To understand tactical investing, we went right to a trusted source in the philosophy: President and CEO of Meeder Investment Management Bob Meeder. Meeder has spent the past four decades helping to define the practice in the industry – and he sat down with Axos Invest SVP Tracy Gallman as the two discussed a range of topics, including the advantages of taking a tactical approach to your portfolio.
Q | Tracy Gallman
Tracy Gallman: How does the tactical investing philosophy Meeder deploys through different market conditions work? How do you define tactical? Is there more than one type of tactical strategy and how should investors who may be hearing about tactical investing for the first-time think about it?
A | Bob Meeder
Bob Meeder: There are different types of tactical strategies that an investor can use. But tactical means that we have the flexibility to follow our investment models. If the environment indicates a low-risk market environment, then we will be heavily allocated to stocks. But if the situation indicates a high-risk market environment, then we'll reduce our exposure to the stock market.
The best example is the last part of 2021. Even though the market was going up, there were signs of some problems developing, indicating a higher-risk market environment. So, we gradually reduced our exposure at the end of 2021.
My definition of a tactical strategy is having the flexibility to move from stocks to bonds, or to cash, or to increase or decrease your exposure to international markets and underweight or overweight certain sectors.
We view tactical allocation as a risk management tool. We believe tactical managers can offer downside protection, less volatility, and better diversification than strategic managers. Our quantitative models analyze economic and market-driven data and determine the risk-reward relationship. If the relationship isn’t great, we reduce our equity exposure and take a defensive position. That could include cash, fixed income securities, or stock index futures.
Are there different types of tactical managers? Absolutely. Many tactical managers take what they call a trend-following approach. If the market's going in an uptrend, they're committed to the market. And if it rolls over and starts to decline, then their tactical models take them out of the market. And there's nothing wrong with that approach.
But we believe in a multi-discipline approach. We use macroeconomic, fundamental, and other trend and technical factors that can be out of sync with each other and the market on their own. But we bring components of all those disciplines together for a more holistic approach. Most tactical investment managers rely on only one of those disciplines.