Market insights and analysis

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

3rd Quarter | 2020

Market insights and analysis

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

By Jerry Wagner

Does every day seem the same as the last? That’s the complaint I hear most often as the pandemic wears on.

I have friends, family, and colleagues that have not been to a restaurant in more than six months. They haven’t gone to a party or to a show or even to a family get-together. Even the food is delivered from the grocery store. They won’t leave their home. 

In such an environment, or even one much less severe, each day seems the same. Even the day of the week is hard to recall. There is nothing to differentiate a Tuesday from a Saturday.

More than ever we are tied to our computer and TV screens. It was fun at first to catch up on the news, movies, and series we had not had time to watch. But as the days and nights wore on, even the variety that cable and streaming have added to our life seemed insufficient to chase away the feeling that one has seen it all before.

How to choose when everything’s the same

In financial services, this difficulty in differentiating among the various providers has been with us even longer than the pandemic. And believe it or not, the financial industry wants it that way. They promote it that way. They seek to profit from it that way.

They want to limit your choice to an ever-shortening list of mega financial firms. These firms all offer the same products. They’re just tagged with a different name under differing brands. But the underlying investment has a sameness that is hard to discern. 

And the move to passive indexing has made this sameness even more pervasive. One S&P fund is no different from another, just like each large-cap fund provides pretty much the same performance as any other.

Financial advisers are supposed to overcome the sameness with their personality, charm, local support, and relationship building … as if that is all there is to investment management.

When it comes to investment strategy, the buy-and-hold approach continues to reign supreme. “Active” investing has been redefined by the mainstream to mean asset allocation with quarterly tweaks. That 32% holding will be restored each quarter back to its original 30% level—you can be sure of that! As if that makes any real difference in a tactical sense, in a market place where 1% daily moves up and down have become commonplace.

We are different.

Since our beginning in 1981, Flexible Plan Investments has sought to stand out from the crowd. We have always wanted to provide investors and their financial advisers a truly different option to the same old passive indexing solutions offered almost everywhere else.

Dynamic risk management: The nontraditional is our tradition

Of course, Flexible Plan’s defining feature since it began almost 40 years ago has been the type of strategies we use. Decades ago, we christened our approach “dynamic risk management.” All of our strategies are truly actively managed. Some trade daily, while others can trigger trades weekly or monthly. Only occasionally, when required by platform or fund rules, do we trade less frequently.

The trading tends to be tactical or rotational (constantly pursuing a portfolio of the market-leading asset classes). In either case, the price action of the particular market being traded, and often the interaction of such prices with those of other asset classes and outside indicators (fundamental, monetary, and so on), initiates the timing and direction of the trade. 

This contrasts with the approach of most asset managers who are merely strategic. They rely solely on diversification among asset classes to control risk. Flexible Plan understands the limits of diversification. 

While traditional diversification seeks a middle-of-the-road result, in practice, it has to underperform when the market is surging and must disappoint when the market is in crisis. As we have seen time and time again, in a crisis, most asset classes move lower together and diversification falls short when investors need it most.

We employ what we call “Diversification Plus.” Most of our strategies use multiple asset classes but employ them tactically, so each is used during the market conditions that are most supportive of that asset class’s performance. In addition, the very nature of true active investing is that it is responsive to what is happening in the markets, rather than the simple quarterly occurrence of some predetermined rebalancing day. 

Such responsiveness is the very essence of a dynamic strategy, and it supplies the “Plus” in our Diversification Plus methodologies. Being dynamic has always been the principal tool that we have employed to achieve risk management. 

But these dynamic trading methodologies also open the door to opportunities to profit. It logically follows that if one manages risk, one should have more money to invest during market bottoms. Dynamically managing risk in this manner and capturing opportunities to profit can yield superior performance when done repeatedly over many market cycles. 

Harnessing the power of SMAs

We were early to offer separately managed accounts (SMAs) and have built our reputation on them both with mutual funds and exchange-traded funds (ETFs). These were Flexible Plan’s initial offerings. But when we began, SMAs were solely the province of wealthy investors and institutions. 

