Outperformance Persists for Solyco Wealth Model Portfolios through 3Q22

Outperformance largely continued for the four model portfolios managed by Solyco Wealth in 3Q22, year-to-date in 2022 (YTD), and since inception (SI), as shown in the two graphs below. Unfortunately, with the head-fake of a recovery in risk-asset prices of July-August 2022 firmly in the rear-view mirror and the resumption of 1H22’s downward trajectory for assets prices, this outperformance translated to the four portfolios posting less negative total returns than their benchmarks and the major indices.

Across the portfolios prescient moves at end-2Q22 to add Deere & Co. [DE (+11.4% in 3Q22)] and Marathon Petroleum [MPC (+18.3% in 3Q22)] led performance for the quarter. Adding these positions produced a dual benefit as they replaced Technology positions that continued their declines over the course of the quarter. The DE and MPC moves higher, however, failed to offset the declines among Communication Services stocks Comcast [CMCSA (-24.9% in 3Q22)] and Paramount [PARA (-23.3% in 3Q22)], which were the worst performing securities across the portfolios last quarter.

As has been the case since the September 8, 2021, inception of Solyco Wealth’s model portfolios, stock-picking drove outperformance across all time frames. Unlike in 1H22, though, price dispersion across fixed income-related assets materialized in 3Q22. For instance, the SPDR Bloomberg High-Yield Bond ETF (SJNK) posted a +0.2% total return for the quarter. Thus, asset allocation, or the proportion of bonds versus stocks in the portfolios along with the choice of bond ETFs within the portfolios, contributed to outperformance for almost 80% of the 12 time-period observations across the four model portfolios.

Conservative Model Portfolio

The Conservative model portfolio, which offers a 65% allocation to fixed income securities, a 22.8% domestic equity securities allocation, a 2.2% international equity securities allocation, and a 10% cash position, after fees lost 4.2% for 3Q22, 14.5% year-to-date, and 12.9% since inception. The Conservative portfolio underweighted international equities since inception in order to overweight domestic equities. While the 3Q22 and since-inception performances outpaced the Conservative Model Portfolio’s benchmark after fees, YTD Conservative’s return lagged by a basis point.

Solyco Wealth Conservative Model Portfolio Comparative Performance: 3Q22, YTD, and Since Inception
    3Q22 Year-to-Date Since SW Inception
Benchmarks S&P 500 -5.70% -23.87% -19.38%
Russell 3000 -5.35% -24.62% -21.34%
MSCI All-World ex-US -10.45% -26.71% -28.17%
Bloomberg US Agg Bond -4.34% -14.50% -15.07%
Conservate Model Portfolio Portfolio Return -4.17% -14.49% -12.91%
Benchmark Return -4.34% -14.49% -14.67%
   +/- Benchmark 0.17% -0.01% 1.76%
   +/- S&P 500 1.53% 9.37% 6.46%
   +/- Equities vs. S&P 500 -2.13% 2.36% 4.11%
   +/- Fixed Income vs. Agg 1.26% 1.61% 2.71%

The above table reflects a 1% annual management fee, or 0.25% for 3Q22, 0.75% year-to-date through 9/30/2022, and 1.075% since exception.
Actual client investment performance likely will differ from respective model portfolio performance due to several factors including: 1) Timing of securities purchases and sales, 2) Dividend reinvestment choices, 3) Securities held outside the model portfolio, 4) Weighting differentials for certain securities relating to whole versus partial share accounting, 5) Timing and pricing of rebalancing actions, and other minor factors.
Conservative benchmark = total returns for 10.0% Russell 3000 Index, 65.0% Bloomberg US Aggregate Bond Index, and 10.0% MSCI World ex-US Index and 15.0% cash allocations.

Not counting its allocation to cash, five of Conservative’s 35 holdings in 3Q22 generated a positive performance contribution: the aforementioned DE, MPC, and SJNK, as well as Amazon [AMZN (+3.7%)] and CVS Health [CVS (+2.8%)]. For the YTD and Since Inception periods Energy companies Schlumberger (SLB) and Total (TTE), health insurer Cigna (CI), and defense and aerospace concern Lockheed Martin (LMT) also contributed positively to portfolio returns. Semiconductor equipment manufacturer Applied Materials [AMAT (-39.5% SI) along with Nike [NKE (-48.4% SI)] joined Communication Services companies CMCSA and PARA in presenting the stiffest headwinds for portfolio performance.  

