our search for the next market leaders.  While we have experienced a strong double digit growth in the S&P 500 and outperformed our benchmark nicely since the bottom of the most recent market correction, not every asset class has participated in that growth. Carrying over from 2019, our focus has remained on Technology and Healthcare, specifically Biotechnology, as these sectors continue to be two of the strongest.  We have also continued to buy and hold in the Large Cap Growth, Mid Cap Growth, and Small Cap Growth asset classes. Simply purchasing a low-cost index, asset allocation, or target date fund is not the wisest idea today, especially in light of the continued uncertainty about the shorter-term economy and the fact that not all asset classes and sectors are flourishing.  We will be using some of the proceeds from taking profits and selling laggards to purchase new holdings that appear to be gearing up to produce good gains and are not likely to suffer from the next mass profit-taking event.

Guaranteed Income:
As I have mentioned in letters before, we continue to find great ways to secure guaranteed income and reliable income for our clients nearing or entering retirement by using annuities and real estate in addition to common equity investments for growth.

2020 Required Minimum Distributions:
On June 23, 2020, the IRS issued Notice 2020-51 (“Notice”) which provides guidance regarding the repayment of required minimum distributions (“RMDs”) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Under the CARES Act certain 2020 RMDs already taken can be repaid to a retirement account as a rollover. Generally, RMDs are not eligible for rollover. However, under the CARES Act, an RMD taken in 2020 is no longer required. It is voluntary and therefore not technically an RMD.

The Notice provides the following:

  • 2020 RMDs taken on or after January 1, 2020, are rollover eligible.
  • An IRA owner or beneficiary is permitted to repay distributions that would have been a 2020 RMD back into the distributing IRA.
  • The repayment of the waived RMD can occur more than 60 days after the original distribution date provided it is made no later than August 31, 2020.
  • The repayment will be treated as a rollover, except that neither the “1 rollover per year rule” nor the limitation on non-spousal beneficiary rollovers apply.

Let us know if you have any questions or concerns or if you would like to discuss our strategies further.  As always we appreciate your referrals of our services to friends, family, and colleagues.  You are our best advertisement!