You and your ACM advisor have discussed your investment objectives and built a portfolio with the appropriate allocation of stocks and bonds. From time to time, markets correct – testing your resolve with heightened volatility and the potential for losses. As downturns build, many investors will re-examine their allocations or even question if they should stay invested.
One of the most common mistakes investors can make during these periods of volatility is to reduce their equity allocation too much; never to reestablish the appropriate allocation for long term growth.
An extreme measure by some is to abandon their investment game plan all together which can leave investors in a very difficult position. When does one come back to the market and in what allocation? Investors tend to re-enter the market when they feel more comfortable. And more comfortable typically means higher prices. This is one of the reasons why the average investor has a 20 year average annualized return of 2.3%, while the S&P 500® has averaged an annualized return of 7.7%.* Another reason for the dismal historic investor returns can also be attributed to overly conservative asset allocations (not enough equity exposure) and embedded costs of investing.
Staying invested during market duress is easier said than done. ACM Defensive was created in an effort to decrease equity exposure during difficult market downturns and to increase exposure during recoveries. The goal is to keep you invested.
ACM Defensive is an optional overlay for our private balanced accounts that combines a proprietary algorithm with a disciplined portfolio rebalancing strategy based on broad market pricing and overall macroeconomic data. As equity markets increase or decrease, ACM Defensive will rebalance to fixed income or equities appropriately. ACM Defensive will determine the level and rate of rebalancing based on the ongoing review of over 20 economic data points which measure trends of weakness and strength in industries and markets.
ACM Defensive is monitoring markets as well as private and government data in real time. Consider the US economy as a train rolling down the track with each car of the train representing carefully selected and weighted parts of the economy. If one or two cars were to tip, there might not be an overall concern that the entire train may derail.
However, if more cars begin to tip and these cars are critical to the current economic picture, there would be concern for the entire train. This event would be cause for larger defensive allocations in our clients’ portfolios.
ACM Defensive is not a market timing service, but rather a tool to utilize in an effort to approximate the right level of equities and fixed income, given various market conditions, while keeping you invested. If you would like to learn more about this additional overlay please contact your ACM advisor. ACM defensive is an optional overlay to our Private Balanced strategy only and there is no additional cost.
SOURCE: *U.S. Data are as of June 30, 2017.
20-year annualized returns by asset class (1997 – 2016).
DISCLOSURE: All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful. Ongoing rebalancing should in the long-term underperform vs. staying invested.
Advisors Capital Management, LLC is an investment advisor registered with the United States Securities and Exchange Commission. Registration does not imply any degree of skill or training. All investing carries risk, including the potential for the loss of principal and past performance is no guarantee of future results. This content is for informational purposes only, can change at any time without notice, and is not investment advice or a recommendation to trade any security. Indices are not available for direct investment. We only provide services in jurisdictions where we are registered. Our disclosure brochure (ADV Part 2A) and customer relationship summary (ADV Part 3) are available at https://adviserinfo.sec.gov and upon request.
