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What Is Tactical Investing?

It’s a term you may have seen while reading up on financial strategies, particularly those popular during choppy investment times. But if you aren’t fully versed on tactical investing and what it means, you should know it can be an important hedge against the wild ups and downs of a shaky market.

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.

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.
— Bob Meeder

Q | Tracy Gallman

TG: So how does Meeder deploy its tactical investment philosophy?

A | Bob Meeder

BM: We’ve been tactically managing portfolios since 1974. Historically, the average investor has participated in just a fraction of the market’s long-term gains. That’s because wide swings in the markets often lead investors to make decisions based on emotion rather than data. That’s especially true during market selloffs. To keep investors committed to their goals, our models help make fact-based decisions about allocating our portfolios.

So, the first decision we make is how much exposure we want to have in the stock market. Is it a low-risk or a higher-risk market environment? Once we make that decision, then we decide how much exposure we want to the U.S. stock market versus the international markets. Then we decide on what sectors – such as energy or healthcare or technology – we want to overweight or underweight. And again, for all those decision-making processes, we have different models that help eliminate the emotional aspect to guide us in our decision-making.

A | Bob Meeder

BM: It does. It tells us how much exposure we have to the market. It’s literally scored and rated every single day. We have a long-term model, an intermediate model, and a short-term model and we combine those three models. It's over 70 different factors, and we arrive at the reward score.

Then we compare the market risk, which is measured by different measurements to the reward. And very simply, if the reward is greater than the risk, then that tactical portfolio will be fully invested in the stock market. And when the reward becomes less than the risk, we start to reduce our exposure.

Check out Part 2 of Tracy and Bob’s discussion, including how tactical investing works into a retirement strategy; and Part 3, for more on taking the emotion out of your investment decisions.

If you have questions about tactical investing or would like a demo of the Axos Invest Self-Directed Trading tools, reach out to a licensed Axos relationship manager. You can connect with one of our specialists by phone at 1-888-585-4965 or email us at [email protected].

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Meet Bob Meeder
and Tracy Gallman

Bob Meeder joined Meeder Investment Management in 1983, becoming President and CEO in 1995. Under his leadership, Bob has been instrumental in developing the firm’s tactical investment positioning system. Meeder's assets under management are over $25 billion, as of Dec. 2021.

Tracy Gallman has 30 years of experience in the financial services industry. Tracy previously served as Senior Vice President with LPL Financial and PFS Investments before overseeing all Axos Invest strategy and product development in 2021.

About Meeder Investment Management

Meeder Investment Management was founded in 1974. Located in Dublin, Ohio, Meeder has over 100 professionals serving the financial needs of individuals, corporations, and government entities, with over $25 billion in assets under management, advisement, and administration.

Meeder mutual funds are available now in the Axos Invest Self-Directed Trading platform.

Keep the Conversation Going

Check out Part 2 of Tracy and Bob’s discussion, including how tactical investing works into a retirement strategy, and Part 3, where the pair go deeper on how to take the emotion out of making critical investment decisions.