Home etftrends.com The July 2024 Dashboard: Our Three Layers of Risk Management

The July 2024 Dashboard: Our Three Layers of Risk Management

Our Cash Indicator methodology acts as a plan in case of an emergency. This is analogous to the multiple safety systems in a modern automobile, which includes an airbag. Importantly, each of these systems work together to potentially help smooth the ride.

We manage risk within our strategic, long-term allocations based on diversification across equity, fixed income, and alternative assets and a focus on more attractive relative values.

We manage risk tactically over the short-term by investing across a broad array of themes and asset classes including cash. We can either invest opportunistically or defensively depending on the environment.

Cash Indicator: Markets are functioning properly, but we expect continued volatility. (June 30, 2024)

Our proprietary Cash Indicator (CI) provides insight into the health of the market by monitoring the level of fear using equity and fixed income indicators. This warning system is designed to signal us to either a 25% or 50% cash position to potentially protect principle and provide liquidity to reinvest at lower and more attractive valuations.

The CI remains in a tight range near historical lows as a result of limited equity market volatility and tight credit spreads. In our view, investors should expect a resurgence of equity market volatility that would be an opportunity to increase allocations to high quality equities.

Strategic View: Fixed income valuations remain attractive, as do value and dividend-oriented equities.

Equity Valuations: Strong gains in the S&P 500 Index have made capitalization-weighted indices look expensive. However, other areas of the global equity market look more attractive, especially the value style, small caps, and dividends.

Equity Favorability: Recent broader U.S. equity market participation is a healthy sign. We expect this broadening to continue along with U.S. economic growth. We remain overweight U.S. equities relative to foreign, with a mix of value and quality to balance risk and opportunities.

Fixed Income Valuations: At current interest rates, high quality fixed income looks very attractive while high yield is less attractive on a risk-reward basis.

Fixed Income Favorability: While still taking less interest rate risk than the broader bond market, we have further reduced our short-duration holdings in anticipation of eventual Federal Reserve interest rate cuts. Our allocations are positioned to generate attractive current yield while protecting against large interest rate moves. We see strong potential for capital appreciation from investments in the belly of the yield curve as interest rates normalize.

Equity Favorability

Tactical View: We favor quality and momentum equity, as well as investment grade intermediate fixed income.

While geopolitical and global economic risks persist, we are seeing fundamental strength in the U.S. private sector, including households and businesses. In addition to domestic investment opportunities, we think this fundamental strength can benefit foreign companies with strong ties to the U.S. economy. Lastly, we think that intermediate duration high-quality fixed income looks increasingly attractive at current interest rates and can provide some protection if short-term interest rates eventually decline. As a result, we purchased a domestic equity ETF focused on companies with strong and persistent profits as well as low financial leverage. We also added an emerging market ETF that excludes China and increased our existing holdings in an intermediate duration bond ETF.

Equity and Fixed Income and Alternatives

Global Broad Outlook: Global economic activity has improved, broadening the opportunity set.

Our Latest Outlook

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DISCLOSURES

Any forecasts, figures, opinions or investment techniques and strategies explained are Stringer Asset Management, LLC’s as of the date of publication. They are considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect to error or omission is accepted. They are subject to change without reference or notification. The views contained herein are not be taken as an advice or a recommendation to buy or sell any investment and the material should not be relied upon as containing sufficient information to support an investment decision. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested.

Past performance and yield may not be a reliable guide to future performance. Current performance may be higher or lower than the performance quoted.

Data is provided by various sources and prepared by Stringer Asset Management, LLC and has not been verified or audited by an independent accountant.

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