The October 25 Dashboard: Our Three Layers of Risk Management

We manage risk within our strategic, long-term allocations based on diversification across equity, fixed income, and alternative assets and a focus on more attractive relative values.

We manage risk tactically over the short-term by investing across a broad array of themes and asset classes including cash. We can either invest opportunistically or defensively depending on the environment.

Our proprietary Cash Indicator (CI) provides insight into the health of the market by monitoring the level of fear using equity and fixed income indicators. This warning system is designed to signal us to either a 25% or 50% cash position to potentially protect principle and provide liquidity to reinvest at lower and more attractive valuations.

The CI has steadied at a relatively low level over recent weeks. This stability reflects some complacency in markets and expectations of continued market steadiness.

Economic growth can support higher equity prices while high quality fixed income appears attractive.

Equity Valuations: The capitalization weighted S&P 500 Index again appears to be somewhat expensive. However, we are finding many attractive valuations in quality businesses outside of the high-fliers.

Equity Favorability: We expect the U.S., propelled by innovation and relatively strong fundamentals, to lead global equity markets. Our focus remains on companies with consistent earnings due to continuing economic risks.

Fixed Income Valuations: At current interest rates, high quality fixed income looks very attractive while high yield is less attractive on a risk-reward basis.

Fixed Income Favorability: Our allocations are positioned to generate attractive current yield while protecting against large interest rate moves and the risk of credit deterioration. We expect the U.S. Federal Reserve to slowly reduce short-term interest rates further later this year. We are finding attractive opportunities to lock in current income levels in the belly of the yield curve through investment grade corporate bonds and asset-backed securities.

We favor a broad array of domestic equity, as well as investment grade intermediate fixed income.

We recently purchased an industrial sector ETF and added to existing positions in a global financials ETF. In addition, we leaned more into equities overall across our Growth, Moderate Growth, and Conservative Growth Strategies. Our work suggests that despite slowing jobs growth, the U.S. economy continues to grow at a healthy pace. This growth can benefit household income as well as corporate revenues and earnings. We think that these portfolio adjustments will help our Strategies benefit from this continued economic growth and equity market upside.

We expect slow global economic growth to persist despite global trade headwinds.

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Any forecasts, figures, opinions or investment techniques and strategies explained are Stringer Asset Management, LLC’s as of the date of publication. They are considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect to error or omission is accepted. They are subject to change without reference or notification. The views contained herein are not be taken as an advice or a recommendation to buy or sell any investment and the material should not be relied upon as containing sufficient information to support an investment decision. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested.

Past performance and yield may not be a reliable guide to future performance. Current performance may be higher or lower than the performance quoted.

Data is provided by various sources and prepared by Stringer Asset Management, LLC and has not been verified or audited by an independent accountant.