We believe that price momentum can tell us a great deal about supply and demand dynamics. When you compare a set of assets against each other, typically some are leading while others are lagging. The idea behind relative strength based investment strategies is to position in the assets that are showing the strongest price leadership.
* (Download Whitepaper on Correlation & Diversification).
CMG Opportunistic All Asset Strategy – The strategy selects from a broad universe of asset classes and invests in up to eleven positions. We measure price momentum of the various assets to identify the strongest relative strength. Positions are held anywhere from one month to several months.
Positions are continuously re-evaluated. The objective is to invest in the positions showing the strongest relative strength (price leadership) and, importantly, avoid assets that are showing the weakest price movement. Here is what we’re seeing:
- The portfolio is currently approximately 37% invested in U.S. Fixed Income, 9% in Cash, 27% U.S. Healthcare, 9% U.S. Financials and18% U.S. Large Cap Growth.
- The strategy has successfully avoided commodities, metals, emerging markets and international equity exposure.
- The portfolio has transitioned to safer asset classes over the last three months.
CMG Tactical Rotation Strategy – A tactical Global Macro strategy that may invest in up to two of the following six asset classes: Domestic Equities, International Equities, Bonds, Commodities, REITs & Cash/Cash Equivalents.
- This is a relative strength based trading strategy.
- Positions are re-evaluated monthly. Up to two positions are selected.
- Currently 100% invested in Cash
- A trend based trading strategy.
- Currently 100% invested in cash or cash equivalent like BIL
Trade Signals Summary
I like to look at each investment made as a unique risk. A strategy is a unique risk. Hopefully, each risk selected and put into your portfolio will make money. We know that is not always the case; thus, we diversify our set of risks that make up our portfolios.
From this perspective, I like to look at the forward return probabilities for equities and shape the various risks within my portfolio tied to probable equity market returns. Simply, when the market is attractively priced, overweight equities. When expensively priced, underweight and hedge your equity exposure and overweight to alternative investment strategies (defined as anything other than traditional equity and bond market buy and hold) in your portfolios.
Given the expensively priced nature of the market today, I continue to favor the following mix: 30% equities (hedged), 30% fixed income (tactically managed) and 40% alternative and tactical investment strategies. I believe something special happens when you combine several non-correlating strategies together.
This is a process that has helped me over the years to better stay in line with the market’s primary trend(s). It helps me avoid the many daily distractions (commentator, analyst, CNBC, etc.) and stay disciplined in my investment process. I hope you find it helpful in your investment and advisory work with your clients. Steve Blumenthal