Tactical Asset Management

The vast majority of stock-based investments like Exchange Traded Funds (ETF’s), Mutual Funds, and separately managed accounts of individual stocks use what’s known as a long-term “buy and hold” strategy. These strategies will occasionally buy and sell underlying stocks to try to overweight stocks that are believed to be undervalued and underweight stocks considered to be overvalued in an attempt to create an excess return or “Alpha.”

These strategies generally remain fully invested at all times. The effort to buy the “best” stocks is often futile, as numerous studies show that most mutual funds do not beat their benchmarks in any given time period and especially over long periods of time. The traditional investment approach anticipates being invested when the markets are both plummeting and increasing sharply in value. Disciplined and patient investors will generally be rewarded with returns that track the long-term returns of equities.

Unlike the traditional buy and hold approach, the tactically managed Spartan account utilizes the buy and sell approach. Instead of making decisions based on the long-term fundamentals of a basket of publicly traded stocks or based on an overall index, the Spartan account utilizes technical analysis to track and predict major stock indexes’ short-term movement. This strategy is designed to remain safely in cash until such time as the analysis identifies a “high probability” trade. Typically the trade is completed within a few days to a couple of weeks. When such an opportunity is identified, the account will typically invest in leveraged ETF’s that track the movement of an index by 2x or 3x.

Additionally the strategy can and will invest in ETFs that are designed to appreciate in value when the markets are going up as well as inverse ETFs that will potentially appreciate when markets are going down. Each trade employs carefully calculated stop-loss orders to help mitigate the effect of a losing trade.

Both buy and hold strategies and tactical strategies have risk. Most long-term investment strategies assume the risk of a protracted economic downturn, whereas a tactically managed account assumes the risk that the manager’s analysis may be inaccurate. However, a tactically managed account which is based on technical analysis is not necessarily correlated to the performance of the overall economy or the fundamental health of the stock market. Having an allocation to a 100% tactically managed long/short account has the opportunity to provide even further diversification to one’s overall investment strategy.