Why Tactical &  Why Now?

YOU are the financial advisor – trusted with helping your clients achieve their investment goals.
YOU must find solutions that will work going forward and
not just rely on what worked in the past.

Assess Where You Are

Record run in stocks, record Fed stimulus and liquidity, COVID, etc.

In the 13 years since the Great Financial Crisis, the S&P 500 has returned over 560%. Recently, strong earnings reports, sustained profit margins, low interest rates, and massive government stimulus have driven stocks to record highs. The Fed’s decision to unleash a barrage of liquidity into markets caused the fastest recovery ever recorded from last year’s COVID-induced bear market. The Fed’s $120 billion per month bond buying program continues today and coupled with the roughly $6 trillion in COVID relief approved by Congress last year, the economy is awash in liquidity. Even in the middle of a global pandemic, this has been a dream run for stock investors and specifically, those using strategic asset allocations (like, buy-and-hold 60% stocks and 40% bonds).

Excess risk taking by investors

This is also a time when we are seeing excess risk-taking in financial markets. A large and growing number of investors are trading stocks, options, meme stocks, SPACs, and crypto currencies. This increased speculative activity has added extra volatility to portfolios in an effort for investors to capture the potential associated outsized returns. Additionally, with inflation rising to levels we haven’t see in many years, investors are seeking higher returning investments to keep inflation from eroding the value of their portfolios.

Financial advisors must help manage market risks

This is when financial advisors are needed the most. A good financial advisor helps their clients make better financial decisions in all market environments, but that becomes especially important when markets are exhibiting outsized risks. A big part of making better financial decisions for clients is appropriately managing investment risk. In a market environment demonstrating elevated risks, like today, financial advisors need to have a more complete set of investment tools to capture the returns necessary for portfolio performance and ensure that the risks they take to generate their returns are appropriately sized.  

This is where tactical investment strategies can be most helpful. Tactical investment strategies take advantage of evolving market situations by changing how they’re allocated to various asset classes, sometimes going from fully invested in stocks to being fully defensive in asset classes uncorrelated to equity markets.

Interested in learning more?

Schedule a call with our experts

Schedule Now!

ASSESS WHERE YOU’RE GOING

Strategic allocations don’t perform well in bear markets

As mentioned, strategic asset allocations have performed very well over the past 13 years, but history has taught us that euphoric market environments don’t last forever.

Leading up to the Great Financial Crisis, a traditional 60% stock and 40% bond portfolio (the most common strategic allocation) performed well, but during the bear market of 2008, most asset classes became correlated to each other in a downward spiral. This meant that most, if not all, of the benefits of the strategic diversification were lost as the 60/40 portfolio still dropped 36%.

During protracted bear markets, like 2008, client portfolios can see large, sustained losses. This leads to a loss in confidence in markets, strategies, plans, and even in their advisors. It can also cause poor or emotional decision making by clients, delays in planning, and slower compounding of returns. The detrimental impacts are exacerbated if a client or advisor feels the need to remove risk from portfolios after the damage is done – reducing the ability to recover from those losses.

Valuations are elevated

The cyclically adjusted price to earnings (CAPE) ratio is hovering around 40 and stocks are near all-time highs, signaling valuations are stretched and stocks are very overvalued. Together with valuations, there are additional signs of fragility in markets including lack of broad stock participation (breadth) and new COVID variants on the horizon.

Yet, financial advisors still must decide what to do with clients’ capital, even though they run a higher risk of making a poor decision by either allocating near the top, or conversely, not allocating and missing a continuing bull market.

No one can predict whether this market will strengthen and continue its march upward or fall down into a long overdue bear market, so instead of guessing, we developed strategies that are dynamic and can adjust to either outcome.

Interested in learning more?

Schedule a call with our experts

Schedule Now!
MSCM HAS YOUR SOLUTION

Right now is a great time to increase portfolio diversification by allocating to tactical strategies that truly deliver differentiated results than strategic allocations. Portfolios that include tactical allocations should be the biggest beneficiaries when the eventual bear market occurs, and yet they continue to participate if the bull market continues.

We built our tactical strategies with all of this in mind. We want to participate in rising equity markets (like we see today) but be able to quickly become defensive when markets sell off. We largely avoided the 2020 bear market by getting out of our equity positions when the market sold off in late February and reallocating to equities when the market environment improved in early April. This resulted in a smoother ride for clients and portfolios that considerably outperformed the S&P 500. The RIAs that use our strategies were thankful to have that peace of mind during last year’s tumultuous market event.

Our process uses models and rules to create consistent and repeatable performance. Our strategies, compared to common strategic allocations, have a low correlation (even negative during bear markets), lower annualized volatility, lower value at risk, and lower drawdowns. We use large, highly liquid ETFs to minimize costs, move quickly when needed, and make sure we are not capacity constrained.

You can increase the odds of making good decisions for your clients and strengthen your portfolios with the addition of tactical investing strategies. We believe that taking a measured, risk managed approach is prudent and the best way to capture upside gains with downside protection in the current environment.

There is much more to learn

Our strategies are unique!

View Strategies