Finally, on the last trading day of the first quarter, the S&P 500 Index was able to make a new all-time high. It took five and a half years to surpass its October 9, 2007 high and was cause for celebration on the news channels and publications.
We were glad to celebrate with everyone else, but the event was slightly saddening: after five long years of a roller coaster ride, Buy & Hope investors were finally even. Though true, it did not have to be that way.
Active management offers a real alternative that strives to avoid or minimize large losses. By missing the major part of a decline, less of the next advance is devoted to break even.
In the graph shown, the S&P 500 fell 50% from 1/8/08-3/9/09. With a Buy & Hope approach, a $100,000 portfolio would suddenly be worth just $50,000. More bad news: it will take a market gain of 100% just to recover the losses to returning to break even.
The Dow Jones Industrial Average is reaching new record highs along with Mid-Cap Value and Small-Cap Value, which have been leading asset classes for the past six months.
It’s hard to miss the nightly news headlines about the Dow Jones Industrial Average making new record highs in early March 2013. We are happy this is getting the publicity. But not getting any attention is the fact that many other indexes have also been making new highs for many months, including the Russell 2000 Index (small-caps) and the Russell Mid-Cap Index.
What makes that last point so important is that Mid-Cap Value and Small-Cap Value have both been leading asset classes held within Market Leaders Strategic and Tactical for the past six months starting 10/1/12. With the goal of being invested in the leading asset classes, these two certainly have been carrying their weight.
Which would you rather have: Investment A with only a 20% cumulative return or Investment B with almost a 200% cumulative return? Would you choose Investment A with several years of losses and only a few years of gains, or pick Investment B with only a few down years and many more years of cumulative gains? Would you want to go through two periods of losses of over 30% with Investment A or the smoother ride with Investment B?
Market Leaders is an active global allocation
strategy, with a “goes anywhere” philosophy.
It seeks out the leading asset classes, domestic
and global, that can enhance portfolio returns,
while avoiding those lagging asset classes that
can drain performance.
For the majority of the past two years, the leading asset classes
have all been domestic. The leadership moved between large
and small caps, value and growth, but almost always domestic
The big change for Market Leaders Strategic (and the Market Leaders Fund) over November and December has been the growing emphasis on International stock funds.
November’s monthly Market Leaders Strategic reallocation to the leading asset classes saw Developed Countries ranked the #4 equity asset class, its first appearance for 2012. With December’s reallocation, Developed Countries jumped to the top of the rankings as the #1-favored asset class. Emerging Markets, which has also not been included in the top rankings in 2012, jumped to the #2 position.
Two positive weeks in a row was enough to push the S&P 500, NASDAQ, Emerging Markets, Developed Countries and Russell 2000 indices into positive territory for the month. Until Thursday, November was ready to join October as a down month for the domestic market.
All of the Market Leaders strategies were reallocated into the leading asset classes for the
start of the new month and new quarter. The goal of active allocation is to be invested in the leading asset classes that may add to portfolio performance, avoid the laggards that may drain performance, and stay in tune with the market’s direction, striving to earn a higher return with less risk.
Market Leaders strives for higher returns with less risk through actively allocating to the
leading asset classes that can add to portfolio performance and avoiding the laggards that can drain performance. This is a two-part statement: adding value comes from not only owning the leaders, but also avoiding the laggards.
Speaking of laggards, it would be hard to miss the headlines for the past year covering all of the problems in Europe: “Greece on Brink of Bankruptcy,” “Spain next to Default?,” “Will the Euro Survive?,” etc. The European Union is the world’s largest economy and therefore has an impact on our markets because we live in a global economy.