Market Highlights
S&P 500 Index up 3.6% 
The S&P 500 Index (symbol: ^GSPC) rose 3.6% last week, closing at 919.14. The index was up 3 of the 4 trading days and every day resulted in a market move greater than 1% in either direction. Representing the weighted value of 500 large publicly held U.S. companies and a bellwether for the U.S. economy, the index is up 37.8% since its most recent intraday low of 666.79 on March 6, 2009, but down 34.4% from a year ago and down 41.7% from its October 11, 2007 intraday peak of 1,576.09. The S&P 500 needs to rise 71.5% just to break even with its October 2007 high, equivalent to a compounded return of 10% per year for nearly 6 straight years.

Since the market’s October 2007 peak the index has been on a tumultuous roller coaster ride punctuated by sharp zig-zag movements, losing 57.7% from the October 2007 high to the March 2009 low. Over the past 52 weeks the market has tumbled as much as 48.4% peak-to-trough measured on a weekly basis. 

The S&P500 Index ended the week about 1 percent below its 200-day moving average which is considered a dividing line between “bull” and “bear” markets. The last time the index came this close to its 200-day moving average was in May 2008 when the index was in the midst of a bear market rally. On May 19, 2008 the index closed at 1426.63, just 0.08% from its 200-day moving average. What happened next? The index just couldn’t manage to break through the moving average barrier and fell 53.3% to its most recent low of 666.79 on March 6. Will the S&P 500 Index pierce its 200-day moving average this time and head higher? Stay tuned…

Market volatility remains high
We stopped using the CBOE Volatility Index (symbol: ^VIX) to measure market volatility and now look at the percent of days the market moves 1% or more in either direction as a better measure of actual volatility. In the last 60 days the S&P 500 Index moved up or down by 1% or more 68% of the time compared with a reading of 67% a week ago. Contrast those readings with all of 2006 (12%), all of 2007 (26%), all of 2008 (53%), and for October-November 2008 (83%). At 68%, volatility remains high by historical norms.

Bonds up 0.3%
Bonds (as represented by symbol AGG) closed up 0.3% for the week and are up 5.7% from a year ago. AGG is an ETF that tracks the total United States investment grade bond market as defined by the Barclays Capital U.S. Aggregate Index of more than 9,000 government and corporate bonds. Treasury bonds were hit last week as worries about the massive U.S. debt swept the market and the potential downgrade of U.S. debt by rating agencies.  

Crude oil jumps another 7.5%
Crude oil futures prices leapt $4.64 per barrel last week. The nearby futures contract closed at $66.31, up from $61.67 per barrel the prior week. Oil has rocketed 82% from the market bottom in January 2009 but is still 55% below its July 2008 peak of $147 per barrel. Rising energy prices could choke off an economic recovery. Nationally, the average retail price of gasoline rose to $2.44 per gallon for the week of May 25, up $0.13 from the prior week but down $1.50 per gallon from a year ago.

Gold up another $23/oz
Spot Gold prices rose 2.4% from the prior week, closing at $979.60 per ounce, up from $956.50 the prior week. Gold is just 4.3% below its record closing price of $1023.50 per ounce set on March 17, 2008 in the AM London Gold Fixing. Are commodities like oil and gold anticipating a coming wave of inflation brought on by massive debt that is piling up globally?

Economic Highlights
Initial unemployment claims persist over the 600K level
In the week ending May 23, the advance figure for seasonally adjusted initial claims was 623,000, a decrease of 13,000 from the previous week’s revised figure of 636,000. The 4-week moving average was 626,750, a decrease of 3,000 from the previous week’s revised average of 629,750. The advance seasonally adjusted insured unemployment rate was 5.1 percent for the week ending May 16, an increase of 0.1 percentage point from the prior week’s unrevised rate of 5.0 percent. The advance number for seasonally adjusted insured unemployment during the week ending May 16 was 6,788,000, an increase of 110,000 from the preceding week’s revised level of 6,678,000. The 4-week moving average was 6,608,250, an increase of 123,750 from the preceding week’s revised average of 6,484,500. The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.131 million.

