Trend Investing Models

One of the many benefits of being independent financial advisors is the ability to seek out investment ideas and research all across the globe in order to provide comprehensive and effective investment solutions for our clients. This has been particularly beneficial over the last several years, as the search for original ideas and strategies has out of necessity expanded beyond the large wealth management firms, who all seem to offer similar investment strategies.

We are grateful to be the only US-based financial advisors to offer the following investment strategies, created in collaboration with Alex Krainer in Monaco:

Trend Following Strategy

We have adopted the use of a trend investing model as a means to further diversify client portfolios and mitigate risk. What is unique about this approach is that it removes the fundamentally based “why” from the equation of asset allocation. That is, investment decisions are based solely on price trends, regardless of the reason(s) that are causing a particular price movement. Although this approach has been historically dismissed as market timing by the large firms, when fairly examined it fits within the parameters of investing for the long term.  Allocation changes are based on nothing more than price changes. This eliminates a lot of noise, including economic forecasts, expert analysis, and product-oriented allocation guidance to name a few. It also successfully removes one of the biggest detriments to investment success—emotion.

Please click here for information on the I-Systems© Trend Following Model, created by Alex Krainer. Mr. Krainer's experience and philosophy are better explained by Alex himself in an interview with Michael Covel here, and in episode 1 of Upthinking Finance™ here. Using customized research we receive from the Trend Compass reports, we have created a model that is based on the Trend following investment philosophy which is available using the LPL Model Wealth Portfolio platform.

Momentum Growth Strategy

Price trend analysis can also be used to enhance allocation strategies within a growth portfolio as well. Most indexed based models are market capitalization weighted, which simply means that performance is most influenced by those component companies that are the largest in size. Therefore, the performance of a handful of companies can influence the performance of an index regardless of what the other component companies do any particular day. This is referred to as concentration risk and is inherent in capitalization weighted index investing. Using research reports created exclusively for Capital Investment Advisers LLC, our Momentum Strategy neutralizes this risk by using price trends to allocate and adjust portfolio concentrations. Therefore, a sector that may have less than 5% weighting on a particular market capitalization index can have more of an impact in a momentum strategy, and those sectors that make up larger percentages of the weighting can be minimized. Ultimately, a leveling of the playing field in terms of sector exposure based upon price movement trends rather than simply asset size of the companies comprising the sector, offers the potential to enhance returns and reduce downside risk over time through an 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.