Thanks. If I understand correctly, we are using different analytics (appropriately) to meet different objectives. My approach is more simplistic. CEF price trends combined with my fundamental / Fed views, curve-implied forward yield expectations, and price trends of portfolio component ETFs inform my personal decision about CEF/cash balance. My preferred "position" is fully invested in CEFs, and I temporarily increase cash in service of goals: principal protection and improvement of portfolio cash flows.
I've never thought in terms of risk on/off, and I'm guessing that may be a holdover from years of trading. IMO holding CEFs is no more (or less) risky than holding Treasurys or soybean futures ---- as long as the investor ruthlessly prunes losers and leaves "winners" that meet portfolio objectives alone ("let's them run").
Regards, Dick
I don't think your approach as simplistic at all
.
You are focused on the management of the CEFs portfolio and use a combination of fundamental/technical indicators and, most importantly, a super deep well of experience to interpret and act on their data. Your trading/investing is discretionary, i.e cannot be replicated, so we are all here to benefit from the CEFs selection, macro analysis of the factors which drive the CEFs and the allocations/timing.
A short note on the risk on/off, context and use in my case:
I manage a set of portfolios: growth stocks, CEFs for growth, CEFs for income and Managed Futures. I do not use other asset classes in the portfolios I manage (but I have investments managed by others: BLNDX, ORR, QLENX, etc.)
For the portfolios I manage, spread across IRAs and taxable, I use different systems for growth and for income, as I posted here a few times. These are all
purely mechanical systems, based on the technical & fundamental indicators I use, so could be backtested on historical data, for validation.
For these systems, which all use risk assets (stocks and CEFs), in combination with convex assets, (i.e. managed futures, which do well in all market states), the market regime is essential to modulate the allocation between risk assets and the convex "hedge". It is not a binary on/off allocation, but a matter of degree, based on the weight of evidence of risk on vs risk off.
This incremental
glide in and glide out of the different allocations %, based on how many indicators are favorable/unfavorable, does not look at the market trends of different assets, (though it uses the S&P trend as one of the indicators). It is the overall risk picture that counts in reducing/increasing the risk assets allocation. And it is all mechanical, systematic, so doesn't subject me to any psychological pressure and uncertainty and doubt in my allocations decision making when markets states change. (Sometimes, I feel an imperious need to override the system, but every time I did that, in the past, I regretted it
.)
So, this is the context and the way I use the HY Spread, as one of these risk indicators.
One more note:
Having always some risk assets in the market, even in a terrifying market crash, though it works against what you feel at the time, will prove its worth when the market crash is followed by a huge rally when no one expects it. You have seen these in 2020, 2025 and 2026 V shaped corrections, when, if you didn't have risk assets in already, you would never been able to get in and join the rally.