Moderate Model Portfolio

The Moderate Model Portfolio performance exceeded benchmark and S&P 500 performance for 3Q22, YTD, and SI, time periods, returning -4.5% for 3Q22, -15.8% YTD, and -12.1% SI. The Moderate portfolio allocates 45% of assets to fixed income, 3.5% to international equities, 41.5% to domestic equities, and 10% to cash. These allocations place Moderate at a significant overweight position to domestic equities vis-à-vis the benchmark’s 22.5% allocation, reflective of the view (correct thus far since inception) that U.S. equities will outperform international stocks.

Solyco Wealth Moderate Model Portfolio Comparative Performance: 3Q22, YTD, and Since Inception
    3Q22 Year-to-Date Since SW Inception
Benchmarks S&P 500 -5.70% -23.87% -19.38%
Russell 3000 -5.35% -24.62% -21.34%
MSCI All-World ex-US -10.45% -26.71% -28.17%
Bloomberg US Agg Bond -4.34% -14.50% -15.07%
Moderate Model Portfolio Portfolio Return -4.48% -15.80% -12.05%
Benchmark Return -5.47% -18.03% -17.87%
   +/- Benchmark 0.99% 2.22% 5.82%
   +/- S&P 500 1.22% 8.06% 7.33%
   +/- Equities vs. S&P 500 -0.15% 4.52% 9.02%
   +/- Fixed Income vs. Agg 0.70% 0.29% 0.92%

The above table reflects a 1% annual management fee, or 0.25% for 3Q22, 0.75% year-to-date through 9/30/2022, and 1.075% since exception.
Actual client investment performance likely will differ from respective model portfolio performance due to several factors including: 1) Timing of securities purchases and sales, 2) Dividend reinvestment choices, 3) Securities held outside the model portfolio, 4) Weighting differentials for certain securities relating to whole versus partial share accounting, 5) Timing and pricing of rebalancing actions, and other minor factors.
Moderate benchmark = total returns for 22.5% Russell 3000 Index, 45.0% Bloomberg US Aggregate Bond Index, and 22.5% MSCI World ex-US Index, and 10.0% cash allocations.

In addition to previously mentioned positive contributions from DE, MPC, and SLB, the Moderate Model Portfolio also benefited since inception from the upside performances of:

  • Oil and gas firm Pioneer Natural Resources [PXD (+62.2% since inception)],
  • Vertex Pharmaceuticals [VRTX (+50.6% since inception)],
  • Health insurer Centene [CNC (+28.3% since inception and sold 12/10/21)],
  • Medical technology company AbbVie [ABBV (+49.7% since inception and sold 3/18/22)] and,
  • Broadcom [AVGO (+28.1% since inception and sold 12/14/21)].

Eastman Chemical [EMN (-34.1% SI)] and Advanced Micro Devices [AMD (-42.0% SI)] join CMCSA, PARA, and NKE, in presenting significant challenges to higher Moderate portfolio returns.

Moderately Aggressive Model Portfolio

As it has since inception, the Moderately Aggressive Model Portfolio defined Solyco Wealth’s top-performing portfolio for 3Q22 with a 3.8% loss. Through the first nine months of 2022 Moderately Aggressive lost 13.8%, which exceeded benchmark and S&P 500 performances for the same nine-month period by 6.5% and 10.1%, respectively. Moderately Aggressive performed modestly better since inception as its 8.9% loss exceeded by 10.9% the benchmark’s 19.8% loss and by 10.5% the S&P 500’s 19.4% loss.

Solyco Wealth Moderately Aggressive Model Portfolio Comparative Performance: 3Q22, YTD, and Since Inception
    3Q22 Year-to-Date Since SW Inception
Benchmarks S&P 500 -5.70% -23.87% -19.38%
Russell 3000 -5.35% -24.62% -21.34%
MSCI All-World ex-US -10.45% -26.71% -28.17%
Bloomberg US Agg Bond -4.34% -14.50% -15.07%
Moderately Aggressive Model Portfolio Portfolio Return -3.78% -13.78% -8.89%
Benchmark Return -6.18% -20.26% -19.81%
   +/- Benchmark 2.39% 6.48% 10.91%
   +/- S&P 500 1.92% 10.09% 10.49%
   +/- Equities vs. S&P 500 0.77% 8.90% 11.74%
   +/- Fixed Income vs. Agg 0.58% 0.92% 2.28%

The above table reflects a 1% annual management fee, or 0.25% for 3Q22, 0.75% year-to-date through 9/30/2022, and 1.075% since exception.
Actual client investment performance likely will differ from respective model portfolio performance due to several factors including: 1) Timing of securities purchases and sales, 2) Dividend reinvestment choices, 3) Securities held outside the model portfolio, 4) Weighting differentials for certain securities relating to whole versus partial share accounting, 5) Timing and pricing of rebalancing actions, and other minor factors.
Moderately Aggressive benchmark = total returns for 32.5% Russell 3000 Index, 25.0% Bloomberg US Aggregate Bond Index, and 32.5% MSCI World ex-US Index, and 10.0% cash allocations.

