Many portfolios are also closely related to the performance of a single market or fund. This can create a large correlation risk, because if the market or funds declines sharply so does your portfolio. There is a solution for this called, Qfolio it uses a Tactical Asset Allocation algorithm to shift your investments across Cash, Bonds, Large Cap, Small Cap and International funds.
What’s the Best Investment Portfolios?
Traditional investment portfolios often have a strong correlation to the overall market performance put simply if the market is going up, chances are so is your portfolio. If the market is going down, your portfolio is likely to as well. There are many unknowns when it comes to the markets, but there is one constant that is always universally true across all asset classes change. We call this volatility.
Let’s look at a couple of quick examples. It does not take a high level of market knowledge to see that the overall S and P 500 look drastically different in 2013 versus 2014 the same is true for the small-cap index and international funds such as the EA, Effie, sometimes known as Eva.
Even the bond markets are subject to volatility. Most of us have been taught to buy and hold an investment and ride out the ups and downs, but in reality what happens most of the time is we only have the stomach to hold on just long enough until most of the damage is done and to make matters worse, you don’t usually get invested again until much of an upside has passed.
Wouldn’t it be great if when a downtrend started to happen, your portfolio’s performance may not necessarily be tied to the market?
We think so too. In fact, we think a good way to look at the markets is like tug of war. The investments in your portfolio make up your tug of war team. Some of the guys on your team are going to get tired and in many traditional portfolios, the tired guys just keep pulling, but Q folio is designed to swap out the tired guys.
For new strong guys, we call this tactical asset allocation.
Q folio uses an algorithm to shift your investments across cash and asset classes such as bonds, large-cap, small-cap, as well as international funds. Depending on who the algorithm decides is the strongest guy at that moment. By responding to the market’s trend, momentum, and volatility, we can potentially minimize your risk and maximize your capture rate.
Look at this example from the Eva international fund. See how there is a shift in a trend that happened. A backtest using Q folio identified that Eva was becoming weak and reducing the number of funds allocated there.
Then at this point, we can see that the era became so tired that we reduced the allocation to 0% letting the other stronger members of the team take over. It is this type of tactical rebalancing that potentially allows Q folio to minimize the correlation risk seen by most traditional portfolios, maximize capture rate, and help level out your portfolio altogether.
It is one of the investment strategies we are proud to offer here at Verdeo Financial.