Consumer confidence rockets to 8-month high
After bottoming out in February, the Conference Board Consumer Confidence Index rose for the third straight month to an 8-month high of 54.9, up from 40.8 in April. Last month’s increase was the sharpest increase since April 2003. Separately, the Reuters/University of Michigan Consumer Sentiment Index rose to 68.7 in May, up from 65.1 in April, 57.3 in March and 59.8 in May 2008. 

But Mark Hulbert says that “…big jumps in consumer confidence are typically followed by below-average stock market performance.” He cites studies that show that consumer confidence is a lagging indicator than a leading one. Is it possible that the S&P 500, which is within inches of crossing over its 200-day moving average, is about to tumble? Stay tuned…

New residential home sales up slightly
Sales of new one-family houses in April 2009 were at a seasonally adjusted annual rate of 352,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.3 percent above the revised March rate of 351,000, but is 34.0 percent below the April 2008 estimate of 533,000. The median sales price of new houses sold in April 2009 was $209,700; the average sales price was $254,000. The seasonally adjusted estimate of new houses for sale at the end of April was 297,000. This represents a supply of 10.1 months at the current sales rate.

Low priced properties driving existing home sales rise
The National Association of Realtors reported that April existing home sales rose 2.9% in April to a seasonally adjusted annual rate of 4.68 million units from a downwardly revised pace of 4.55 million units in March. Sales were 3.5 percent below the 4.85 million-unit level in April 2008. Stong buyer activity in lower price ranges drove the rise as new home buyers took advantage of government tax credits and foreclosed properties continued to glut the market. High-end home sales remain soft. 

First quarter GDP wasn’t quite as bad as we thought
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 5.7 percent in the first quarter of 2009 according to preliminary estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP decreased 6.3 percent. The GDP estimates are based on more complete source data than were available for the advance estimates issued last month. In the advance estimates, the decrease in real GDP was 6.1 percent.

Durable goods orders up but shipments down
New orders for manufactured durable goods in April increased $3.0 billion or 1.9 percent to $161.5 billion, according to the U.S. Census Bureau. This was the second increase in the last three months and followed a 2.1 percent March decrease. Excluding transportation, new orders increased 0.8 percent. Excluding defense, new orders also increased 1.0 percent. Transportation equipment, up three consecutive months, had the largest increase, $2.1 billion or 5.4 percent to $40.5 billion. However, shipments of manufactured durable goods, down nine consecutive months, decreased $0.3 billion or 0.2 percent to $174.2 billion in April. This was the longest streak of consecutive monthly decreases since the series was first published on a NAICS basis in 1992 and followed a 1.9 percent March decrease. Machinery, down four consecutive months, had the largest decrease, $0.7 billion or 3.1 percent to $23.0 billion.

Sage Investment Strategies Portfolio Update
SIS portfolios stable year-to-date despite market volatility
Despite extraordinary market volatility and devastating drawdowns for most stock market investors since October 2007, the Sage Investment Strategies portfolios have shown remarkable stability. Since our SISTM minimized stock market exposure for most of the past year, the performance of our portfolios (see chart above) has been relatively smooth compared to the stock market’s gut-wrenching volatility. The combination of low volatility and solid long term results enables our subscribers to sleep well at night.

Our SISTM has performed an outstanding job of keeping our subscribers’ money safe from devastating losses compared with the two benchmarks against which we compare our performance: (1) a hypothetical investor’s portfolio consisting of 60% stocks and 40% bonds; and (2) the S&P 500 Index, representing the U.S. stock market.

The performance of our portfolios ranges from -0.5% to +2.3% year-to-date (YTD) and from -2.9% to +3.5% year-over-year (YOY). While the benchmarks are currently outperforming the SIS portfolios year-to-date, the SIS portfolios are beating year-over-year performance of the benchmarks by a wide margin. The performance of the 60/40 Benchmark is +5.4% YTD and -18.1% YOY while the S&P 500 Index has returned +5.3% YTD and -34.4% YOY. Depending on which SIS portfolio strategy you follow, you enjoy an advantage over the 60/40 benchmark (which roughly represents the average investor) somewhere between 15.2-21.7 full percentage points YOY. Compared with the stock market as represented by the S&P 500 Index, you have an even greater advantage of between 31.4-37.9 percentage points YOY.

