Did you predict U.S. stocks would perform so strongly right after the 2016 presidential election?
Did you predict that U.S. stocks would sell off steeply in December 2018, and then recover in January 2019?
The Huygens tactical equity strategy
So many investors react to volatile markets by moving their money to the sidelines, then waiting “until things settle down” to get back in.
The hardest thing about a market selloff isn’t knowing when to get out - it’s knowing when to get back in. Most often, that right time happens well before the typical investor’s emotions are comfortable again with taking risk.
That’s why we developed our tactical equity strategy. It’s designed to:
Capture some of U.S. stocks growth in low volatility periods, using a bull market portfolio designed to cushion minor volatility
Reduce risk in periods of higher volatility by switching to a bear market portfolio designed to protect assets against losses
Switch back to the bull market portfolio quickly as the volatility abates
In bull markets, the strategy favors stocks with strong price momentum and low price volatility, with some government bonds in the portfolio to cushion unforeseen volatility. The bull portfolio consists of these ETFs:
In bear markets, the strategy replaces the momentum stocks, which can be more volatile, with 10-year treasuries to protect against steep losses. The rest of the portfolio remains unchanged. The bear portfolio consists of these ETFs:
The above portfolio weights are for our customers that have selected capital preservation as their investment objective. The precise weighting of these ETFs in your portfolio will depend on which objective you’ve selected: capital preservation, moderate growth, or aggressive growth.
Past 3 years performance - Huygens Conservative Tactical Equity Strategy*
January 2016 through December 2018
Bear market performance snapshot - Huygens Conservative Tactical Equity Strategy*
October 2018 through January 2019
The above charts show how our tactical equity strategy is designed to switch to a bear portfolio in times of market stress, and then back to a bull portfolio as soon as the stress begins to abate.
In October 2016, the bearish sentiment prevailing before the presidential election caused our strategy to switch to the bear market portfolio. Then just one day after the election, our signal switched back to the bull market portfolio and didn’t budge through the rest of 2016 and all of 2017. U.S. stocks embarked on a strong bullish run with little volatility, despite persistent jarring headlines about white house turmoil and U.S. foreign relations.
In the fourth quarter of 2018, bearish U.S. stock market sentiment was back and stocks were selling off precipitously. Multiple times during that period, our strategy switched to its bear market portfolio, cushioning it against volatility. Had our signal not switched, the Huygens strategy shown above would have fallen 3% more than it did in October and again in December.
By year end 2018, the U.S. stock market began recovering. Soon after, on January 7th 2019, our signal switched the strategy back to the bull market portfolio and maintained it through January and February of 2019.