Trend Investing Models
Adjusting portfolio management strategies to accommodate changing economic dynamics can present various challenges that many may be reluctant to endure. There can be resistance to shifting course and acknowledging that what has worked in the past may not work in the future. Many investors contact us because of our willingness to incorporate less-mainstream asset management strategies that may in fact be more suitable in addressing today's economic challenges and risks.
Our adaptive approach has led us to seek out investment ideas and research all across the globe in order to provide comprehensive and effective investment solutions for our clients. To that end, we are grateful to be the only US-based financial advisors to offer investment management strategies using the I-System Trend Following model. Created in collaboration with Alex Krainer and Krainer Analytics based in Monaco, Capital Investment Advisers, LLC, offers two portfolios:
Trend Following Strategy
Our Trend Following Model encompasses over 40 possible positions covering equity, fixed income, and commodity (energy, metals, agriculture, and currencies) markets, with the ability to take inverse/short positions against both the equity and fixed income markets. Trend following as a strategy seeks to capture profits by identifying and riding sustained price movements (trends) in financial markets, rather than trying to predict reversals or fundamentals. It is a systematic, rules-based, momentum-driven approach, typically relying on technical analysis (price and volume data) instead of company fundamentals or economic forecasts. The strategy reacts to what the market is already doing versus trying to predict what may happen.
Core benefits to this strategy include diversification, downside risk mitigation, and a very active approach. This model also successfully removes one of the biggest detriments to investment success—emotion. Its primary function in a portfolio is to provide low or negative correlation to traditional assets like stocks and bonds. This makes it valuable for reducing overall portfolio volatility and offering "crisis alpha” - strong performance during major equity or bond market drawdowns.
Momentum Growth Strategy
Our Momentum Model is a growth strategy that uses the I-System to manage exposure to the 10 sectors of the S&P 500. Most indexed based funds and models are market capitalization weighted, which simply means that performance is most influenced by those component companies that are the largest in size. As a result, the performance of a handful of companies can influence the performance of an entire index regardless of what the other component companies and sectors do any particular day. This is referred to as concentration risk and is inherent in capitalization weighted index investing.
The Momentum Model seeks to neutralize this risk by using price trends to allocate and adjust portfolio concentrations, often on a daily basis. Therefore, a sector that may have a minimal weighting in an index can have more of an impact in a momentum strategy, which can enhance return potential, while exposure to sectors that make up larger percentages of the index weighting can be minimized, which can reduce the impact of downside risk. The Momentum Model offers the potential to enhance returns and reduce downside risk over time through this active and diversified approach. According to analysis provided by Resolve Asset Management, “systematic equity factors like value, momentum, and low beta have evidenced a high degree of statistical significance over very long horizons.” We embrace this perspective as a valuable alternative to traditional allocation strategies.
Please click here for information on the I-Systems© Trend Following Model, created by Alex Krainer. Mr. Krainer's experience and philosophy are discussed in episode 1 of Upthinking Finance™.
This material is for general information and educational purposes only and is not intended to provide specific advice or recommendations for any individual.
Investing involves risk including the loss of principal. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.