But YTD and YOY performance doesn’t tell the whole story. One must also examine the maximum drawdown (peak-to-trough losses) over the past year. Maximum drawdown for the Sage Investment Strategies portfolios ranges between a manageable -3.6% to -5.9% compared to a gut-wrenching -31.4% for the 60/40 Benchmark and -48.4% for the S&P 500 Index over the past year. Which maximum drawdown would you rather have?

The Sage Investment Strategies portfolios are designed to fluctuate very little compared to the stock market or a typical investor’s portfolio. For example, while the worst weekly return for the S&P 500 has been -18.2% over the past year, the worst weekly return for any SIS portfolio was just -2.0%. Looking at upside volatility, the largest weekly gain for the S&P 500 has been 12.0% over the past year, while the largest weekly gain for any SIS portfolio was 3.4%. The benefit to SIS subscribers is that they achieve the same or better results than the stock market over the long haul while experiencing less portfolio fluctuation than most investors.

Comparing various measures of risk and return in the table above, the SIS portfolios continue to outperform most benchmarks over the past year. For those not familiar with all the terminology, let’s review what it means:

52-Week Return represents the percent gain or loss compared to one year ago.

Standard deviation (52-Wk Std Dev) measures the volatility of individual weekly returns from the average return. As standard deviation increases, so does risk. Conservative investors prefer portfolios with lower standard deviation values while more aggressive investors are willing to invest in portfolios with higher standard deviation if there is a good chance of achieving higher returns.

Maximum drawdown (52-Wk Max DD) represents the largest percent decline in the portfolio’s value over the last year from the highest peak to the lowest point following the peak.

Sharpe Ratio (52-Wk Sharpe) measures how well the return of a portfolio or benchmark compensates the investor for the amount of risk taken. Positive numbers are better than negative numbers and higher positive numbers signify better risk-adjusted returns. The SIS Portfolio Sharpe Ratios tend to significantly exceed the benchmarks’ ratios during market declines while the reverse is generally true when the market is rising.

It’s important to review all the above measures when assessing and selecting a particular investment strategy for yourself. Doing so may keep you from taking on more risk than necessary.

Here’s how each of the Sage Investment Strategies portfolios have performed:

Log in to read the rest of the newsletter and view the portfolio changes. Not subscribed yet? Try our 30-Day Free Trial.

Have a great week ahead!
Paul

Here is the Sage Investment Strategies update through 5/22/2009

Market Highlights
S&P 500 Index up 0.5% 
The S&P 500 Index (symbol: ^GSPC) rose 0.5% last week after the prior week’s 5.0% tumble, closing at 887.00. After jumping 3.0% on Monday, the index lost ground for the remainder of the week. Representing the weighted value of 500 large publicly held U.S. companies and a bellwether for the U.S. economy, the index is up 33.0% since its most recent intraday low of 666.79 on March 6, 2009, but down 35.5% from a year ago and down 43.7% from its October 11, 2007 intraday peak of 1,576.09. The S&P 500 needs to rise 77.7% just to break even with the October 2007 high, equivalent to a compounded return of 10% per year for 6 straight years.

Since the market’s October 2007 peak the index has been on a tumultuous roller coaster ride punctuated by sharp zig-zag movements, losing 57.7% from the October 2007 high to the March 2009 low. Over the past 52 weeks the market has tumbled as much as 52.1% peak-to-trough measured on a weekly basis. While many market observers believe the bottom is behind us, others believe the market action since March 6 is simply a bear market rally primarily driven by speculators who had massively shorted stocks and  were forced to unwind their positions by buying back the shorted stocks. Meb Faber reminds us that in the 1930’s bear market there were five stock market rallies of more than 20%, including a 48% rally after the initial cliff-dive. Will the market tumble back into the abyss or will it continue to recover to its old highs? Either way, our model doesn’t try to predict the outcome but simply hitches to prevailing trends.

Market volatility down last week
We stopped using the CBOE Volatility Index (symbol: ^VIX) to measure market volatility and now look at the percent of days the market moved 1% or more in either direction as a better measure of actual volatility. In the last 60 days, the S&P 500 Index moved up or down by 1% or more 67% of the time compared with a reading of 72% a week ago. Contrast those readings with all of 2006 (12%), all of 2007 (26%), all of 2008 (53%), and for October-November 2008 (83%). While the 60-day volatily measure fell back last week, it remains quite high by historical norms.

