Home etftrends.com The October 2023 Dashboard: Our Three Layers of Risk Management

The October 2023 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.

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 has elevated with the latest increase in equity market fear, but still remains at the low end of its historical range. Readings at low levels typically indicate that the markets are overly complacent and at risk of a downside surprise. We expect continued volatility ahead.

Strategic View: Fixed income valuations remain attractive, as do equities except the few that have rallied recently.

Equity Valuations: Despite recent market declines, large cap U.S. equities look expensive primarily due to the appreciated prices of a few large companies. As a result, we think that attractive valuations may be found in areas of the U.S. equity market that have lagged in recent months as well as in foreign equities.

Equity Favorability: We continue to favor defensive equities as we expect global economic and market challenges ahead. We find these areas even more attractive as they have been largely ignored this year.

Equity Favorability

Fixed Income Valuations: Yields today are at levels not seen more than a decade and offer fixed income investors a plethora of opportunities to generate both attractive levels of current income while also potentially benefiting from capital appreciation if interest rates eventually begin to fall.

Fixed Income Favorability: We have increased current yield while reducing sector-specific risks by allocating across a wide range of spread sectors in both traditional and non-traditional fixed income while maintaining a high-quality bias.

Positioning across the yield curve allows us to lock in higher interest rates for longer and reduce reinvestment risk.

Fixed Income Favorability

Tactical View: We favor defensive equity, diversified high-quality fixed income, and alternative investments.

Depending on the Strategy, we recently bought an actively managed core fixed income ETF that seeks to generate high quality income by balancing both traditional and non-traditional fixed income asset classes and increased the allocation to a taxable municipal bond ETF. Additional changes include adding a corporate bond ETF and a short-term Treasury ETF. We think that these changes will enhance the current income and better protect the Strategies from sector specific risks, such as increased Treasury bond issuance.

Equity and Fixed Income

Global Broad Outlook: We remain cautious about the global economy and markets as economic weaknesses persist.

Risk Management Global


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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