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

I am sure anyone interested in major league baseball has followed—either fanatically closely (like New York Yankees supporters) or just as casual fans of the game—the remarkable 2022 season of the Yankees’ outfielder Aaron Judge.

In the season’s 161st game (out of 162), Judge hit his record-breaking 62nd home run of the season. This surpassed Roger Maris’ American League (AL) record of 61, set in 1961. It also put Judge in seventh place for all-time single-season home runs, with three National League players from the so-called steroid era in front of him during multiple seasons (which is a whole other story).

As a lifelong baseball fan, I watched the saga of Maris and Mickey Mantle dueling for the record in 1961; the unreal seasons of Barry Bonds, Mark McGwire, and Sammy Sosa in the late 1990s and early 2000s; and Judge’s game-by-game quest this year. In fact, I still have the baseball cards of many of the Yankees’ stars from over 60 years ago in my personal collection!

What is more remarkable to fans and baseball professionals was how completely Judge performed all season—especially when the pressure was on to not only set the new AL home run record but also help carry his team to an AL East title. (Also remarkable was a fan declining—so far—a $2 million offer for Judge’s record-breaking home run ball, which he caught at the Texas Rangers’ Globe Life Field in Arlington, Texas.)

Two things became clear in the last month of the regular season. Opposing pitchers were not going to let Aaron Judge—one of the Yankees’ few hot hitters (many regulars were out with injuries)—be the one player to beat them. And then, as he was close to tying and then breaking the record, Judge drew numerous walks as he saw very few pitches to hit at all.

Throughout those last days, Yankees’ announcers noted time and again how Judge “stuck to his game plan.” He refused to “chase pitches,” took his walks when offered, and helped win games with hits other than home runs. At the end of a near “Triple Crown” season, he led the majors not only in home runs but also in many other important offensive categories—with many favoring him to win the AL Most Valuable Player award.

Sticking with your investment game plan

Jerry Wagner, Flexible Plan Investments’ (FPI’s) founder and president, offered this piece of advice to financial advisers and investors in a past article:

“Have a plan and stick to it. As I’ve written many times, whether it is trying to invest by following headlines, financial talking heads, so-called market experts, or political predictions, none of these sources are likely to lead investors to long-term profits.

“Instead, investors need to approach the market with a plan. … Investors have to be disciplined. They have to stick with their plan. …

“Having a financial adviser to create your plan and provide counsel at such times can be the difference between success and failure in your investments.”

This message was especially relevant during 2020, and now again in 2022, with investors seeing continuous and elevated volatility and the whipsaw of fast bear market rallies followed by new rounds of market declines.

Adding deeper diversification to your portfolio

The classic 60/40 portfolio, the time-honored representative of simple portfolio diversification, is off to its worst year-to-date performance through a September in recent history—and on pace for the second-worst full year ever, trailing only 1931.

Financial advisers we have interviewed for Proactive Advisor Magazine frequently talk about the fallacy of thinking that a combination of passive indexed equity funds and passive bond funds will provide the kind of diversification that will mitigate steep portfolio risk in volatile markets.

Rather, many endorse using a combination of actively managed strategies across various asset classes that are meant to work together (with different performance characteristics) as a cohesive portfolio over full market cycles.

As one adviser puts it, “A cornerstone of my active management approach is offering a very wide potential combination of diversified strategies. In line with this overall risk-managed active approach, l will generally use several different noncorrelated strategies, in several different asset classes. While not every strategy ‘will fire on all cylinders’ at the same time, that is exactly the point.”

Jerry Wagner has often written about this same aspect of diversification. He has said, “If every strategy in a portfolio is going up or down at the same time, there is a high probability that the portfolio is not properly diversified.”

The ultimate point? As our adviser noted, when strategies are “objectively quantified” and work in combination in a well-diversified portfolio, “emotion and ego can be put aside for the most part, and clients can more freely allow their strategies to perform as designed, without constant second-guessing.”

Just as Aaron Judge took a disciplined approach that ultimately paid off—reacting effectively to what pitchers offered—investors would do well in “taking what the market offers” through a more completely and actively diversified portfolio that can adapt to challenging market conditions. That should allow them to better follow their investment game plan over the “long season” that is their investment time frame.

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