Bonds off 0.5%
Bonds (as represented by symbol AGG) closed down 0.5% for the week but are up 4.4% from a year ago. AGG is an ETF that tracks the total United States investment grade bond market as defined by the Barclays Capital U.S. Aggregate Index of more than 9,000 government and corporate bonds. Treasury bonds were hit last week as worries about the massive U.S. debt swept the market and the potential downgrade of U.S. debt by rating agencies.  

Crude oil jumps 9.5%
Crude oil futures prices leapt $5.33 per barrel last week after the prior week’s 3.9% decline. The nearby contract closed at $61.67, up from $56.34 per barrel the prior week. Oil is still off 58.0% from its July 2008 peak of $147 per barrel, but the trend is up since the recent February market bottom. Nationally, the average retail price of gasoline rose to $2.31 per gallon for the week of May 18, up $0.07 from the prior week but down $1.48 per gallon from a year ago.

Gold up another $25/oz
Spot Gold prices rose 2.8% from the prior week, closing at $956.50 per ounce, up from $930.90 the prior week. Gold is just 6.5% below its record closing price of $1023.50 per ounce set on March 17, 2008 in the AM London Gold Fixing. Are commodities like oil and gold anticipating a coming wave of inflation from the massive amounts of debt piling up globally?

Economic Highlights
Initial unemployment claims persist over the 600K level
In the week ending May 16, the advance figure for seasonally adjusted initial claims was 631,000, a decrease of 12,000 from the previous week’s revised figure of 643,000. The 4-week moving average was 628,500, a decrease of 3,500 from the previous week’s revised average of 632,000. The advance seasonally adjusted insured unemployment rate was 5.0 percent for the week ending May 9, an increase of 0.1 percentage point from the prior week’s unrevised rate of 4.9 percent. The advance number for seasonally adjusted insured unemployment during the week ending May 9 was 6,662,000, an increase of 75,000 from the preceding week’s revised level of 6,587,000. The 4-week moving average was 6,480,500, an increase of 131,000 from the preceding week’s revised average of 6,349,500. The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.071 million.

New residential construction continues down
The U.S. Census Bureau and the Department of Housing and Urban Development jointly announced the following new residential construction statistics for April 2009: 

BUILDING PERMITS Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 494,000. This is 3.3 percent below the revised March rate of 511,000 and is 50.2 percent below the revised April 2008 estimate of 991,000. Single-family authorizations in April were at a rate of 373,000; this is 3.6 percent above the revised March figure of 360,000. Authorizations of units in buildings with five units or more were at a rate of 103,000 in April. 

HOUSING STARTS Privately-owned housing starts in April were at a seasonally adjusted annual rate of 458,000. This is 12.8 percent below the revised March estimate of 525,000 and is 54.2 percent below the revised April 2008 rate of 1,001,000. Single-family housing starts in April were at a rate of 368,000; this is 2.8 percent above the revised March figure of 358,000. The April rate for units in buildings with five units or more was 78,000. 

HOUSING COMPLETIONS Privately-owned housing completions in April were at a seasonally adjusted annual rate of 874,000. This is 4.9 percent above the revised March estimate of 833,000, but is 15.0 percent below the revised April 2008 rate of 1,028,000. Single-family housing completions in April were at a rate of 549,000; this is 0.2 percent above the revised March figure of 548,000. The April rate for units in buildings with five units or more was 313,000.

U.S. Dollar falls
The Dollar fell against most major world currencies every day last week. Some investors have pulled out of safe haven U.S. Treasury bonds and plowed it into other investments. Other investors worried that the greenback could get downgraded and fretted about massive U.S. debt after Standard & Poors downgraded the U.K.’s economic status and said the U.K.’s debt status could be downgraded from AAA. The U.S. Dollar Index fell to its lowest level since the end of 2008. Some analysts muse whether the U.S. is vulnerable to a run on its currency. 

Leading economic indicators up
The Conference Board reported that U.S. leading indicators rose 1.0% in April, the biggest gain since November 2005. The rebound in stock prices since early March and improving consumer confidence drove the index higher. While the leading index points in the right direction, the economy is not out of the woods yet. With unemployment at a 25-year high and weak consumer spending, an anemic recovery is likely, at best.

