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

2nd Quarter | 2024

Quarterly recap

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Current market environment performance of dynamic, risk-managed investment solutions.

By David Wismer

The one constant of football at all levels is change. But the fundamental principles and lessons of the game have endured for decades.

Like many of you, I have been excited to see the start of another season of pro football. By the time you read this, the third week of the NFL season will be in the books, proving once again how lightning fast the games seem to go by each year.

As always, the NFL saw many new developments heading into this season, including the following notable ones:

•  Perhaps the biggest story of the 2024–2025 season is the prospect of Andy Reid, Patrick Mahomes, and the rest of the Kansas City Chiefs becoming the first NFL team to win three consecutive Super Bowl championships. According to BetMGM, “Three teams have appeared in three straight Super Bowls—including one team, the Buffalo Bills, with four straight appearances—but none of them won three in a row.”

•  One of the quarterbacks of those teams appearing in three consecutive Super Bowls (and winning two of them), Tom Brady, has been newsworthy this year for a different reason. Brady finally started his new career as a Fox color commentator/analyst, having previously signed a reported record-setting 10-year, $375 million contract in 2022.

•  The NFL took a major step in expanding its international footprint with its first-ever game in South America. The matchup between Green Bay and Philadelphia in Sao Paolo, Brazil, on September 6 added a new market to the NFL’s periodic games in the U.K., Germany, and Mexico. A 2025 game is also scheduled for Spain.

•  The league made a major change in how kickoffs are handled, aiming to address “the lowest kickoff return rate in NFL history during the 2023 season and an unacceptable injury rate on kickoffs prior to that.” The details of the “dynamic kickoff” are a little complicated, but the NFL calls it a “new form of a free kick play that is designed to resemble a typical scrimmage play by aligning players on both teams closer together and restricting movement to reduce space and speed. …”

•  Among many stories related to significant coaches and players, perhaps the four biggest are Jim Harbaugh leaving Michigan and returning to the league as head coach of the Los Angeles Chargers, New England “mutually” parting ways with six-time Super Bowl-winning head coach Bill Belichick, veteran QB Aaron Rodgers taking the field for the NY Jets after a season-ending injury in the first game last year, and Dallas Cowboys’ QB Dak Prescott signing a last-minute contract that made “the star quarterback the highest-paid player in NFL history.”

“Defense wins football games”—and other investment analogies

In interviewing financial advisers for Proactive Advisor Magazine, many of whom are strong advocates of an active, risk-managed approach for their clients’ portfolios, I have heard more than once, “Winning football starts with a strong defense, as does investing.”

A few years ago, Mike Posey of Theta Research, who played high school football in Texas, took the football analogy a bit further in an article we published called “Agility drills for client investment portfolios.” As a former player myself, I got a big kick out of it.

Mike likens some aspects of football to several elements of sophisticated active investment management, citing some of the principles he believes are important to financial advisers and their clients, paraphrased here:

  1. Diversify. Just as it wouldn’t make much sense to field a team with players who all have the same skill sets or who all play the same position, an agile investment portfolio should also be diversified to include noncorrelated strategies, each with different strengths in the portfolio. Whether you call these strategies active, tactical, or alternative, they are characterized by rules-based approaches that seek to follow market trends rather than being victimized by them.
  2. Know the playbook. In an investment portfolio, it’s important for advisers to communicate why each investment strategy is included and what it is intended to do. In football, sometimes an aggressive passing style is called for on offense; at other times, a tightly controlled and conservative game plan is needed. Similarly, it’s equally important to make sure that multiple investment strategies are represented in clients’ allocations and not just multiple asset classes. To be effective, the overall plan for a portfolio should be like a playbook, with different strategies designed to perform during a variety of market conditions across long time frames.
  3. Watch the films. Saturday morning after Friday’s high school games is always dedicated to watching the game films. Reviewing the films is akin to advisers monitoring their clients’ portfolios regularly. This is not to say that anyone—client or adviser—should be overly concerned with scrutinizing performance every day or every week. Instead, advisers should review their clients’ portfolios as frequently as quarterly and no less than annually. Such a review can help to determine whether the portfolio’s constituents are performing as expected and whether the risk level is appropriate. (Using Flexible Plan Investments’ proprietary business analyzer tool, advisers—and, through them, their clients—can view the suitability, durability, diversification, and multiple benchmarks customized for each client’s actual portfolio. It is especially helpful for monthly, quarterly, or annual reviews of an adviser’s entire book of business. Advisers can access the tool on the adviser dashboard of flexibleplan.com after login.)
  4. Keep fantasy football in its place. A final point in this analogy is to be wary of the investment equivalent of fantasy football. Backtesting can be a valid and productive analytical tool when used properly, and a dangerous tool when used improperly. Investment advisers must resume their coaching role and make sure that not only are trading strategies evaluated properly but that the methodology of producing backtests is sound as well. (For more on this, see a recent article by FPI’s founder and president, Jerry Wagner, where he explains FPI’s comprehensive research approach to “walk-forward backtesting,” an advanced method for testing trading strategies.)

Mike summarized,

“Failure to include agile investment strategies can be costly. In football, the lack of agility can result in an opposing team’s score, or your own team’s fumble or tackle for a loss. For an investment portfolio, the lack of ability to adapt to market conditions can result in huge losses. …

“After 30-plus years in the investment industry, and having lived through markets of all types, I have come to some firm convictions. By including actively managed strategies in your clients’ portfolios, they will have a better chance, I believe, of being on the winning team and reaching their investment goals.”

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If you are a fan, I hope you enjoy this year’s football season, whether you root for a high school, college, or professional team!



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