Volatility is Low and Dividends are High

Volatility is Low and Dividends are High

Posted on April 29, 2013

Canterbury Portfolio Thermostat – Weekly Update 4/29/13

Canterbury Volatility Index (CVI) = 62) – Rational/Normal Volatility

Market State 2- (last 9 days)

Bullish/Normal Consolidation

Volatility is low and declining - Low risk period – Bullish

The primary purpose of diversification is to maintain portfolio stability throughout all market environments. When a portfolio’s volatility begins to increase, we know that the diversified combination of securities that was successful in maintaining a stable portfolio is no longer working in the new environment. Canterbury’s Portfolio Thermostat model was designed to maintain stable portfolio volatility by adjusting a portfolio’s holdings to benefit from the unique characteristics of each market environment.

Canterbury’s Portfolio Thermostat is a quantitative process designed to identify, and then categorize, the various market environments into 12 individual Market States. Market States 1 through 6 represent different market environments during a long term Bull market. Market States 7 through 12 are different stages of a long term Bear market. The Portfolio Thermostat assigns a custom asset allocation created to benefit from the unique characteristics of each Market State environment.

Weekly Update:
The current Canterbury Volatility Index (CVI) score is below 75 and reflects a rational/low risk market environment. During such periods, an occasional correction or normal consolidation would typically be in the -4% to -8% ranges.

Last week’s slight gains made up for the previous week’s pullback. The S&P 500 is now back to the, short term, upper end of the trading range. Our advance decline line, calculated on the S&P 1500 stocks, reached a new high on Thursday, meaning that the breadth of the stock market remains very good. Due to these factors and other factors, the overall market is most likely to remain in a trading range and then work its way higher

The Portfolio Thermostat is clearly indicating that dividend paying stocks and defensive sectors are leading. The Standard and Poor’s 500 is comprised of 9 Macro Economic Sectors. The Portfolio Thermostat’s top 3 ranked sectors are Utilities - XLU; Health Care - XLV and Consumer Staples - XLP. The lowest ranked sectors, beginning with the worst: Technology - XLK; Energy - XLE and Basic Materials - XLB.

Since 8/15/2012, the Portfolio Thermostat has shifted back and forth between two of the Bullish Market States 1 and 2. During this time, the S&P 500 reflected a normal and rational stock market environment. It has gone up +12.57% not including dividends. In addition every pullback fell within the expected -4 to -8% ranges. The last eight months are typical of a bull market as it, “CLIMBS a wall of worry.”


Portfolio Thermostat - Market States The Portfolio Thermostat’s identifies 12 different market environments called “Market States.” The 6 Market States on the left side (below) represents a long term Bull stock market. Market States 7 through 12 occurs in a long term Bear market. Of the 12 Market States, 6 Bullish are (rational) Market States; 4 Bearish (emotional/irrational) and 2 are Transitional (yellow) Market States. The Transitional Market States tend to precede a change from Bullish to Bearish, indicating caution. The Market States matrix gives an overview of the different characteristics and components that are typical of each of the 12 Market States.

Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom Hardin, Chartered Market Technician (CMT), makes all the final decisions on all investment and portfolio management decisions for Canterbury Investment Management. Tom has more than 30 years experience in the investment management industry and has broad breadth of knowledge. He is known as an innovator, educator and been revolutionary in the advancements in portfolio and risk management.

Every effort was used to provide accurate data and mathematical calculations to provide, what we believe to be, accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.