Sage Investment Strategies Portfolio Update
SIS portfolios stable year-to-date despite market volatility
Despite extraordinary market volatility and devastating drawdowns for most stock market investors since October 2007, the Sage Investment Strategies portfolios have shown remarkable stability. Since our SISTM minimized stock market exposure for most of the past year, the performance of our portfolios (see chart above) has been relatively smooth compared to the stock market’s gut-wrenching volatility. The combination of low volatility and solid long term results enables our subscribers to sleep well at night.

Our SISTM has performed an outstanding job of keeping our subscribers’ money safe from devastating losses compared with the two benchmarks against which we compare our performance: (1) a hypothetical investor’s portfolio consisting of 60% stocks and 40% bonds; and (2) the S&P 500 Index, representing the U.S. stock market.

The performance of our portfolios ranges from -0.7% to +1.5% year-to-date (YTD) and from -3.7% to +2.5% year-over-year (YOY). While the benchmarks are currently outperforming the SIS portfolios year-to-date, our portfolios are beating year-over-year performance of the benchmarks by a wide margin. The performance of the 60/40 Benchmark is +2.8% YTD and -19.6% YOY while the S&P 500 Index has returned +1.6% YTD and -35.5% YOY. Depending on which SIS portfolio strategy you follow, you enjoy an advantage over the 60/40 benchmark (which roughly represents the average investor) somewhere between 15.9-22.1 full percentage points YOY. Compared with the stock market as represented by the S&P 500 Index, you have an even greater advantage of between 31.8-38.1 percentage points YOY.

But YTD and YOY performance doesn’t tell the whole story. One must also examine the maximum drawdown (peak-to-trough losses) over the past year. Maximum drawdown for the Sage Investment Strategies portfolios ranges between a manageable -4.0% to -5.8% compared to a gut-wrenching -32.8% for the 60/40 Benchmark and an eye-popping -52.1% for the S&P 500 Index over the past year. Which maximum drawdown would you rather have?

The Sage Investment Strategies portfolios are designed to fluctuate very little compared to the stock market or a typical investor’s portfolio. For example, while the worst weekly return for the S&P 500 has been -18.2% over the past year, the worst weekly return for any SIS portfolio was just -2.0%. Looking at upside volatility, the largest weekly gain for the S&P 500 has been 12.0% over the past year, while the largest weekly gain for any SIS portfolio was 3.4%. The benefit to SIS subscribers is that they achieve the same or better results than the stock market over the long haul while experiencing less portfolio fluctuation than most investors.

Comparing various measures of risk and return in the table above, the SIS portfolios continue to outperform most benchmarks over the past year. For those not familiar with all the terminology, let’s review what it means:

52-Week Return represents the percent gain or loss compared to one year ago.

Standard deviation (52-Wk Std Dev) measures the volatility of individual weekly returns from the average return. As standard deviation increases, so does risk. Conservative investors prefer portfolios with lower standard deviation values while more aggressive investors are willing to invest in portfolios with higher standard deviation if there is a good chance of achieving higher returns.

Maximum drawdown (52-Wk Max DD) represents the largest percent decline in the portfolio’s value over the last year from the highest peak to the lowest point following the peak.

Sharpe Ratio (52-Wk Sharpe) measures how well the return of a portfolio or benchmark compensates the investor for the amount of risk taken. Positive numbers are better than negative numbers and higher positive numbers signify better risk-adjusted returns. The SIS Portfolio Sharpe Ratios tend to significantly exceed the benchmarks’ ratios during market declines while the reverse is generally true when the market is rising.

It’s important to review all the above measures when assessing and selecting a particular investment strategy for yourself. Doing so may keep you from taking on more risk than necessary.

Here’s how each of the Sage Investment Strategies portfolios have performed:

Log in to read the rest of the newsletter and view the portfolio changes. Not subscribed yet? Try our 30-Day Free Trial.

