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Active Portfolio Management In Spite of Covid-19

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Breaking News: Over 270,000 viral deaths globally (over 75,000 in the United States) and it is still spreading.  Global economies have been almost completely shut down.  Airlines shut down.  Entire cities turn in to ghost towns.  Stay in your homes. No eggs, meat or toilet paper anywhere.  Oil is free.

At first this sounds like the backdrop to a new novel written by Stephen King.  But this is the current reality and it could be here for some time to come.  To think that only three months ago the stock market was hitting new all-time highs and everyone who wanted a job had one.  Kids were all in school learning.  Sports fans were happy.  Graduations, weddings and vacations were being planned.  All was well with the world!
On March 9, 2009, the last Bear Market ended.  The ensuing Bull Market lasted eleven years, the longest ever recorded.  There is always a catalyst that pushes the stock market over the edge.  Everyone has read about the Great Depression, the 73-74 bear market and the Crash of 87’.  It was the dot-com bubble in 2000, the real estate bubble/bank-auto bailout in 2007-2008 and now the coronavirus pandemic/oil crisis in 2020.

Not since World War II has there been such a global event that has affected how all 7.8 billion humans on this planet live their daily lives.  During this stressful period, the last thing investors need to worry about is the health of their investment portfolios.  Many investors saw 20-60% drawdowns in Q1 2020.  Many large-cap companies like Delta Air Lines, Boeing, Carnival and Occidental Petroleum are down 60%+ YTD (through 5/5/20).

At Spectrum Financial our client portfolios are actively managed, every day, all day long.  We allocate client money based on their individual risk level, time horizon and personal goals.  One of the services Spectrum offers is our AssetMaxx℠ program.  It provides access to three distinct actively managed funds for portfolio design. These funds can adjust exposure to the markets based on current environments. At times, these funds may be invested 100% in cash or cash equivalents. Spectrum clients have historically benefited from active management in managing risk.  This current environment is no different.  In the 1st quarter this year the Spectrum Low Volatility fund (SVARX) was up 1.60%, the Hundredfold Select Alternative fund (SFHYX) was up 4.40% and the Spectrum Advisors Preferred fund (SAPEX) was down 13.02%. The S&P 500 TR Index was down 19.60% and the Barclays High Yield VL Index was down 12.32% during the same period. Standard performance data can be reviewed at https://investspectrum.com/AssetMaxx.cshtml under our AssetMaxx℠ Service, or at each Fund’s website, http://thespectrumfunds.com or http://hundredfoldselect.com/ .

Markets do not like uncertainty.  With the ongoing Russia/Saudia Arabia oil feud, the aggressive behavior of Iran and North Korea, the trade war with China and the Coronavirus pandemic, there are plenty of elephants in the room to keep this market nervous and volatile in the short-term.  We don’t know when the storm will be over, but our active management helps clients feel secure as we control exposure in this volatile market.

For over 20 years I have worked with Ralph Doudera, the CEO and head Portfolio Manager of Spectrum Financial, Inc.  One of my favorite quotes that he has repeated over the years is “I want to sleep good at night, and I want our clients to sleep good as well.”  Have you been sleeping good lately?

We encourage you to call and speak with our Client Services team at 888-463-7600 to learn in more detail the programs we offer here.  You can also go to our website www.investspectrum.com to learn more about our company, the team and timely updates about the actively managed funds used in our AssetMaxx℠ program.

Spectrum Market Update

After an overly optimistic start in the month of January the markets have corrected in a volatile decline, the likes of which we have not seen in several years. The combination of euphoric buying, overvalued stock prices, and the realization that the Federal Reserve will be raising interest rates several times this year to fight inflation contributed to a severe selloff and extreme market volatility. In 9 days the Dow Jones Average has dropped 10%, one of the fastest corrections in history. This follows a period of over 500 days of not having a 10% correction. The longer the market goes without a correction, the more violent it can be to work out the excesses in the financial system. While the majority of the time a situation like this leads to favorable returns over the 12-month period following a correction, there are a number of times when very nasty things happen. A majority of the investment managers today are younger and have not experienced what can happen to buy and hold investors. More recently, in the past 20 years, we have had two stock market corrections in excess of 50%. This kind of activity can cause investors who have buy and hold portfolios to change their lifestyle.

Current Portfolio Updates show reduced exposure to portfolios prior to the correction:

Spectrum High Yield Bond Strategy: Exposure was moved to the safety of the money market on Feb 2.

Spectrum Dynamic High Yield Bond Strategy: exposure continues to take advantage of shorter term movements while maintaining a strict focus on risk management

Spectrum International Sector Strategy: exposure to volatile equity sectors has been reduced and exposure to alternative risk-adjusted sources has been maintained.

Spectrum Core Focus Strategy: continues its hedge equity exposure due to unchanged macro themes despite the heightened volatility.

The Spectrum Low Volatility Fund: SVARX had no high yield bond or stock exposure for the decline, and leverage of other credit positions has been eliminated.  It remains the number 1 ranked U.S.-domiciled nontraditional bond fund by Morningstar out of 280 funds for the past three years date ending 2/8/18*. Please visit www.thespectrumfunds.com for more information and fund documents.

The Spectrum Advisors Preferred Fund: SAPEX, our alternative equity fund, transitioned exposure out of traditionally higher beta positions while still maintaining exposure for this macro bull market trend. The fixed income exposure has been reduced due to the few fixed income sectors having acceptable technical characteristics. Please visit www.thespectrumfunds.com for more information and fund documents.

The Hundredfold Select Alternative Fund: SFHYX/HFSAX, managed by Hundredfold Advisors, LLC (Ralph Doudera, Portfolio Manager), also has little high yield bond exposure and very modest stock exposure. Leverage of credit positions has also been eliminated. The alternative exposure has actively managed the commodities space maintaining the objective of low volatility. Please visit www.hundredfoldselect.com for more information and fund documents.

Our portfolios are very actively managed. Spectrum has been managing risk for over 30 years, and has seen about every market condition imaginable. Our primary concern is not making lots of money, but by providing superior risk adjusted returns for clients. We want clients to know that they don’t have to pay attention to market volatility because that is what we do best. While this correction may be just a hiccup on the way to new high prices, it may also be the beginning of a bear market. Bear markets begin with extended prices, and optimism. Our Bull/Bear monitoring system this week raised the caution flag after several years, but has not gone to the sell side yet. It is in a wait and see mode.  Any investors who are buy and hold stock investors need to think through whether or not a 50% decline in their account will change their lifestyle, and if so, pay attention. Remember almost every bull market has eventually had a correction of about 50% of the gains, and this market is up 300% since 2009.

Remember: Steady plodding brings prosperity, hasty speculation brings poverty. Proverbs 21:5

*© 2017 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

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Spectrum Financial, Inc 2020