After discussing tactical investing as well as its impact on various investment types, including retirement savings in parts 1 and 2, Axos SVP Tracy Gallman and Meeder Investment’s CEO Bob Meeder conclude their talk with more on how to let facts guide investment decisions rather than feelings.
Q | Tracy Gallman
Tracy Gallman:In the environment you've seen over the past year with rising inflation or potentially entering into rising interest rates, there's been a lot of market volatility. How have you seen Meeder’s Investment Positioning System (discussed in part 1) identify opportunities for investors?
A | Bob Meeder
Bob Meeder: That’s a really fun question. Last year, in our tactical portfolios for the first half of the year, our model showed that reward was greater than risk. And so, clients were fully invested in the stock market. Then starting in about late July, we started to see a little deterioration in the pieces that make up the reward score, and it was primarily driven by factors in the longer-term model.
Valuation factors indicated the market was overvalued. Then our short-term model started to show increased risk levels, which caused us to continue to reduce our equity exposure. And the S&P 500 was continuing to move higher. But if you looked beneath the surface of the stock market to really see what was going on, there was a divergence going on. Most stocks were not participating in the advance, even though the S&P 500 Index was going up. Historically, when you see a narrowly led market with only a handful of market leaders and more stocks actually declining than advancing – that’s a warning sign to us. At the end of the year, we were about 30% in cash, moved from a hundred percent invested. And today, we're about 40% in cash.
Q | Tracy Gallman
TG: We are seeing a lot of clients considering taking their portfolios to cash, but I think a really hard item for investors to consider is when to go back in. How does Meeder consider when to bring investors back into the market?
A | Bob Meeder
BM: I think that's the biggest problem investors have. It's very easy for them to sell. It's easier than ever for them to sell. And to your point, how do they decide when to get back in? They don't have a process. It's typically emotional.
For us, our Meeder IPS system looks at valuation factors. It looks at macroeconomic factors and interest rates, what's going on in the interest rate environment, what's going on with the Fed and then trend and technical factors. As that starts to improve, we'll start to increase our exposure to the stock market. So, it's a very highly quantitative rules-based approach.
I've been in the business 38 years, and I know when I've made investment mistakes, it's typically because I got emotional. So, our approach uses a highly quantitative process to eliminate the emotion aspect that can creep into the decision-making processes.