Have a great week ahead!
Paul

Results through 5/08/2009

Market Highlights
S&P 500 Index up 5.9% 
The S&P 500 Index (symbol: ^GSPC) vaulted 5.9% last week, closing at 929.93. The Index is up 39.4% since its most recent low of 666.79 on March 6, 2009. Representing the weighted value of 500 large publicly held U.S. companies and a bellwether for the U.S. economy, the index is down 33.1% from a year ago and down 41.0% from its October 11, 2007 peak of 1,576.09. The S&P 500 needs to rise 69.6% just to reach its October 2007 high. 

Since the market’s October 2007 peak the index has been on a tumultuous roller coaster ride punctuated by sharp zig-zag movements. Over the past 52 weeks alone the market has tumbled as much as 53.4% peak-to-trough on a weekly basis. While many market observers now believe the bottom is behind us, others claim this is simply a bear market rally driven by speculators who had massively shorted stocks and recently unwound their positions by buying back the stocks. Meb Faber reminds us that in the 1930’s bear market there were five stock market rallies of more than 20%, including a 48% rally after the initial cliff-dive. We’re starting to get within reach of the 48% mark. Will the market tumble back into the abyss or will it keep  going up?

VIX falls but market volatility remains high
The CBOE Volatility Index (symbol: ^VIX), a popular measure of anticipated stock market volatility, ranged between 31.19-36.24 last week compared with a range of 34.50-39.64 the prior week and its all-time high of 89 in October 2008. Since the market low of March 6, VIX has trended downward from the 50’s just prior to the start of the rally into the 40’s and 30’s. VIX ranged in the teens and twenties for most of 2008 prior to September and had never been higher than 46 prior to 2008. Recent VIX readings would indicate that investor fear is beginning to subside. 

But Mark Hulbert points out that the VIX only measures option traders’ expectations of future volatility - not the actual market volatility. Hulbert suggests a better measure of market volatility is to look at the percentage of days that the market rose or fell more than a certain percentage during a given period. For example, 68% of the time in the last 60 days the market has moved up or down more than 1% from the prior day. For all of 2006 a 1+% daily move occurred just 12% of the time; for 2007 - 26%; for 2008 - 53%; and for October-November 2008 the market moved more than 1% on 83% of the trading days. Looking at it that way tells us that volatility is still quite high compared with historical norms. Going forward we will use the percent of days the market exceeds a 1% move in either direction as our indicator of market volatility rather than the VIX.

Bonds up 0.3%
Bonds (as represented by symbol AGG) closed up 0.3% for the week and are up 3.5% from a year ago. AGG is an ETF that tracks the total United States investment grade bond market as defined by the Barclays Capital U.S. Aggregate Index of more than 9,000 government and corporate bonds. 

Crude oil jumps 10%
Crude oil futures prices rose 10.2% last week with the nearby contract closing at $58.63, up from $53.20 per barrel the prior week. Oil is off 60.1% from its July 2008 peak of $147 per barrel. Nationally, the retail price of gasoline averaged $2.08 per gallon for the week of May 4, up $0.03 from the prior week and down $1.54 per gallon from a year ago.

Gold jumps $30/oz
Spot Gold prices rose 3.4% from the prior week, closing at $916.20 per ounce, up from $885.80 the prior week. Are commodities like oil and gold anticipating a wave of inflation?

Economic Highlights
Unemployment rate jumps to 8.9%
The Bureau of Labor Statistics reported that non-farm payroll employment continued to decline in April with a net loss of 539,000 jobs. The nation’s unemployment rate rose from 8.5% to 8.9%. Since the recession began in December 2007, 5.7 million jobs disappeared while 13.7 million are currently out of work.

But initial unemployment claims fall
The U.S. Department of Labor reported that seasonally adjusted initial claims declined to 601,000 for week ending May 2, a decrease of 34,000 from the prior week’s revised figure of 635,000. The 4-week moving average fell by 14,750 to 623,250. However, seasonally adjusted insured unemployment rose to 6.351 million, an increase of 56,000 from the previous week’s revised level of 6.082 million.

Consumer credit falls
The Federal Reserve reported that consumer credit decreased at an annual rate of 2% in first quarter 2009.  Revolving credit declined at an annual rate of 6.5% while non-revolving credit increased by 1% from a year ago. In March, consumer credit decreased at an annual rate of 5-1/4%.

