Several Mosaic comments related to the apparent concentration of capital into various bond ETFs and questioned the long term stability of such a skew. A good question that deserves a reasoned respond before you dump your money into a market neutral model like Mosaic. First, my own question. Here’s a look back to late 2007 of the various Mosaic components and certain trends should be readily apparent including the volatility of SPY, especially when compared with QQQ. Now tell me why you would want to own SPY?
If you’re concerned about risk exposure it makes much more sense to me to avoid the bucking bronco pattern of SPY and instead try to capture the steady appreciation of various bond ETFs and enhance that trend return with a little help from something like QQQ, which is generally regarded as the driving engine of the economy and which displays substantially less volatility that SPY while also displaying the same slope value over the past 3 years. This is the essence of my market neutral approach…engineering a balance between these 2 sectors and enhancing those gains with some periodic juice from utilities, health care and gold. But, how long will this bond/equity balance remain intact and what happens when bonds crash as a number of pundits keep predicting?
Here’s my take….it doesn’t matter…. and I’ll try to make that case in upcoming posts.
