Executive Editor
Mark joined SMI in 2000. He leads SMI newsletter’s overall content strategy, managing the editorial direction and writing many articles. He led the company’s efforts to create its first web site, helped develop several of SMI’s investment strategies, and has been a contributing author to the Sound Mind Investing Handbook.
In addition, Mark helped design and launch the three Sound Mind Investing mutual funds. He has served as the Senior Portfolio Manager since the original SMI Fund was launched in 2005. Mark also serves as Senior Portfolio Manager to SMI Advisory Service’s Private Client managed account program.
Mark earned his undergraduate degree in Finance from Oral Roberts University.
Mark and his wife, Cindy, have three children.
For the first time in Sector Rotation's 18 year history, we're making a change mid-month. Read on for the rationale behind this unusual move.
Sector Rotation is a high-risk/high-volatility strategy. While its peaks and valleys have been more extreme than SMI's other strategies, it has generated especially impressive long-term returns, as discussed in Sector Rotation is Risky, But Highly Rewarding.
Right on schedule, the stock market is dropping as we hit May. For those who may not be familiar with the old "Sell in May and go away" advice, this is a familiar annual seasonality pattern for the stock market. We'll recap the basics of this topic, then I'll give you my thoughts on this year's signals in the last section of the article (so feel free to skip to that if this is old hat for you).
There is no change to the official SR recommendation for May. Read on for the details.
Sector Rotation is a high-risk/high-volatility strategy. While its peaks and valleys have been more extreme than SMI's other strategies, it has generated especially impressive long-term returns, as discussed in Sector Rotation is Risky, But Highly Rewarding.
There are no official changes to the DAA lineup for May. Read on for the full details.
DAA is a core portfolio strategy designed to help SMI readers share in some of a bull market’s gains, while minimizing (or even preventing) losses during bear markets. The strategy involves using exchange-traded funds to rotate among six asset classes, holding three at any one time.
DAA is a defensive, low-volatility strategy that nonetheless has generated impressive back-tested results when evaluated over full market cycles, demonstrating the power of "winning by not losing."
The recommended categories/ETFs for May are (in order of current momentum):
There are no changes to Stock or Bond Upgrading this month.
As emergency measures designed to weather the COVID lockdown have morphed into seemingly permanent new policies, concerns over the potentially inflationary implications have skyrocketed.
If we have entered a new inflationary regime, there will be significant implications for the way investors construct their portfolios. We examine the current inflation evidence and discuss how investors can protect themselves from this emerging threat.
It’s easy to forget that there was a fair amount of anxiety among investors as 2020 ended. Would new COVID variants prolong the shutdowns? Would tax selling hamper the stock market once investors were able to book gains in the new year? These and other concerns caused many professionals to start 2021 conservatively positioned (that observation is based on the options market which offers insight into such institutional positioning).
That was decidedly the wrong way to be leaning, as the stock market hit the ground running in January and blasted higher through the middle of February. Stocks wobbled over the next month as interest rates moved sharply higher. The Nasdaq (tech stocks) and Russell 2000 index (small companies) suffered sharp but short-lived -10% corrections. But by the end of March, stocks had resumed their upward trajectory and the broad market was set up to register a series of all-time highs in early April.
As positive as conditions were for stocks during the first quarter, they were equally negative for bonds. The 10-year U.S. Treasury Bond yield rose from 0.93% at the beginning of 2021 to 1.74% by the end of March. The Barclays Long Treasury Index (which tracks Treasuries 10 years and longer) fell into its first official -20% bear market in 40 years.
Driving both the stock and bond market moves was the extremely positive direction of the U.S. economy. While the first quarter opened with questions, it closed with exclamation points, as much of the economic data in late March and early April was accompanied with phrases like “best ever” or “best in 20 years.”
These signs of a rapid recovery were music to stock investors’ ears, but the bond market recognized 2020’s low yields were woefully mispriced for such significant growth — and the potentially higher inflation that often accompanies such growth. While higher yields are certainly appropriate when the economy is growing faster, the adjustment from 2020’s “sharpest slowdown ever” to 2021’s rapid recovery was jarring for longer-term bonds.
Thankfully, SMI’s strategies had no exposure to longer-term bonds, while being fully invested in stocks. As a result, most SMI investors posted solid first-quarter gains.
“How much did I earn on that investment?” That question isn’t always easy to answer, even for a relatively simple interest-bearing investment. To learn whether a particular savings-type or bond investment has been successful, you must consider two other questions:
SMI subscribers with a Basic-level membership have access to two investing strategies. These strategies differ in philosophy and the amount of attention required.
Our preferred strategy is Fund Upgrading. It’s based on the idea that if you are willing to monitor your mutual-fund holdings regularly and replace laggards periodically, you can improve your returns. While Upgrading is relatively low-maintenance, it does require checking your holdings each month and replacing funds occasionally. (If you don’t wish to do this yourself, a professionally managed version of Upgrading is available.)
As an alternative to Upgrading, we offer Just-the-Basics (JtB), a strategy based on investing via index funds. JtB requires attention only once a year. The JtB strategy is helpful to SMI members whose workplace retirement plans lack a sufficient number of fund options to make successful Upgrading possible. Here are the funds and percentage allocations we recommend for our Just-the-Basics indexing strategy.
Past returns for both Upgrading and Just-the-Basics are shown on our main page at soundmindinvesting.com. Click the word "Performance" in the middle of the page.
Have we transitioned from the disinflationary trend of the past 40 years to a new inflationary regime? It's probably the most important question facing investors today. The types of investments one would want to own are quite different when inflation is rising than when it is falling (i.e., deflation; or even disinflation, which is still positive inflation but at decreasing rates).
