Did you miss last week’s newsletter on the just released 2021 DALBAR Study? If so, click on the following link to download this interesting and useful study:
Low Correlation in the S&P 500 Creates Opportunity to Beat the Market
While it’s difficult to beat the market, here is a real example of two 3rd party tactical manager actual returns from January 2010-March 2021 (of which the last 15 months has been a time of low correlation in the overall market):
FYI, one manager rotates seven stocks and the other one stock (both can go to cash when needed). Are you constantly doing due diligence on niche 3rd party managers? I’d recommend it and if you’d like to learn more about the above managers, click on the following link:
Why low correlation is like Christmas to “focused investing” money managers
The following chart shows that we are currently experiencing (and have recently) a time in the stock market with historically low correlation.
Focused investing during low market correlation
Because most advisors use some form of “asset allocation,” the returns generated for clients typically are correlated with the market. When the market is up, the portfolio is up. When the market is down, the portfolio is down. Then advisors have their unique spin on what they do to try and differentiate from their local competition.
Asset allocation receives little benefit from a non-correlated market.
Why is the above chart awesome for focused investors?
Low correlation means that there will be many stocks that will NOT track the market. Some will do much better and some will do much worse.
Low correlation is a HUGE opportunity for 3rd party managers who can identify stocks that will exceed the returns of the overall market.
TACTICAL MONEY MANAGERS need to put up or shut up!
If a tactical manager CAN’T shine in this low correlated market, they should really hang it up and go do something else.
Finding “good” 3rd party tactical managers—because I’ve spent three years building the best risk analysis program in the industry (OnPointe Risk Analyzer ), I’ve had many 3rd party tactical managers reach out to me to see how their strategies look in the software.
The data shows me that most 3rd party “tactical” managers are NOT very good. But as I stated above, I have come into contact with some real diamonds in the rough. (not well known managers who have beaten the market over different time frames and with less less drawdown risk than the market).
The bottom line is that there has hardly been a better time in the market to use “good” tactically managed strategies that have a focused investing approach to help your client be best positioned to “beat the market.”
Roccy DeFrancesco, JD, CAPP, CMP
Founder, The Wealth Preservation Institute
Co-Founder, The Asset Protection Society