This has been a great weekend for reading investment news. Starting with Barron’s and ending with the many newsletters I get via email, there are a vast dichotomy of opinions. I say opinions because no one can predict the future!
Let’s start with the thoughts of Michael Gayed, CFA, a leading portfolio manager and tactical asset allocator at Toroso Investments. He has been fairly successful and makes his living by going risk-on and risk-off depending upon the triggers indicated by his models. His investment strategies have been pummeled this year by markets that are exhibiting anomalous behavior. As he said on Saturday,
At precisely the time when many investors would likely be turning to Treasuries for safety, government bonds posted one of their sharpest and steepest declines in history. Treasuries should be behaving like a risk-off asset, but they’re not.
He terms this situation the “Black Swan of Black Swans”; the worst case of when highly unpredictable events occur beyond what is normally expected with potentially severe consequences. He goes on to say that his model is not wrong, it is simply the environment that is wrong, per below:
This is not a situation necessarily where it's the signals that aren't working depending on the Fund. It's the opportunity set that isn't.
Consequently, his funds that are supposed to immunize investors from these kinds of weak markets have lagged significantly year-to-date with one fund being down -37.42% (ATAC US Rotation ETF, RORO). He does go on to say,
All I can say with confidence is that this is an incredible dislocation happening in markets, and that generally, the best returns tend to come from buying after a large drawdown.
So, he offers hope and a belief that we all live in a small “sample” of a much larger universe of investment performance. He closes with the final thoughts:
I believe everything is about to change in a way that at least allows for the potential for the funds, and opportunity set, to revert to historical behavior.
With an ominous caveat,
At some point.