Pending home sales rise 3.2%
The National Association of Realtors said the number of contracts signed in March increased 3.2% from February and 1.1% from March 2008. First time home buyers are driving the market due to the availability of an $8,000 tax credit. The Housing Affordability Index was 166.7 in March, close to record highs. The index measures housing affordability based on home prices, mortgage interest rates and family income. The current index shows consumers’ buying power is near record high levels. 

Chicago PMI jumps
The Chicago Purchasing Managers Index jumped from 31.4 in March to 40.1 in April, exceeding expectations of a 35.0 reading. The current reading indicates the slowdown in Chicago business activity is lessening.

Sage Investment Strategies Portfolio Update
SIS portfolios stable year-to-date despite market volatility
Despite extraordinary market volatility and devastating drawdowns for most stock market investors since October 2007, the Sage Investment Strategies portfolios have shown remarkable stability. Since our SISTM minimized stock market exposure for most of the past year, the performance of our portfolios (see chart above) has been relatively smooth compared to the stock market’s gut-wrenching volatility. The combination of low volatility and solid long term results enables our subscribers to sleep well at night. 

Our SISTM has performed an outstanding job of keeping our subscribers’ money safe from devastating losses compared with the two benchmarks against which we compare our performance: (1) a hypothetical investor’s portfolio consisting of 60% stocks and 40% bonds; and (2) the S&P 500 Index, representing the U.S. stock market. 

The performance of our portfolios ranges from -1.4% to +0.2% year-to-date (YTD) and from -4.2% to +1.7% year-over-year (YOY). In contrast, the performance of the 60/40 Benchmark is +5.4% YTD and -18.0% YOY while the S&P 500 Index has returned +6.5% YTD and -33.1% YOY. But YTD and YOY performance doesn’t tell the whole story. One must also examine the maximum drawdown (peak-to-trough losses) over the past year.  Maximum drawdown for the Sage Investment Strategies portfolios ranges between a manageable -4.6% to -6.0% compared to a massive -34.0% for the 60/40 Benchmark and an eye-popping -53.4% for the S&P 500 Index over the past year. 

Depending on which SIS portfolio strategy you follow, you enjoy an advantage over an average investor (the 60/40 benchmark) somewhere between 13.8-19.7 percentage points YOY. Compared with the stock market as represented by the S&P 500 Index, you have an even greater advantage of between 28.9-34.7 percentage points YOY.

The Sage Investment Strategies portfolios are designed to fluctuate very little compared to the stock market or a typical investor’s portfolio. For example, while the worst weekly return for the S&P 500 has been -18.2% over the past year, the worst weekly return for any SIS portfolio was just -2.0%. The same holds true for upside volatility in that the largest weekly gain for the S&P 500 has been 12.0% over the past year, while the largest weekly gain for any SIS portfolio was 3.4%. The benefit to SIS subscribers is that they achieve the same or better results than the stock market over the long haul while experiencing less portfolio fluctuation than most investors.

Comparing various measures of risk and return in the table above, the SIS portfolios continue to outperform most benchmarks over the past year. For those not familiar with all the terminology, let’s review what it means:

52-Week Return represents the percent gain or loss compared to one year ago.

Standard deviation (52-Wk Std Dev) measures the volatility of individual weekly returns from the average return. As standard deviation increases, so does risk. Conservative investors prefer portfolios with lower standard deviation values while more aggressive investors are willing to invest in portfolios with higher standard deviation if there is a good chance of achieving higher returns. 

Maximum drawdown (52-Wk Max DD) represents the largest percent decline in the portfolio’s value over the last year from the highest peak to the lowest point following the peak.

Sharpe Ratio (52-Wk Sharpe) measures how well the return of a portfolio or benchmark compensates the investor for the amount of risk taken. Positive numbers are better than negative numbers and higher positive numbers signify better risk-adjusted returns. The SIS Portfolio Sharpe Ratios tend to significantly exceed the benchmarks’ ratios during market declines while the reverse is generally true when the market is rising.

It’s important to review all the above measures when assessing and selecting a particular investment strategy for yourself. Doing so may keep you from taking on more risk than necessary.

Here’s how each of the Sage Investment Strategies portfolios have performed:

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Have a great week ahead!
Paul