Market insights and analysis

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

1st Quarter | 2024

Quarterly recap



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

Change is a constant

by Jerry Wagner

As has probably been the case for all of you, change has been a significant part of my life. I was fortunate that when I attended college, times they were “a-changin’.”

The computer age was dawning. I was able to see the potential of combining traditional investment analysis with the powerful abilities of the PC. Computers also supplied a discipline in execution that the findings of the yet-to-be-discovered science of financial behaviorism would later show was so difficult for humans to achieve.

FPI is all about change. Our motto, “Managing the non-traditional is our tradition,” says it all.

We began as a market timer with a single system, thinking we had the holy grail. Today, we manage more than 100 strategies and don’t believe any is the sole solution for all market environments. Hence our emphasis on portfolios allocated among multiple methodologies.

Preparing for change

Whatever industry you can name, they all change. Coke begets Tab, which turns into Diet Coke, and then New Coke appears, and now we have Coke Zero. We change—telephone, phone booth, cell phone, smartphone. We evolve—abacus, slide rule, calculator, room-size computer, personal computer, artificial intelligence. It doesn’t matter the industry—it’s change or die.

The 60% stock/40% bond portfolio and diversified modern theory portfolios have each flourished. But investment modes changed when the sky darkened and markets crashed in 1963, 1966, 1973, 1987, 2000, 2008, and 2020. New solutions emerged. Factor investing, smart beta, alternatives, liquid alternatives, and—yes—market timing all had their time in the sun. Yet the only enduring constant appears to be “change.”

As an active manager and a contrarian, I know that the market usually acts to fool most people most of the time. Experience has taught me that it is all in the timing. The overvalued markets can fly high for a long time, and bull markets last longer and are more frequent than bears.

It is critical to be prepared for change with conditions like these. Being prepared is the number one piece of advice for those who need to adjust to change. The second piece of advice is that avoidance does not work.

One needs to take proactive steps to anticipate the effects of change. That means having coping strategies. Yes, these should include strategies that can address changes in the market environment. But it goes beyond the investment process and includes the adoption of coping mechanisms for the new financial landscape. It can require a change in approach and a change in expectations.

It also generally requires seeking professional help. Your financial adviser can help. And professional investment management can aid both you and your adviser.

Testing the waters and adjusting expectations

When the lakes start to ice over here in Southeast Michigan, I often look out my window at the first brave explorers of the newly frozen surface that backs up to my cottage.

They move cautiously at first, slowly testing. As they venture out onto the ice, you can see them listening for that crackling sound that might indicate insufficient support. You know they are watching for visible signs of a fissure that could spread or widen and send them into the frozen waters beneath the ice. It is a slow process for travelers, requiring patient testing before confidently moving off in the direction that each wants to go.

In the same way, most market changes occur over considerable time. And, like those explorers first stepping upon a newly frozen lake, it can take time to recognize that a change is happening and longer still to determine if it is significant.

That is why nobody can precisely call market tops. And it is also why even market professionals take losses at the top as they wait for a new trend downward to establish itself. Acting too quickly does not respect the lasting power of a bull market. It can expose investors to the debilitating losses of whipsaw trading.

It also means investors have to adjust their expectations when market seasons are changing. Trending periods are the best of times. But when the market explores a change in trend, investors need to expect to have to wait patiently during a reasonable testing time. It is a time when each strategy assesses whether the market is simply in a pause or, instead, heading on a course that will take it much lower.

Each strategy uses its own time-tested approach culled from market history to determine the best course of action. The various methodologies will not all act at the same time. Some will ease into defensive positions, while others will stay the course. Some will be right and others wrong.

Building an adaptable portfolio with multiple strategies

If change is constant, why not have an investment strategy built to deal with it?

Why not have different strategies for different market environments? Why not have systems that adapt to changing financial landscapes? Why not have portfolios made up of multiple, dynamic, risk-managed approaches too? And, while you’re at it, why not have your portfolios reallocate automatically among the available strategies, adapting the portfolio to what is working in the markets at any given time?

After over 50 years of personal study and more than 40 years of FPI development, we have our answer to these questions. Our QFC turnkey strategies provide that answer.

These low-cost strategies provide three levels of risk management:

  1. Dynamic risk management within the 13 Quantified Funds that we subadvise.
  2. Actively managed strategies that exclusively utilize investment between these funds.
  3. Computer-directed, dynamic allocation among those strategies to create true multi-strategy, suitability-based portfolios.

Just as risk is always with us, change is always a constant. Be prepared.

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