Investing for the long term has changed. Economic indicators and historical studies point to our being in, since October 2000, what is known as a Secular Bear Market. This means that a fundamental re-structuring is occurring, and until this process is complete, exuberance (irrational, or otherwise) will be hard to find. Instead of increasing profits and share prices, Secular Bear Markets bring decreasing profits and lower share prices as the normal market trend. Within this environment the markets sometimes do go up, but they are bucking a longer term trend where the rule of the day is financial defaults, deleveraging, and non-existent profits. It could almost be described as a “sideways” market-…volatile, but with no real progress because the real underlying story is Economic Restructuring. These are hard times for long term investors to bear, because opportunity seems to be presented only to tactical strategists taking large risks and trying to time the market.
There are investment opportunities in this kind of market… it just takes more work to uncover them, and more attention to trends as they play out in the evolving economy. The asset classes which are unfavorable in this kind of market are Stocks, Low Quality Bonds, Venture Capital, Leveraged Buyouts, Long-Bias equity strategies. The asset classes which are favorable in this environment are- Cash, High Quality Bonds, Gold, Long/Short Commodities, Managed Futures, Short Selling, and Short-Bias equity strategies.
Specially designed and monitored portfolio strategies have been implemented to recognize the markets for what they are, protect investor capital, and to make changes when appropriate. We have employed strategies designed to produce good “absolute” returns regardless of larger market behaviors, and to reward low volatility as the primary design requirement. The imperative for investing in Secular Bear markets is to avoid loss. Mathematically, it is so difficult to recover drastic losses, that successfully avoiding these losses can provide returns in excess of inflation, and returns which are competitive with stock indexes over the 15-25 years that a Secular Bear market typically lasts.
The core holding for all of our investors are primarily mutual funds employing this Low Volatility design. Alternative asset classes, conservatively-managed, bring advanced risk management to our investors similar to what Endowment Funds at Yale University have enjoyed. This new portfolio design has been tested over many years, and we consult with portfolio consultant and design author Lou Stanasolovich directly. Thus far in 2009, we have been pleased with the portfolio’s behavior during this very volatile stock market period since January.
Risk-seekers may co-subscribe to the Global Tactical Long Equity (GTLE) portfolio, which is not constrained by low risk requirements, and whose managers have been given broad license to seek growth wherever they find it, worldwide. GTLE is the “Alpha” portion of our allocation strategy, and is targeted at those investors seeking maximum growth while understanding the long time frame that may be required for this portion of the portfolio to bear fruit.
We at Russell Hawkes Associates believe that our primary directive is reducing the risks our clients face when investing in this uncertain economic climate. Our outlook is admittedly conservative and our approach cautious. However, we feel that the current Low Volatility asset mix is valid, and offers opportunities to grow assets while taking “the abyss” out of the realm of possibility. Everyone is different, but if you share our vision of responsible, absolute returns, and desire the objectivity of a fee-only relationship, then we may be just what you have been looking for.