Information Technology receives an increased allocation of 2.0 points to 24.9%. Consumer Discretionary lowered by 2.1 points to 10.2%.
The portfolio described in this report is designed to provide a market exposure according to the relative fair valuation of each sector within the LargeCap market. Sectors that are currently the most overvalued are reduced in allocation in proportion to the degree of overvaluation while sectors that are the most undervalued will see an increase in allocation in proportion to the degree of undervaluation. This is done to place investments in the area of highest probability of improvement in value.
An indexed portfolio is one of the most efficient methods of providing an investor the broadest exposure to the market. A portfolio under $10,000 may be well served in terms of market return and reduced management fees as well as lower transaction costs by using a single LargeCap index such as IVV, a security that mimics the S&P 500 Index. Once the portfolio reaches a level greater than $10,000 and under $250,000, a sector index portfolio that includes various market capitalization levels (Large, Mid, Small) and separate sectors may be the best vehicle.
The table in Figure 1 is a recommended asset allocation for a portfolio that would use individual sector index securities or SPDR securities. The allocation amongst the sectors is determined by using the relative fair value for each sector.
Information Technology remains the largest sector at 24.9% which is an increase of 2.0 percentage points from the last report followed by Financials at 17.1% which is slightly increased by 0.3 points. The next four largest sectors are close in size: HealthCare at 14.0%, no change (<0.2 points) from the previous report, Consumer Discretionary at 10.2%, a 2.1 point reduction, Consumer Staples at 9.5%, also a reduction of 0.4, and Industrials at 10.0%, no change. Energy remained unchanged again at 5.2%. While Telecommunication Services was decreased by 0.3 percentage points to 3.1% and Utilities remained at 2.8%. Materials was unchanged at 3.0%.
This allocation results in a market weight, or near market weight (<0.5 percentage point difference) condition for: Energy, Financials, Health Care, Industrials, Information Technology, Materials and Utilities. Overweight positions for: Consumer Staples, and Telecommunication Services. Underweight positions for: Consumer Discretionary. (Financials sector includes Real Estate to maintain consistency with allocation definitions in MidCap and SmallCap.)
