Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

1st Quarter | 2021

Market insights and analysis


Updates on how dynamic, risk-managed investment solutions are performing in the current market environment.

Concerned about what the market will do next?

By Peter Mauthe

If you’re like many people I’ve talked to lately, you may be concerned about what the market has in store when the current bull market comes to an end. Will we see a bear market decline in the 30%–40% range? Or, will it be a debilitating decline in the 50%–60% range like we have experienced twice in the past 20 years? No one knows.

The stock market may experience a period of lackluster performance, which it tends to do following prolonged bull markets. We experienced these periods in the 1970s following the bull market of the 1950s–early 1960s, and again from 2000–2012 following the bull market of the 1990s. If the current bull market is followed by a decade or more of such mediocre performance, many investors are likely to fall short of their financial goals and needs.

Fortunately, Flexible Plan Investments (FPI) has dynamic, risk-managed portfolios that are designed to effectively deal with the risks associated with bear markets and periods of lackluster performance by improving the consistency and reliability of investor returns. To show you how, let’s walk through an example.

The benefits of dynamic risk management

We’ll compare a hypothetical portfolio composed of Flexible Plan strategies to the S&P 500 Index over the past 15 years. We’ll do this using our Illustration Generator tool, which highlights a proposed portfolio’s risk-management capabilities.

The portfolio consists of 65% QFC Multi-Strategy Core Growth, 20% QFC Fixed Income Tactical, and 15% QFC Multi-Strategy Explore: Equity Trends. This is a typical example of a portfolio with a growth risk profile, which is an appropriate risk profile to compare to the S&P 500 Index. The maximum allowable fees and all mutual fund expenses are deducted from the portfolio’s performance. The benchmark S&P 500 Index results are total returns with dividends.

Keep in mind that when presenting portfolio performance and risk data, our Illustration Generator reports show the performance data net of management fees (as shown in the footer of the report) and mutual fund expenses. The benchmarks include mutual fund expenses where applicable, but no management fees. This is important in understanding that there is a cost to management; however, the benefits are measurable and generally preferred by the investor over the unmanaged benchmark options.

The graph includes the latter half of that last sideways segment of stock market performance running from January 2007 through September 2012 (the Illustration Generator is limited to 15 years of data). That segment includes a 55% decline in the S&P 500 Index. I then compared returns for the portfolio and the Index with the bull market period since September 2012 when stocks broke out of the sideways pattern.

The results, shown in the following table, are striking. Notice the stability of portfolio returns and the annualized risk between the total 15-year time segment, the sideways segment A, and the bull market segment B. Also, notice the lower maximum loss and the lower worst-case three-month and six-month figures for the portfolio during the challenging segment A.

Comparing the stability of the portfolio performance data with that of the S&P 500 Index emphasizes that long-term stock market returns are highly dependent on bull market returns. Prolonged periods of very low performance substantially degrade the bull market performance of stock indexes.

Preparing for whatever the market brings

Bear markets and prolonged periods of lackluster performance often have significant negative impacts on an investor’s ability to draw a supportive level of income from their portfolio in retirement.

Fortunately for investors, Flexible Plan has been delivering dynamic, risk-managed portfolio solutions for over 40 years. These solutions are designed to provide investors with portfolios that have the ability to manage both the risks associated with bear markets and the risks associated with prolonged periods of low market returns. And with the development of our QFC strategies, which make use of the FPI-subadvised Quantified Funds, we can deliver portfolio solutions that provide multiple levels of risk management with lower fees—a smart choice no matter what the market brings next.

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