Healthcare! Healthcare! Healthcare!
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Recap
In our last blog, we highlighted the Spread Model tab, which attempts to measure the relative valuations between different market segments. We focused on the small cap vs. large cap spread model, discussing some of the macro economic reasons why small caps have underperformed in recent years, but are now poised to outperform due to the likely rate cutting cycle from the Federal Reserve.
Healthcare! Healthcare! Healthcare!
Healthcare (XLV) is a really scary sector right now, mostly because of the current administration. If I were going off gut feeling alone, I’d say stay away. But that’s exactly why we developed FVEr — it’s part of the ethos. We want to remove gut feelings from the equation. XLV is one of the only sectors this year where FVEr has flashed the “on sale” sign. At one point, it dipped to 18% undervalued.
This week, I want to talk about how someone might actually use this strategy — by showing a few trades I’ve put on. If we expect people to trust this system, then we have to put our money where our mouth is.
The Pure FVEr Play
Let’s start with the cleanest FVEr move: investing in the leveraged counterpart of the underlying ETF. In this case, the S&P Healthcare ETF we track is XLV, and the 2x and 3x leveraged versions are RXL and CURE, respectively.
On June 12th, I purchased a position in CURE, representing roughly 5% of a retirement portfolio. As of Friday, September 12th, CURE has returned +2.24% during that holding period. Over that same window, SPY returned approximately +9%.
I want to make two quick points on this:
1. Position Sizing
5% position sizing is a common rule of thumb in financial planning. Nobody really knows where it came from — some people prefer 3%, others go as high as 7%. The point is: don’t put all your eggs in one basket.To quote Harry Markowitz, the father of modern portfolio theory:
“I only have one piece of advice: Diversify.”
I like using a 5% position size. And CURE, despite being a leveraged product, is diversified within its specific sector.
2. This Is Not a Get-Rich-Quick Strategy
We’ve said this from day one: FVEr is not a get-rich-quick scheme. I’m continuing to hold CURE until the FVEr signal tells me to exit.I have high conviction that, given time, it will outperform the S&P. But yes — during this specific window, I would have been better off just holding SPY. It often takes time for our signals to fully materialize. Patience is part of the process.
Options
This isn’t the only healthcare trade I’ve made. I also opened an options trade. I’m always hesitant to talk about options because they’re complex financial instruments. They’re something I’ve studied for a long time and used as the basis of my personal trading before we completed the FVEr model. Now, I use them alongside FVEr — but I want to be clear:
We’re probably never going to release a public FVEr options strategy. They’re extremely difficult to backtest reliably. And if you’re not already familiar with how options work, I wouldn’t try to use FVEr signals to trade them.
That said, for those who are experienced, FVEr may help identify opportunities where options can offer outsized gains. But let’s be honest: Options are bets. I’m betting they’ll pay off. And so far, they have.
The XLV Call Play
On May 16, I bought at-the-money (ATM) call contracts on XLV with a January 15, 2027 expiration:
Buy to Open: XLV 01/15/2027 130 Call
This initial buy represented about 1% of my portfolio.
Here’s the logic:
I prefer ATM calls because they offer a better payout structure without relying on long-shot outcomes.
I avoid OTM calls because they rarely materialize, and time decay works against you the entire way.
I picked the longest expiration available because I want to give XLV the time it needs to recover.
As far as option trades go, this one wasn’t high risk.
This option position started to tank, I was roughly 10% down. Then, on August 7 — around the time FVEr was signaling 18% undervalued — I doubled down on the same strike. To be fair, this second leg was technically an OTM buy, but I was adding to an existing position, bringing the total exposure to around 2% of the portfolio.
Lets see where we are at today:
This position has returned 26.72% in the last couple of months.
Bottom Line
FVEr takes time to work.
It’s not magic.
And you need to make your own financial decisions.
But if you trust the process, size your positions appropriately, and stay disciplined, FVEr can be a powerful tool in your long-term strategy.
FVEr Weekly Market Update: September 15, 2025
Current Allocation Status: As of open this morning the SPY (SPDR S&P 500) is within 1% of moving into a 1 star valuation territory (extremely overvalued). It has been skirting this boundary for a few weeks. The last time it breached this threshold was one week in early December 2024. Indeed, the S&P 500 is entering rarified territory, and the probability of a pullback remains high.
At the sector level, XLU (SPDR S&P Utilities) moved into leverage last week on the buy the dip signal, rallied notably, and has now pulled back out of leverage. Consumer Staples (XLP), has moved into leverage this week on the buy the dip signal, and XLV (SPDR S&P Healthcare) remained in leveraged.
See you next time. In the meantime, please don't hesitate to reach out if you have any questions.
The FVEr Team
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