Current market environment performance of dynamic, risk-managed investment solutions.
by Jerry Wagner
To many, there is nothing more meditative and relaxing than building and nurturing a garden. But a healthy garden requires more than planting the right seeds. It also needs ongoing care, regular attention, and the judgment to know what belongs and what may be crowding out everything else. Investment portfolios are not so different.
Gardens need different kinds of care at different times. Early in the season, the focus may be on planting and preparation. Later, the work shifts to tending what has already taken root. In every season, though, one task never seems to go away: weeding.
Weeds can choke out our gardening efforts. They compete with our flowers, herbs, and vegetables for nutrients and sunshine. And certainly, many weeds are ugly, prickly things that diminish the beauty of our gardens. They have been referred to as nature’s “botanical thugs.”
Yet weeds can play a useful role, even when they seem unwanted. In a New York Times book review of Richard Mabey’s “Weeds: In Defense of Nature’s Most Unloved Plants,” Elizabeth Royte writes,
“Mabey reminds us with wry and subtle humor of weeds’ usefulness: they stabilize soil, curb water loss, provide shelter for other plants and repair landscapes shattered by landslides, flood, fire, development and artillery. (One 1945 survey found 126 plant species in London’s bomb craters.) Weeds have served as food, fuel, medicine, dyes and building material for a variety of insects, birds and humans. All that, and pulling them from the earth builds character too. As the 17th-century herbalist William Coles wrote, they ‘exercise the Industry of Man to weed them out.’”
“Weeds” can have a place
I think one of the better definitions of a weed is a plant that finds itself in the wrong place or time.
I believe most investors would agree that we don’t need to look too closely at our portfolios to see when weeds are growing within them. And like nature’s variety in our gardens, it sometimes feels like they are draining the life out of them.
Most often, these investment “weeds” are simply the underperformers in our portfolios—the laggards that seem ugly when compared with the portfolio’s best performers.
Yet just as weeds often have their time and place (they were the first crops and medicines, and they even inspired Velcro), these laggards may also simply be out of sync with the performance of other members of the portfolio. In another time and place, they may serve a very necessary function.
Most investors today create diversified portfolios to take advantage of what Nobel Prize winner Harry Markowitz called “the only free lunch in investing.” Diversification within a passively managed asset allocation helps the portfolio withstand the “baby bears” (declines of 10% to 20%) that plague financial markets.
Diversified portfolios make use of a variety of asset classes. When one goes down, another may be gaining ground. The different components also respond differently to volatility. When these baby bears occur, the “differentness” of the assets provides a layer of protection and may offset the losses of the asset classes with the biggest declines. Because the biggest gainers in a bull market tend to be the worst performers when markets tumble, this added protection is valuable.
To achieve this protection, it is necessary to be truly diversified. Obviously, if all your investments are rising by the same amount, you are not diversified. Everything is just a variant of the other elements of the mix; therefore, their performance is the same. And if nothing is falling in a portfolio when most are going up, you are probably not diversified either.
To be properly diversified, you need a few “weeds” in your portfolio “garden.”
Turnkey solutions that manage and pull the “weeds” for you
I used to stop here in past explanations and simply say, “This is why you must have a portfolio that is truly diversified by asset classes and strategies.” Such diversification aims to ensure that, no matter the market environment, you have some “weeds” to put up a defense and maybe add a little beauty to your portfolio when the market falters.
But that was before the arrival of our turnkey QFC solutions: QFC Multi-Strategy Core, QFC Multi-Strategy Explore, and QFC Multi-Strategy Portfolios. Now you are no longer required to own “weeds” in your portfolio all of the time in the hope that they will provide diversification—that they will, at some point, cease to be the plants that are in “the wrong place or time.”
Instead, with these turnkey solutions, we cultivate the weeds for you. Each solution dynamically selects, monitors, and reallocates among strategies. We don’t just find new strategies to plant—we also weed out those that are failing.
For example, in QFC Multi-Strategy Core, we choose from among our core strategies and regularly allocate a greater percentage to the better performers, taking into account return, volatility, and how each strategy relates to the others. And if a new strategy is developed or an existing one becomes ineffective, we can automatically take the appropriate action to cultivate your portfolio. QFC Multi-Strategy Core is available for Conservative, Moderate, Balanced, Growth, and Aggressive suitability profiles.
Our QFC Multi-Strategy Explore: Equity Trends turnkey strategy can combine investments in up to six of our top trend-following strategies. The same concept is used for our other QFC Multi-Strategy Explore options, including Low Volatility, Low Correlation, and Special Equity. QFC Multi-Strategy Explore Blend takes this approach one step further by dynamically allocating among all four QFC Multi-Strategy Explore strategies, investing in a blend designed to maximize risk-adjusted returns.
Our QFC Multi-Strategy Portfolios are true turnkey solutions that monitor FPI’s dynamic, risk-managed strategies and reallocate monthly among them, aiming to invest in what is working best in the changing market environment. The portfolios are also available in Conservative, Moderate, Balanced, Growth, and Aggressive suitability profiles.
We’ve all seen what a mess a garden can become if we go away and leave it unattended—whether by neglect or just because we are taking a needed break. The same can happen when you don’t have the time or energy to maintain your investment portfolio. But with our turnkey solutions, the “cultivation” is done for you—without your constant involvement.
Because these turnkey options are QFC solutions, you automatically receive three levels of risk management:
The QFC solutions also have our lowest advisory fee structure. The FPI portion of the billed advisory fee can be as low as zero, meaning you would be billed only for your financial adviser’s normal fee.
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When it comes to maintaining your portfolio “garden,” you no longer have to do the worst task— weeding. Our turnkey multi-strategy solutions are designed to adjust as market conditions change—reducing exposure to strategies that are not working and emphasizing those that may be better suited for the current environment.
We do it all for you, with no effort or time expended on your part. These turnkey solutions are designed to get your portfolio growing like … well … a weed.