Market insights and analysis

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

3rd Quarter | 2021

Market insights and analysis

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

Along with jigsaw puzzle purchases, the number of new people engaging in gardening has increased this year, as we spend more time at home due to the pandemic. As Rutgers University professor, Joel Flagler explains it, “There are certain, very stabilizing forces in gardening that can ground us when we are feeling shaky, uncertain, terrified really. It’s these predictable outcomes, predictable rhythms of the garden that are very comforting right now.”

The Philadelphia Inquirer reports, “The chairman of Bucks County’s Burpee Seeds, which has been supplying gardeners around the world for 144 years, called the demand ‘a tsunami.’

“‘We’re a seasonal business so in the spring we’re usually at the top of a bell curve,’ said Burpee’s George Ball. ‘But this year, the length and size of that spike was something we couldn’t fathom. It went straight up, way beyond our imagination. We underestimated the reaction of non-gardeners to being suddenly pent-up indoors.’”

If you are one of the new pandemic gardeners or one of the nearly one-third of Americans who were already tending home gardens before the outbreak, you know that the tasks you perform in the summer months are very different from those that were necessary in the early days of spring. Instead of seeding, maintenance of your plantings is the main undertaking.

Chief among the maintenance tasks is weeding. Weeds can choke out our gardening efforts. They compete with our flowers, herbs, and vegetables for nutrients and sunshine. And certainly, many weeds are ugly prickly things that diminish the beauty of our gardens. They have been referred to as nature’s “botanical thugs.”

But in defense of weeds …

Elizabeth Royte, in a New York Times book review of Richard Mabey’s “Weeds: In Defense of Nature’s Most Unloved Plants,” writes,

Mabey reminds us with wry and subtle humor of weeds’ usefulness: they stabilize soil, curb water loss, provide shelter for other plants and repair landscapes shattered by landslides, flood, fire, development and artillery. (One 1945 survey found 126 plant species in London’s bomb craters.) Weeds have served as food, fuel, medicine, dyes and building material for a variety of insects, birds and humans. All that, and pulling them from the earth builds character too. As the 17th-century herbalist William Coles wrote, they “exercise the Industry of Man to weed them out.”

It is often said that one man’s weed is another man’s flower. That is certainly the case for me, as my favorite flower at this time of year is the fireweed. Having seen it first carpeting the hills and plains of Alaska, I now make sure it survives in my yard, mixed between the cattails that live in the marshlands bordering my home.

“Weeds” can have a place

I think one of the better definitions of a weed is a plant that finds itself in the wrong place or at the wrong time.

I believe most investors would agree with me that we don’t have to look too closely at our portfolios to see that weeds are growing within. And like nature’s variety in our gardens, it sometimes feels like they are draining the life out of them.

Most often, these investment “weeds” are simply the underperformers in our portfolios. They are the laggards that seem ugly when compared to the beauty of 100 shares of Amazon or, in our clients’ case, the stunning returns achieved by some of our strategies this year, such as those of our Self-adjusting Trend Following, Market Leaders Sector Growth Ultra, or Fixed Income Tactical strategies.

Yet just as weeds often have their time and place (they were the first crops and medicines, and they even inspired Velcro), these laggards may also simply be out of sync with the performance of other members of the portfolio. In another time and place, they may serve a very necessary function.

For example, money market funds haven’t looked very attractive in the current low-interest-rate environment. But when the S&P 500 fell 33% in 21 trading days between February 19 and March 23, they looked like they were at the right place at the right time.

Most investors today create diversified portfolios to take advantage of what Nobel Prize winner Harry Markowitz called “the only free lunch in investing.” Diversification within a passively managed asset allocation allows the portfolio to deal with the “baby bears” (declines of 10% to 20%) that plague financial markets.