Right from the beginning, however, we were different. As a former hedge fund manager, I knew that the methodologies that were so effective in that world were generally unavailable to small investors. Using the increasing power of computing and technology, we sought to make the entry levels to these methodologies much lower. Today, an investor can open an SMA with us with just $5,000—or even less within a retirement plan account!

Disciplined investing at a low cost

Computerization also made it possible for us to offer 100% quantitatively managed strategies from our earliest days. All of our investment strategies are based on time-tested, mechanical rules that are thoroughly researched and automated in their operation. There is no room for the subjective judgments, gut feelings, or undisciplined trading that spells doom for most traders.

Because many strategies can trade frequently, we created the Quantified Funds to allow us to manage our strategies more efficiently and cost-effectively. Eight of the nine funds use multiple active strategies to dynamically manage both risk and opportunity. The ninth fund (The Gold Bullion Strategy Fund, or QGLDX) is the only mutual fund in the U.S. created to track the daily price changes of gold.

In addition to the economies achieved, the funds have resulted in other benefits. We can now create strategies using these funds and, depending on the platform and/or the account size, waive all or a portion of FPI fees for managing these strategies within the portfolio created. Not only does this reduce fees, but it also allows for the creation of multi-strategy portfolios.

Multiple layers of diversification and dynamic risk management

Historically, when financial firms have talked about diversification, they have simply meant creating a portfolio of different asset classes. But because most asset classes fall in price during a crisis, this has not been as useful as originally intended. What is needed in such times are true alternative investments that can swim against the current. 

Dynamically risk-managed strategies are true alternatives. We offer them (1) within our funds, (2) in the strategies that use the funds, and (3) in allocating among those strategies in our turnkey multi-strategy portfolio offerings. Three levels of dynamic risk management is a solution we deliver that most others do not. (You can learn more about our turnkey multi-strategy portfolio offerings by downloading the brochure at https://www.flexibleplan.com/Portals/2/PDF/turnkey-brochure-2020-client-friendly.pdf)

Most multi-strategy offerings from other firms combine only managed style-box strategies or traditional core passive-allocation approaches. They avoid or underallocate to tactical or dynamically managed alternative strategies. These providers remain locked in a “buy-and-hope” mentality—they simply combine multiple practitioners of that same approach. We’re different.

The latest investment tools and solutions

Flexible Plan is also different in that we’re an enduring example of how fintech (“financial technology”—computers, software, apps, and so on, that support financial services) can and has changed the financial-services industry. From our founding, we have always focused on our client needs. We have used the power of our substantial Research and IT departments to create financial-services solutions and tools to support our clients and their financial advisers. Our Illustration Generator, Crash Test Analyzer, My Business Analyzer reporting for financial advisers and broker-dealers, and OnTarget Investing process were all developed in-house. 

The OnTarget Investing process includes our OnTarget Monitor, which provides a customized benchmark for each of our clients, allowing them to track their performance against the goals set forth when we began our investment journey together.

Superior service

Another way we have distinguished ourselves from other investment managers—and the one we are proudest of—is our superior service. Many have told us that our service is the best in our financial sector.

Our outstanding staff—including our adviser support crew, client support teams, and other support staff—is here to help you with any questions about accounts, statements, deposits, and withdrawals. We also offer many resources, insights, and tools on our website (if you haven’t had a chance to explore our newly redesigned site, please take a few minutes to check it out now).

You deserve more than “the same old, same old”

There is no doubt that there is a sameness to daily life in America at the present time—and the mega financial firms are trying to limit the variety of choices that are available to consumers today. Simplifying the number of choices is said to be good for sales.

Yet even in this time of sameness in our daily life, and of cookie-cutter financial services, history continues to happen. Extraordinary events are occurring all around us. These happenings have profound implications for the financial markets and, ultimately, for your portfolio. 

Flexible Plan Investments was created to provide a true alternative to the traditional, and to the conventional. We’re different!

In the days that lie ahead, we believe you will be happy that we are. 

All the best, 
Jerry



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