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

The September 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.

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 remains at the low end of its historical range. Readings at low levels typically indicate that the markets are overly complacent and subject to downside surprise. While not signaling a potential crash, readings at this level suggest caution.

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

Equity Valuations: Large Cap U.S. equities look expensive, but this is 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 in this year.

Fixed Income Valuations: With the yield curve persistently inverted and broad money growth falling, we expect headline inflation to decline over the next year. However, the recent announcement of additional Treasury issuance may provide continued interest rate volatility.

Fixed Income Favorability: We expect the U.S. Federal Reserve to be nearing the end of its rate hiking cycle. Combined with increased Treasury issuance, we have found additional opportunities in diversified core fixed income and commercial mortgage-backed securities.

Equity Favorability

Tactical View: We favor defensive equity, fixed income, and alternative investments.

We recently added to diversified core fixed income and AAA-rated commercial mortgage-backed securities. Similarly, we increased our existing exposure to equity income and equity options depending on the Strategy. Combined, these fixed income and equity adjustments diversify the sources of potential total return including current yield, and we think they will better prepare our Strategies for the opportunities that we see created by the recent market distortions.

Equity, Fixed Income, Alternatives

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

Monetary Conditions


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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