February Performance

As one would expect given my more balanced portfolio at the start of the month between long and short equity positions, as well as a significant position in high yield bonds, my performance was relatively flat during the month of February. Specifically, the balance decreased 40 basis points during the month, clearly underperforming the best January/February performance by the S&P 500 since 1991. The loss was largely attributable to my position in the ETF BOIL, which attempts to track the price of natural gas. While the price of natural gas at the end of the month was close to the price at which I had purchased the ETF, the actual price of the ETF had declined over 10%. For this reason of inefficient tracking I sold the ETF earlier this week.

My exposure at the end of the month is summarized as follows:

29% Cash
37% High Yield Bonds
22% Equity Short
8% Equity Long
4% Commodities (Agricultural)

The exposure highlights my more bearish view on the markets, with the large cash position and significant short position. The equity long positions are in more defensive industries like consumer non-discretionary and healthcare. The position in commodities is also focused on consumer staples in the form of food. The large exposure to high yield bonds is theme driven, such as rising auto sales. The bonds should continue to perform well if the economy continues to improve, unless interest rates spike. Alternatively, the bonds should perform well if treasury yields remain low or continue to decline, unless the economy falls completely through the floor. At the very least, if I'm going to have some "long" exposure to the economy, I prefer to be higher in the capital structure. My biggest worry is that monetary policies continue to drive equity markets higher.