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.

By David Wismer

As I read through various 2022 recaps from the general media and financial press, one theme becomes abundantly clear—and hardly surprising: 2022 was extremely challenging on many fronts.

In a recent article, consulting firm McKinsey & Company put it succinctly: “The past year has been anything but ordinary.”

In reality, that same sentiment applies to the past three years, as we all—whether investors, financial advisers, or other professionals in the financial industry—have faced a number of unusual circumstances:

• The pandemic shutdown, ensuing recession, and equity bear market in 2020.

• New all-time market highs in 2021 against a backdrop of sporadic economic recovery, rising inflation, and supply-chain disruptions.

• The consequences of international conflict—most notably Russia’s war with Ukraine—on the energy sector.

• Heightened inflationary pressures this year, leading to aggressive rate hikes from the Federal Reserve.

• Volatile markets throughout 2022, with another bear market and steep drawdowns, especially for the tech sector and cryptocurrencies. “Traditional” passive 60/40 portfolios faced a very difficult period, with a higher-than-normal correlation of equities and bonds.

• A contentious domestic political environment from 2019 to 2022, with unprecedented government spending programs and record-setting federal budget deficits.

The impact of all of these factors could be seen cumulatively in broad areas of concern for advisers as they considered their clients’ investment approaches.

The benefits of dynamic risk management

Over the past several years, we have interviewed dozens of financial advisers for Proactive Advisor Magazine. They have been a diverse group, representing different regions of the U.S., a wide variety of broker-dealer affiliations, and varying “sizes and shapes” in terms of business models.

In helping clients navigate the ever-changing financial landscape, advisers we have interviewed share a strong desire to find investment solutions for their clients that will stand the test of time. Simply put, this means employing strategic approaches that can generate competitive returns in both bull and bear markets through the use of strong risk-management techniques. It also means adopting a planning and investment philosophy that can accommodate investors all along the risk spectrum and with varying levels of financial sophistication.

A recent article in Proactive Advisor Magazine by Guggenheim Investments reinforced the need for advisers to consider more sophisticated risk-management approaches in addressing clients’ portfolio objectives and allocations. In the article, Guggenheim writes,

“How diversified are investor portfolios? The answer is that, when diversification is needed most, portfolios may not be as diversified as investors assume.

“The Great Recession, which included 2008, taught investors this valuable lesson. …

“… It is more difficult than ever for investors to balance risk and return using traditional strategic asset-allocation strategies. Unlike strategic asset-allocation strategies, which maintain static allocations to bonds and ‘risk’ asset classes in good times and bad, tactical asset-allocation strategies seek to increase or decrease a portfolio’s risk exposure, based upon current market conditions.”

Guggenheim’s conclusion fits well with Flexible Plan Investments’ (FPI’s) overall philosophy of building dynamically risk-managed investment strategies that seek to do all of the following:

• Deliver favorable risk-adjusted returns and less volatility in any market environment.

• Use sophisticated algorithms and models to capture gains and help defend against losses in a wide variety of sectors, asset classes, and geographies.

• Focus on controlling portfolio risk based on a client’s risk tolerance.

• Have the flexibility to alter course based on market conditions.

FPI’s commitment for the new year and beyond

As challenging as the past few years—and 2022 in particular—have been, FPI remains steadfast in its support for financial advisers and their clients. FPI is committed to continual improvement; excellence in transparency, process, and service; and bringing leading-edge portfolio management strategies and approaches to advisers and investors.

A second key theme McKinsey emphasizes in the article series referenced above is “resilience”: “The world is experiencing a level of disruption and business risk not seen in generations. Some companies freeze and fail, while others innovate, advance, and even thrive. The difference is resilience.”

I believe the term “resilience” captures much of what FPI is all about. That begins with helping advisers and investors build resilient portfolios that can withstand the worst of times and periods of extreme market volatility. But it also means having a resilient and forward-looking management team and staff that can provide internal and external leadership through evolutionary times in the financial industry.

I was able to remotely attend most of FPI’s annual sales and training conference last week. Much of the discussion centered on the following themes:

• “What can we learn from 2022? What worked well, and what are potential areas for improvement?”

• “What new tools and processes are needed to help us do our job better?”

• “Where might investment strategies be further refined or adapted to enhance performance?”

• “What are the firm’s key service, product, strategy, and distribution initiatives for 2023 that can add value for clients?”

• “How can the organization strengthen already meaningful partnerships with our clients?”

FPI looks forward to delivering meaningful results in all of these areas.

I join the entire organization in wishing you the best for the holiday season and a healthy and prosperous new year!   

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