With a 65% equity weighting, substantially skewed to better-performing US equities, stock-picking drove the Moderately Aggressive Model Portfolio’s relative out-performance. Stock performance in the portfolio exceeded that of the S&P 500 by 11.7% since inception. The fixed income exchange traded funds (ETFs) in Moderately Aggressive also contributed to its comparative upside as their performance exceeded that of the benchmark Bloomberg US Aggregate Bond Index by 228 basis points.

International holding Sociedad de Quimica y Minera (SQM), one of the world’s largest lithium producers, paced Moderately Aggressive performance as it moved 7.7% higher for the quarter, +83.2% for all of 2022, and up 78.2% since inception. Joining SQM in supporting the portfolio’s performance were PXD, SLB, VRTX, MPC and DE. In addition to the significant declines experienced with CMCSA and PARA, Moderately Aggressive also suffered downside from cloud tech firm Service Now [NOW (-42.9% SI)], search leader Alphabet [GOOGL (-33.7% SI)], and Vanguard Emerging Markets Government Bond ETF [VWOB (-24.5% SI)].

Aggressive Model Portfolio

Distinctly risk-off attitudes in 2022 decidedly hampered Aggressive Model Portfolio returns as it posted losses of 5.6% for 3Q22, 19.5% YTD, and 15.9% SI. These performances outpaced those of the benchmark by 1.8%, 4.3%, and 7.1%, respectively, and those of the S&P 500 by 0.2%, 4.3%, and 3.4%. Indicative of transitions in fixed income markets in 3Q22, which saw a more positive reception for credit exposure, the model’s fixed income positions outperformed the Bloomberg US Aggregate Bond Index by 2.3% in that period. For the YTD and SI periods equities remained responsible for Aggressive’s outperformance.

Solyco Wealth Aggressive Model Portfolio Comparative Performance: 3Q22, YTD, and Since Inception
    3Q22 Year-to-Date Since SW Inception
Benchmarks S&P 500 -5.70% -23.87% -19.38%
Russell 3000 -5.35% -24.62% -21.34%
MSCI All-World ex-US -10.45% -26.71% -28.17%
Bloomberg US Agg Bond -4.34% -14.50% -15.07%
Aggressive Model Portfolio Portfolio Return -5.55% -19.53% -15.94%
Benchmark Return -7.30% -23.80% -23.01%
   +/- Benchmark 1.75% 4.27% 7.07%
   +/- S&P 500 0.15% 4.33% 3.44%
   +/- Equities vs. S&P 500 -0.86% 3.78% 3.36%
   +/- Fixed Income vs. Agg 2.27% -1.36% -1.40%

The above table reflects a 1% annual management fee, or 0.25% for 3Q22, 0.75% year-to-date through 9/30/2022, and 1.075% since exception.
Actual client investment performance likely will differ from respective model portfolio performance due to several factors including: 1) Timing of securities purchases and sales, 2) Dividend reinvestment choices, 3) Securities held outside the model portfolio, 4) Weighting differentials for certain securities relating to whole versus partial share accounting, 5) Timing and pricing of rebalancing actions, and other minor factors.
Aggregate benchmark = total returns for 45% Russell 3000 Index, 5.0% Bloomberg US Aggregate Bond Index, 45% MSCI World ex-US Index, and 5.0% cash allocations.

Earthstone Energy [ESTE (+49.0% SI)] marked the only out-performing equity not held in the other portfolios and previously mentioned. Shopify [SHOP (-80.4% SI)] and Yeti [YETI (-70.6%)], despite continuing to post impressive absolute and relative growth amidst economic turmoil, posted substantial negative returns for the portfolio. Notably, active management, including dollar-cost averaging and covered-call writing, significantly reduced the actual magnitude of losses from these securities within the client portfolios that hold them and that follow the Aggressive Model Portfolio.