Freeport McMoran and LyondellBasell Represent High Quality Momentum, But Junkier is Rallying Harder

Model Portfolio Daily Update:  December 27, 2010

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Of Note:
Four trading days left and we are lagging the S&P 500 by 103 basis points, theoretically speaking.  The Opportunistic Long Model is now assuming 18% cash.  Our long-only model based on actual trade data has taken on two additional positions with that cash, but the portfolio still lags.  Nothing much we can do at this point; we are not going to chase junk stock returns and blow up our carefully researched and crafted portfolio strategy that is working, just not working as well as chasing riskier stocks at the current moment.

Separately, instead of rebalancing our models at the December 31 close for execution on January 3, we are instead going to rebalance a few days earlier.  We are doing this to avoid the potential of significant though positive volatility which we have experienced on the first trading day of the last few months.  In our opinion, there is a lot of cash on the sidelines that gets put to work on the first of the month.  From our direct experience in doing the same, it is probably because it is administratively very simple to execute as well as to explain the new trades to clients.  However, we are in the business of generating returns as opposed to nice marketing packages, so we are going create an administrative headache for ourselves on Thursday or Friday and rebalance our portfolios then.

Freeport McMoran Copper & Gold (FCX) and LyondellBasell (LYB) are now within a few pennies of hitting their monthly price targets.  Regardless of where they trade over the next few days, we will probably hold on to the stocks through rebalancing since they remain compelling investment stories.

About this report:
This daily update is a supplement to a monthly report dated November 30, 2010 that details the model portfolio strategies of Ascendere Associates LLC (“Ascendere”).  For more information, please see our list of frequently asked questions, suggested tips on using our newsletter or an interview with us on Covestor Live.  See also our long-only model based on actual trade data. Please see our disclosures and disclaimers at the back of this report.