The Dynamic Strategy we employ brings several distinct advantages
in the portfolio management process
“We believe every portfolio should have some form of Tactical / Dynamic approach.”
Why Max Power Alpha Management
The Dynamic Strategy we employ brings several distinct advantages in the portfolio management process. Most money managers employ the Strategic Strategy which is better known as Buy and Hold (B&H). The Tactical Strategy is the in between process.
We believe every portfolio should have some form of Tactical/Dynamic approach. Just as it makes sense to diversify among asset classes it makes sense to diversify among strategies. B&H is a long time Wall St. mantra most investors have bought into. A mostly one decision strategy is appealing for its simplicity. The irony is most Wall St. trading desks employ strategies which are the antithesis of B&H.
“Another reason to choose MPAM is to avoid severe draw downs.”
Limit Draw Downs
Another reason to choose MPAM is to avoid severe draw downs. B&H managers by prospectus can only have a modest amount of cash in their portfolio. Consequently when the market is in a severe correction options are limited.
MPAM can move to 100% Gov’t Money Market which is a riskless position. The platform also has access to a Treasury Bond Fund which usually is a flight to quality option during downtrends. If the signals are strong enough Bear Funds are also included in the fund group.
The Covid Correction from 2/19/20-3/26/20 saw the S&P 500 fall 35% top to bottom. During the same period the Alpha I portfolio lost a fraction of a percent and Alpha II was up 15%. Limiting these type of Draw Downs are important in improving long term performance and investors exiting the market at the wrong time. When equities fell 35% during the initial Covid period Alpha I held its value.
While Alpha II was able to profit using Inverse Funds.
“Equity valuations are at some of the highest levels ever.”
Equity valuations are at some of the highest levels ever. The Shiller PE Ratio (an average of the previous ten years) is at its second highest level ever, only eclipsed by the Dotcom Bubble.
Legendary investor Jeremy Grantham periodically calculates current financial market valuations and uses history to determine the probable returns of various asset classes in coming 5-7 years. Both domestic equities and bonds are projected to have a negative real rate of return. Very low probability B&H will be profitable during this period. Dated 11/30/20 – Source:GMO
CAPITAL GAINS TAXES
The Biden administration is planning to eliminate or at least drastically shrink the benefits of long term capital gains taxes. That will reduce the need to hold securities for a year to qualify for the lower rate. The capital gains tax rate was a distinct that the B&H strategy possessed in their back wallet pocket. Apparently no more?