1H 2022 Portfolio Review – Avoiding A Personal Bear Market

1H 2022 Portfolio Review – Avoiding A Personal Bear Market

July 4, 2022 Off By administrator

utah778/iStock via Getty Images

Market Recap

The first half of 2022 was the worst one since 1970 with the S&P 500 index ETF (SPY) returning -20.0% including dividends. The top sectors are no surprise. Energy (XLE) was the clear winner with a 27.6% total return as measured by the Sector SPDR ETF. The next 3 best performers were the classic defensive sectors. Utilities (XLU) was the only other positive sector at 0.4%, followed by Consumer Staples (XLP) at -5.3% and Health Care (XLV) at -7.4%.

Top Sectors 1H 2022

Seeking Alpha

The worst sectors were Consumer Discretionary (-34.4%), Communications (-30.3%), and Technology (-27.3%). Sector performance went pretty much as I expected in my November 2021 article, “Surviving A Tech-Led Bear Market: Lessons From 1999 To 2002”

Worst sectors 1H 2022

Seeking Alpha

The remaining sectors performed closer to the S&P. Industrials (XLI) returned -16.1%, Materials (XLB) -16.8%, Real Estate (XLRE) -19.3%, and Financials (XLF) -19.7%.

Value clearly beat Growth so far in 2022. The iShares S&P 500 Value Fund (IVE) returned -11.9% for the year compared to -28.2% for the Growth Fund (IVW).

Value vs. Growth 1H 2022

Seeking Alpha

Performance by market cap was not as varied. The iShares Russell 2000 ETF (IWM) underperformed SPY by about 4 percentage points but the S&P Midcap ETF (MDY) outperformed SPY by 0.5%.

Performance by Market Cap 1H 2022

Seeking Alpha

Bonds have also performed terribly in the rising interest rate environment. The iShares Core U.S. Aggregate Bond ETF (AGG) returned -9.5% so far this year. Outside of the AGG, other fixed income index ETF’s did worse but had similar results regardless of credit quality. The Investment Grade Corporate Bond Fund (LQD) returned -15.2% in the first half. The High Yield ETF (HYG) returned -13.7% and the Preferred ETF (PFF) returned -14.5%.

Fixed Income Performance 1H 2022

Seeking Alpha

My portfolio’s lack of mega-cap growth was a positive performance driver in 2021. A temporary reduction in riskier fixed income allocation also helped, although I could have gone farther. However, the market appears to now be sensing that a peak has been reached in inflation as indicated by recent drops in longer-term interest rates. While a few more short-term rate hikes are likely, now could be a good time to tiptoe into low investment grade bonds with 5-10 year maturities while yields of 5% to 6% are available. Until short term rates have peaked however, do not make the mistake of adding to leveraged bond funds as the cost of leverage remains high.

As far as stocks are concerned, value is still cheap relative to growth and has some potential outperformance remaining. There will be a time to add to growth stocks but I believe it will be closer to the bottom of the current bear market which I have estimated at 3400 on the S&P in a recent article.

Portfolio Performance

My portfolio held up better than the S&P 500 so far in 2022, returning -13.8% compared to the bear market level -20.0% for the SPY. My ending asset allocation was 83.7% equities, 13.9% fixed income and preferreds, and 2.4% cash. That marks a shift of…

(Excerpt) To read the full article , click here
Image credit: source