ValueTrend is an investment firm that prioritizes risk-adjusted returns. That is, we focus on limiting your downside risk through macro market timing and individual security analysis. Ironically, this prioritization of reducing drawdowns (rather than just chasing returns) has helped us outperform over the long term. Through this blog, I attempt to help you, the good readership, understand some of the strategies we utilize to achieve solid risk adjusted returns. This can be valuable in assisting you with your own portfolio management, should you choose not to deal with ValueTrend.
Follow your rules
Like any strategy, there are tradeoffs. Our biggest tradeoff: A systematic strategy focusing on risk adjusted returns requires patience! Here are three examples of how we exercise patience:
Fast moving markets
When markets are moving quickly or speculatively in an unsustainable manner, we tend to hold cash. This results in periods of underperformance as we wait until our technical signals suggest that it is safe to get in. The reality behind speculative or frothy environments is that they often end ugly. But there’s no guarantee of when that will happen. Signs like overbought momentum and % over the 200 day SMA, and/or weak Bear-o-meter readings tell us to back off a bit. Our system forces us to reduce exposure to stocks in that environment. But it takes patience when you see a the froth continue. “FOMO” kicks in (Fear Of Missing Out), which entices investors to take the bait. Its hard to fight FOMO, but following our system is what our clients pay us to do. Below are two periods where we began seeing signs of overbought markets according to our indicators.
When markets head down
Win by not losing, as is said. During a bear market, you get intermittent rallies. I call them Head-Fakes. Some call them Bull traps. We saw several of these in 2022. Many investors were lured in. We were not. Our rules insist that a bear is not over until you see higher highs and lows, AND a move over the 200 day SMA, AND a move to neutral or better (3+) risk/reward ratings in the Bear-o-meter. We received none of these signals during last years rallies. You can see that the market didn’t move ahead of its 40 week/200 day SMA, nor did it make higher highs and lows in 2022.
Now, we are seeing positive trend signals as the market moves ahead of its 40 week SMA and over that last high near 4200. Momentum and moneyflow signals are positive, too. We await a Bear-o-meter signal to move at or (preferably) above 3 (see our latest report here), and then can enter the market again. Its all about the system, not opinions.
When markets remain rangebound
During sideways markets, we try to utilize those swing patterns for buying and selling. Doing so often results in positive returns when most investors are earning next to nothing. For example: from last June until a week ago, the market had a lid near 4200. But that’s not all. Note that the S&P 500 only this week broke its levels last seen 2 years ago (June 2021). That was on the back of 7 stocks. Will it hold? Whatever the case…Two years of frustration for index investors. We’ll talk about how we did in a moment…
The TSX is even worse. Its under water from both a year ago, AND two years ago….
Show me the money
So, did ValueTrend practice what we preach over the last 2 years of toilet-seat markets? Did we follow our system, and reduce exposure during froth stage? Did we continue legging out, posturing defensively during the Head-fake stage? Did we trade and make money in the rangebound stage?
Or….Are we “Do as we say, not as we do” types?
Craig provided some interesting data to answer the question:
S&P TSX 300 levels
June 8, 2021: 20,065.
June 8, 2022: 20,792.
June 7, 2023: 19,891
Result: Since June 8, 2021…TSX lost approx. 0.86% total (not annualized) return
S&P 500 levels
June 8, 2021: 4227
June 8, 2022: 4115
June 7, 2023: 4267
Result: Since June 8, 2021…SPX gained approx. 0.95% total (not annualized) return
ValueTrend performance
Results: Since June 8, 2021…ValueTrend Equity Platform gained approx. 11.2% gross total (not annualized) return.
Note: Our fees are between 1.75% at the highest, and 1.25% at the lowest/ year depending on client assets. Even at the highest fee level, the VT equity Platform still achieved well over 7% gains when passive index investors made very little (or lost money. aka TSX).
Disclaimers:
The information contained in this report is for illustration purposes only and was obtained from sources that we believe to be reliable however, we cannot represent that is accurate or complete. The portfolio may invest in leveraged or inverse exchange traded funds and thus there may be exposure to aggressive techniques which may magnify gains and losses and can result in greater volatility and be subject to aggressive investment risk and price volatility risk. All performance data represents past performance and is not necessarily indicative of future performance. ValueTrend Wealth Management’s liability shall only be attached to the accuracy of the information contained in your official statement of account and information in your official statement of account will always take precedence over the information contained in this illustration.
The above performance chart was produced for illustration purposes only and should not be used as the basis for making investment decisions. The ValueTrend Equity Model performance is based on portfolio holdings of Portfolio Manager Keith Richard’s equity portfolio. Every effort has been made to compile this material accurately however due to the inherent possibility of human and mechanical error, the accuracy and completeness are not guaranteed. All performance data represents past performance and is not necessarily indicative of future performance.
