Early in today's trading session I sold clients' position in the Vanguard Communication Services ETF (VOX) to take on a slightly more defensive posture. This is in addition to buying AGFiQ U.S. Market Neutral Anti-Beta ETF (BTAL) in May, ProShares Short S&P 500 (SH) a couple of weeks ago and Pacer Trendpilot Large Cap ETF (PTLC) having gone 100% cash a few weeks ago.
I'd held VOX for many years. Up until earlier this year it was a straight telecom ETF dominated by low beta, high yielding Ma-Bell like companies. Then, as a result of the GICS sector reshuffle it took on names like the two classes of Alphabet (GOOG) adding up to more than 20% of the fund, Facebook (FB) which is now 13% of the fund and Netflix (NFLX) among others which of course completely changes the attributes of the holding (that was the idea). I knew months ago that when I needed to sell as part of a defensive implementation, VOX would be the first one to go. It's not that I am opposed to exposure to those names but the fund now overlaps with iShares US Technology ETF (IYW) which clients have held even longer. VOX was better to sell than IYW because the position was smaller as were any capital gains. If the bull market were still fully intact (S&P 500 above its 200 DMA) I would still have the position. The overlap wasn't a problem until it became a problem...so to speak.
The lift in the market today seemed like a good opportunity. There was a lot of fear showing last week, I decided that a big open on Monday would be the opposite of capitulation which implies that whatever is going on in the market over the last few weeks is not done. If that is right, then more defense makes sense (why I did it). If that is wrong and buying the dip will work again then the modestly defensive positioning should result in lagging the market for now but being still plenty long, there should be some upcapture.
As a quick reminder, the objective here is to avoid the full brunt of any large decline. Despite what you might be feeling or reading, for now the decline is not large at just over 9%. Underlying this approach is the realization that there is no way to know what will happen. Things like the index going below its 200 DMA, the slope of the DMA being negative (it went slightly positive in the last day or two) or the 50 DMA crossing below the 200 DMA (that is coming soon) all serve to increase the odds of a large decline. Increased odds is far from a certainty which is why I treat getting defensive as a very slow process (also bear markets are a very slow process).