Diversified portfolios make use of a variety of asset classes. When one goes down, another may be gaining ground. The different components also respond differently to volatility. When these baby bears occur, the “differentness” of the assets provides a layer of protection and may offset the losses of the asset classes with the biggest declines. As the biggest gainers in a bull market tend to be the worst performers when markets tumble, this added protection is valuable.

To achieve this protection, it is necessary to be truly diversified. Obviously, if all of your investments are going up by the same amount, you are not diversified. Everything is just a variant of the other elements of the mix; hence, their performance is the same. And if nothing is falling in a portfolio when most are going up, you are probably not diversified either.

To be properly diversified, you need a few “weeds” in your portfolio “garden.”

Turnkey portfolio solutions that manage and pull the “weeds” for you

I used to stop here in past explanations and simply say, “This is why you must have a portfolio that is truly diversified by asset classes and strategies.” The aim of such diversification is to make sure that no matter what the market environment, you have some “weeds” to put up a defense and maybe (like the flowering weeds in bomb-devastated lots in war-torn nations) add a little beauty to your portfolio when the market falters.

But that was before the arrival of our turnkey Quantified Fee Credit (QFC) strategies—QFC Multi-Strategy Core, QFC Multi-Strategy Explore, and QFC Fusion 2.0. Now you are no longer required to own “weeds” in your portfolio all of the time in the hope that they will provide diversification—that they will, at some point, cease to be the plants that are in “the wrong place or at the wrong time.”

Instead, with our new turnkey strategies, we cultivate the weeds for you. Each of these strategies dynamically selects, monitors, and reallocates strategies. We don’t just find new strategies to plant—we also weed out those that are failing.

For example, in our QFC Multi-Strategy Core portfolios, we will choose from among our several different core strategies and regularly allocate a greater percentage to the better performers, taking into consideration return as well as volatility and how each strategy relates to the other. And if a new strategy is developed or an old strategy no longer is effective, we can automatically take the appropriate action to cultivate your portfolio. Our QFC Multi-Strategy Core portfolios are available for Conservative, Moderate, Balanced, Growth, and Aggressive suitability profiles.

Our QFC Multi-Strategy Explore: Equity Trends turnkey strategy can combine investments in up to four of our top trend-following stock strategies. The same concept is used for our other QFC Multi-Strategy Explore options. You can aim for diversified and cultivated Low Volatility, Low Correlation, and Special Equity portfolios, as well as Equity Trends.

QFC Fusion 2.0 cultivates a portfolio of both core and explore strategies.

We’ve all seen what a mess a garden can become if we go away and leave it unattended; whether by neglect or just because we are off on a much needed break. The same can happen when you don’t have the time or energy to maintain your investment portfolio. But with our turnkey strategies, the “cultivation” is done for you—without your constant involvement.

Because these turnkey strategies are QFC strategies, you automatically receive three levels of risk management:

  1. The dynamic risk management employed within the Quantified Funds used in each strategy.
  2. The active management between the funds required by the strategies themselves.
  3. The dynamic allocation employed among the core strategies by the turnkey strategy itself.

The QFC strategies also have our lowest advisory fee structure. The FPI portion of the billed advisory fee can be as low as zero, meaning you would only be billed for your financial adviser’s normal fee.

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When it comes to maintaining your portfolio “garden,” you don’t have to do the worst task any longer—no more weeding! With our turnkey multi-strategy portfolios, there is no reason for your portfolio either becoming a garden of weeds or failing to cultivate the “weeds” necessary to have in your portfolio when “it’s the right place or the right time.”

We do it all for you, with no effort or time expended on your part. These turnkey strategies are designed to get your portfolio growing like … well … a weed.

All the best,

Jerry

P.S. Today (August 10) would have been my father’s 100th birthday. A decorated World War II veteran, builder, small-business man, friend, husband, and father, Chuck Wagner passed away in 2008. He was 88 and is remembered and missed by his wife (now 99), children, grandchildren, and great-grandchildren. If you get a chance today, hug a veteran for me.



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