When the market is attractive you want to be 100% invested. But when risks are too high to stomach, a less aggressive strategy makes sense. Yet, few managers will adjust their strategy preferring instead to be fully invested all of the time. Aalok Devkota is one of the few who does a great job managing market exposure. Aalok Devkota outperformed all U.S. equity mutual fund managers for the past 3 years and he is turning aggressive now.
Ken Kam: Aalok, you’ve been doing quite a bit of trading lately. What’s driving that?
Aalok Devkota: I was expecting a correction as some of my macro indicators were lagging so I put my portfolio in a defensive posture.
Kam: What do you mean by that?
Devkota: I bought defensive stocks like Ameren (AEE) and Pilgrim’s Pride (PPC) to minimize volatility if a correction were to happen.
Kam: How are Ameren and Pilgrim’s Pride defensive stocks?
Devkota: Pilgrims Pride is a consumer goods company so when the market goes down it usually finds strength. It may not go up when the market is down but it usually goes down less.
Similar thing with AEE. As a utilities company it does relatively better than the market as a whole when the overall market is down.
I use these two stocks as a place to park cash if I am waiting for a right time to buy another stock. These two stocks provide diversification if the market were to go south.
Kam: But the market has not gone south. We have been hitting new highs.
Devkota: When the correction did not happen and I got buy signals on the stocks that I was watching I sold Ameren and Pilgrim’s Pride and bought Baozun (BZUN) and iRobot (IRBT).