Celebrating the 3 Year Anniversary
DAVID SCHASSLER: The managed allocation fund’s turned three years old now. There's a lot that's happened in the last three years since we've launched. We are now ten years into a bull market, most of the time equity markets have gone up, with the exception of 2018. So, since we've launched, we’ve been overweight stocks almost all the time. We’ve averaged almost a 70% exposure to stocks since we have launched. So, the fund’s been overweight most of the time. The fund has also been defensive.
The fund did significantly reduce exposure after the latest sell-off. A little bit late, but, by and large, you saw the fund's flexibility. You saw how the fund does react to risk. Timing was not great this time, but we feel very confident, when we do enter one of these prolonged sell-offs, a true bear market scenario, that flexibility you saw is going to work out really well.
I often have the opportunity to speak with financial advisors and understand how they view the product and how they use the product. One of the things that clearly speaks to advisors is that we use signals across technical, macroeconomic, fundamental, including, within fundamental, sentiment. And the reason that speaks to, most often, really to all advisors, is because they typically fall into one of those schools of thought. Either they believe in tactical investing, they believe that macroeconomic investing works, or they are your classic Graham and Dodd-type value investor that believes in that as well. We've got really something for everybody, because, by and large, all those investment disciplines work. We understand that and that is actually what we are tapping into. We are using each of those investment disciplines because they work, into our process.
The managed allocation fund is incorporated into advisors’ portfolios a couple different ways. The first as, what we will call a core allocation. So, people look at it and say: “Well this is a better way to do a classic asset allocation portfolio.” That's one way. The second way is an alternative. This fund has a lot of flexibility and I would also tell people if you're using it as a core, to keep that flexibility in mind, because at times the fund will drastically change its positioning. For example, we've been as high as 87% in the portfolio, we've been as low as around 30%, exposure to stocks. So, there's a lot of flexibility there. That is why a lot of advisors will use this as an alternative allocation.
Keys to Tactical Allocation
When we talk about what are the keys to tactically allocating well, we think that it comes down to three things. The first, you have to have a comprehensive view of risk. When I say comprehensive view of risk, looking at risk a lot of different ways. I often talk about this as looking through the lens of a camera and constantly refocusing that lens, because if you look at risk one way and only one way, you're going to miss things. So, we're constantly looking at risk, readjusting that lens to look at risk a lot of different ways. That is the first thing: a comprehensive view.
The second thing, removing emotion from the process is absolutely key to generating long-term performance. We get away from not having human emotion by using an objective data- driven approach.
And the last part is flexibility, if all of our research indicators say, Be underweight stocks, then we're going to be underweight stocks. And we're going to be so in a meaningful way, because we truly do want to protect against those big drawdown events. But at the same time, we also want to protect, or we also want to participate to the upside. So, when these indicators, in aggregate, are bullish. We want to be overweight; we want to be meaningfully overweight.
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