Managed Futures: 5 Questions to Understand

Dear Mr. Market:

What’s your plan for when the stock market goes down? Is this plan the same for when bonds go down? Over the last several years of this bull market we have gradually prepared for this inevitable event by establishing a strategy in advance as opposed to one that is reactionary or emotional.

After reading this article we ask that you do something different the next time the sky is falling. Tell yourself that before the next market crash you won’t have fear, panic, or emotions guide your strategy but rather follow an intelligent plan.

One way to hedge your portfolio against serious drawdowns is by using alternative investments such as Managed Futures. The following five questions are from an interview by US News with Cliff Stanton, CFA and Co-Chief Investment Officer at 361 Capital:

What are the potential benefits of investing in futures?Cliff_final

The primary benefits that managed futures strategies offer are: Continue reading

Brexit too shall pass…

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Dear Mr. Market:

You hate uncertainty; that fact has been established from the day you began trading. If the rest of the investing public hasn’t heard about “Brexit” vs “Bremain”…it’s not necessarily a bad thing. There is always something to worry about and now with a vote by the United Kingdom to leave the European Union the potential implications and chants of uncertainty will continue to create worry and panic.

Ironically enough, even amidst all the doom and gloom, the world is not that much different than before the vote. Although the U.K. surprised many with its vote to leave the EU, this decision and the potential fallout will take a couple of years to fully play itself out. Even though there will clearly be political uncertainty and initial volatility (which is natural)…the UK will have two years to negotiate the terms of its exit and establish a new relationship with the EU. Although there won’t be a shortage of opinions, this doesn’t imply an automatic death to the stock market!

It’s times like these that are EXACTLY why people overreact and make critical mistakes. Once people get over their initial reaction (shock, surprise, fear etc) the markets will see relief in knowing there is a result and a definitive decision. In other words…there will be some basic element of certainty and that allows markets to naturally correct and go back to moving based on actual fundamentals as opposed to speculative forces or fear.

What should one do in the near-term and will this lead to something worse? Continue reading

MPG Core Tactical 60/40: May 2015 Performance Update

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Dear Mr. Market:

If you’re new to this monthly series…remember what we’re doing. This exercise, as we like to call it, is not an attempt to pick the best stock or “time the market”. We leave that futile task to those who own time machines and If you’re new to this monthly series…remember what we’re doing. This exercise, as we like to call it, is not an attempt to pick the best stock or “time the market”. We leave that futile task to those who own time machines and accurate crystal balls. For a refresher, see our first article on the MPG Core Tactical 60/40 portfolio.

Here’s the current summary of the MPG Core Tactical 60/40 portfolio mix, which is updated as of this writing (June 5, 2015).

Click here to compare the portfolio against the benchmark

What adjustments did we make?

We didn’t make any portfolio moves in May. Aside from collecting nice dividends through BND, LQD, and Conoco Philips (COP), the market environment did not warrant making any adjustments.

Why? Continue reading

March Madness: Final Four Investing Bracket 2015

basketball on cashWelcome to the fifth year of our March Madness Investing Bracket! This series of articles is always one of the most popular investing articles on the internet! We’re proud to admit that we were one of the first investing nerds to combine our love for the markets with the passion that college basketball brings!

It’s common knowledge that people love excitement and surprises. It’s also human nature to root for the underdog and many times those two themes can certainly play out on the basketball court as well as on the stock market floor. Much like two college basketball teams that never play each other our imaginations are swept up in wondering who will “win” between a relatively unknown investment or a popular stock that has the media in a frenzy.

You may be asking what does a basketball tournament have to do with managing your portfolio or the investment world in general? At first glance there might not be much but we thought we would have a little fun and couple it with some asset allocation parallels. After all, there are many folks who have simply thrown their hands in the air at one time or simply succumbed to the notion that investing is like educated gambling. There could be some truth to that depending on your approach…

For those of you that are not familiar with the NCAA and its annual basketball tournament there are 68 teams selected and each is seeded according to their results throughout the regular season and their relative rankings. Every March the NCAA holds a single elimination tournament to crown an undisputed champion. Part of the appeal of such a tournament is that theoretically any team that makes the “big dance” has a shot at winning it all. Each and every year there is a proverbial “Cinderella” team that surprises everyone including all the ‘so-called’ experts. Prior to the tournament there is always plenty of banter and opinion on who wasn’t invited or further arguments around the seeding of the teams that did make it. That’s where we see a parallel of sorts to investing and having to make decisions among the multitudes of investment choices. With so many investment choices available, there are also as many differing opinions.

In the “real” March Madness tournament this year there appears to be a hands down favorite with the undefeated Kentucky Wildcats. Hardly any office pool or basketball analyst is betting against such a heavily favored team. If they win it all it will be the first time in over 30 years that a team stays unbeaten the whole season. Our own version of this (using investment themes and choices) shares the premise that we have four very decent #1 seeds but there is no slam-dunk pick that everyone agrees on. For this reason, our 2015 bracket is perhaps as important as ever to understand that a dark horse could win it all…

Before we begin digging into each “region” of our bracket, let’s revisit something everyone claims they know but so very few actually follow with consistent discipline. (Asset Allocation)

If you have ever looked at a chart of all the different asset classes and how they perform year to year…there is rarely a pattern or consistent way to determine next years “winner”.

For the purposes our annual investing bracket we have “seeded” or ranked four major asset classes (like the regions) and chosen several individual picks within each. There is some basic science applied to this process. We consider how the “pick” did over the past 12 months and also how it has trended over the past three months. In some cases we gave a lower performing investment a higher seed if it was trending well with recent strength or was more consistent over a longer period of time.

Each asset class (Large Cap, Small Cap & Mid Cap, Bonds/Alternatives, and International) was ranked and seeded, then corresponding seeds were assigned to “picks” that we are either adding to the portfolio or establishing new positions in. Note that we’re not highlighting 68 new investments and will only discuss some investments that we are either actively involved in or looking to add to most portfolios.

OK…Let’s dig into some of the key match-ups and explain why our Final Four going into Q2 2015 looks the way it does (CLICK HERE to view our 2015 Bracket):

Large Cap

This is typically viewed as the ‘efficient’ asset class. Continue reading

Currency Markets: Not the Roller-coaster you think it is!

dollar3Dear Mr. Market:

You’ve taken equity investors on a roller coaster ride this year with the Dow Jones now delivering negative returns year to date. Investors have been scrambling to find where to invest their money as they move out of equities. The fixed income markets remain an area of doubt as interest rates are near rock bottom levels and fear of rate hikes from the Fed continue to run rampant. With all these variables and negativity in the market where should investors consider looking to invest their cash?

We’ve discussed ‘Alternatives’ before and how they warrant a place in a diversified portfolio. Often investors become a bit skeptical when they hear the term Alternative Investment as thoughts of hedge funds and ‘ponzi schemes’ come to mind.   With new regulations and monitoring in place investors can feel confident when they consider adding these types of investments to their portfolios. The investments that typically come to mind when looking at this asset class are: real estate, commodities, futures and hedge funds. Today will take a look at one component of alternative investments that is often overlooked but investors interact with everyday– the dollar or currency markets in general.

If you turn on the nightly news or read any articles about the economy it is hard not to see headlines discussing the strength and/or weakness of the dollar. What does this really mean and how can an investor take advantage of these moves? Analysts and economists tend to use terms to make themselves sound like an authority while at the same time losing 90% of their audience. Below we will discuss some of the basics:  Continue reading