The stock and bond markets have been choppy and treading water since mid-September. The summer run-up, weak third-quarter earnings reaction to the Federal Reserve's decision to stand pat, the presidential election – not to mention a looming "fiscal cliff" – have investors wondering which way the markets will turn next.
This past week, I spent some time with Ed Dempsey, co-portfolio manager and chief investment officer at Pension Partners, a New York City-based alternative manager with approximately $160 million in assets. Here are some excerpts from our talk:
Q:Ed, explain your overall strategy.
A: Our strategy is called ATAC, short for accelerated time and capital. We "buy and rotate," always moving money into the best possible positions, as opposed to "buy and hold," which doesn't offer a lot of control. ATAC starts with inflationary expectations. As these expectations increase, volatility decreases and equities have a higher probability of rising, so we rotate into equities. When these expectations decrease, the opposite occurs, and we move into bonds. We call this "inflation rotation."
Having developed and used this strategy in various forms of evolution since 2002, co-portfolio manager Michael Gayed and I are quite comfortable looking at the world through this lens.
Q:How often do you rotate between equities and bonds?
A: The strategy updates weekly, which means we break up the long term into a series of rolling, surer short terms. The absolute hardest and most important question investors face is, "Is this a good time to be in the stock market?" We answer that question, definitively, each week. Working with short-term viewpoints and having the flexibility to change direction each week is, in my view, a more sure way to invest. Investing for an uncertain long term, or "buy, hope and pray" as we call it, has too much anxiety in the world of today.
Q:What is your track record like?
A. We have been reaching new heights since 1999. Over the last few years, we've navigated market turns very well. Last summer, our ATAC strategies positioned us into equities for over two months straight. In mid-September, around the Fed's [quantitative easing] announcement, we moved into bonds; stocks have been lackluster since. These moves have kept volatility low for our investors and controlled downside risk. We present all of our results at www.pensionpartners.com.
Q: How specific does ATAC get, in terms of what to buy and sell?
A. We use exchange traded funds, or ETFs, only. This simplifies the strategy in terms of costs and liquidity, adding to our risk-control process and eliminating the risk of owning a specific stock. Our separate accounts have three risk-tolerance levels: "Aggressive" invests in either 100 percent equities or 100 percent bonds; "moderate" invests in combinations of equities and bonds; and "conservative" invests in equities, bonds and some cash. The mutual fund is a combination of our "aggressive" and "moderate" composites.
Q:Where can investors go for more information?
A: Our website is www.pensionpartners.com, and there is a direct link to our separate mutual fund site. I encourage people to sign up for our free weekly newsletter. We also have our own channel on YouTube, where I address the issues of the week and how ATAC views the investment world. Finally, we can be reached via email at firstname.lastname@example.org.
• Chris Versace is the editor of the PowerTrend Brief and PowerTrend Profits newsletters. Visit them at ChrisVersace.com or follow him on twitter @chrisjversace. At the time of publication, Mr. Versace had no positions in any companies mentioned in this column; however, positions can change.
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