What Your House and Your Retirement Plan May Have in Common

By: Brenden Gebben, MBA, CIMA®, Portfolio Manager

march-2016-article-2If you are like many investors, your home and your employee-sponsored retirement plan may be among your two largest assets. In this article, we’ll explore opportunities to put your retirement plan assets on a “maintenance plan,” just as you may already be doing for your home.

In the United States, home ownership and participation in employer-sponsored retirement plans are the first two goals of many as they enter the work force. Throughout your adult life, these investments continue to serve as foundational assets. As such, these core assets each require your attention to ensure you maintain and grow your investments in them.

We all realize that we have to monitor our home in order to keep it in good repair. This both maintains the investment and may also give it the opportunity to rise in value. Further, if your home is like mine, a small repair that is left unchecked can turn into a much larger and costly repair down the road. Thus, some form of a “maintenance plan” is necessary.

But not all investors give this same time and attention to their employer-sponsored retirement plan. Unfortunately for many, this core asset often gets little to no maintenance and is frequently overlooked once established. The beauty and ease of automatic investment directly from your wages is a wonderful thing; however, just because the deposits are happening automatically, that doesn’t mean that the monitoring and management of it is. It can be far too easy to “set it and forget it” when it comes to your retirement plan.

What type of retirement plan do you have? There are various acronyms for employer-sponsored retirement plans such as 401(k), 403(b), 401(a) and 457. These acronyms usually center on the type of employer that you work for; for profit, non-profit or a governmental agency. These retirement plans are in addition to another type of account that is used for retirement savings, the Individual Retirement Account (IRA). No matter the type, they can all be efficient vehicles for retirement savings.

The first decision you made when you established your retirement plan was to determine the percentage you would be investing. An important consideration here is of course the company match. If you are able to at least contribute the percentage that earns you the maximum employer match, that can represent asset growth for your portfolio. But since the time you determined your percentage, have you revisited it? You may want to review your percentage contribution annually to see if you can afford to increase your percentage allocated to employer-sponsored retirement savings.

The next decision you made when you established your participation was to determine the allocation of your investment; that is, where the dollars you put in would be invested. You likely chose between a fixed menu of options in areas such as bonds, equities and balanced funds. You may have decided on your own or with a friend, co-worker or even a knowledgeable advisor. But regardless of how you decided, one thing for certain is that you decided at a point in time and with only the information that was available at that time. The thing is: markets change, information changes…even the available investment options can change. How are you factoring that in to your retirement plan investment? When was the last time that you looked at the fund lineup? Changed an allocation? Spoken to a financial professional about how this potentially valuable asset ties into your overall financial plan at this point in your life? If you are like many people, you may not yet be giving your retirement plan the attention that it deserves. You are not alone.

If you are like many and conclude that you have not given one of your potentially largest assets the attention it deserves, there are options available to you.

Did you know that you can add professional money management services to your retirement plan? Working with your financial representative, you may be able to add Absolute Capital’s professional money management to your plan. This provides continual monitoring and allocation for your portfolio through changing market conditions. Take your retirement plan assets from a static investment to a dynamic asset being managed at the core of your investment portfolio.

march-2016-article-1Further, did you know your plan may offer more funds than are on the fixed menu through an SDBA option? You may be asking yourself, “What is an SDBA option?” This acronym stands for Self-Directed Brokerage Account (SDBA). In addition to the limited menu of investment options offered in your plan, more and more plans are now also offering an SDBA option. This is a way to open up the investment options in your plan beyond just your employer’s fixed menu.

Yet why would you need more investment options when the menu you have is already confusing enough? Well, again, we believe the answer lies in the unavoidable fact that over time markets change, fund management changes…and these changes may warrant changes in your investment portfolio in order to navigate current market conditions. Think of it as more investment tools at your disposal.

And while you may not have the time or expertise to take advantage of these investment tools on your own, Absolute Capital may be able to manage your retirement plan assets within your particular plan, taking into account all of the investment options in your plan and through the SDBA option.

If you would like to learn more about folding your retirement plan assets into your overall investment plan, contact your financial professional or Absolute Capital today and give this important asset the attention it deserves.

Do Stocks Traditionally Rally in December?

By: Brenden Gebben, MBA, CIMA®, Managing Director & Thomas Kapfer, MPA, Associate

Looking back at the previous eleven months of 2015, markets have endured more than a few trying periods, including a summer stock pullback, continued global monetary stimulus, tumbling oil prices, and another round of financial turbulence in Greece. However, in spite of an eventful year and a challenging first couple of weeks in December, statistically December has been a good month of the year to be in the stock market.

According to Ned Davis Research, since 1928, the month of December has produced a positive return 74% of the time (64 positive months of 87 measured), by far the most positive return frequency for any single month. While these 64 positive months produced an average return of +3.0%, the 23 months of December with a negative return produced an average loss of -2.9% – the smallest average loss of any single month. Combining these figures, it is not surprising to see that December has produced an average return of +1.4% since 1928, the second highest average return of any month.

Many theories have been suggested to explain the positive market performance seen in the month of December, including the appropriately named “Santa Clause Rally”, which describes the generally positive period occurring during the last week of the calendar year. Though none provide a full explanation, some popularly cited theories include:

  • A boom in consumer spending fueled by holiday shopping and end-of-year bonuses
  • Cheery investor sentiment brought on by the holiday season
  • A rush by portfolio managers to shed losing investments (thereby locking in capital losses for tax purposes) and reinvest the proceeds
  • prior to the end of the calendar year
  • So-called “Window Dressing” by fund managers, who seek to own outperforming stocks on their year-end balance sheet

Soon this December will be in the history books as well. We are following markets movements throughout the month to see if we can count this December among those producing a positive return for investors.


Let’s now take a closer look at how we implement these shifts within the various strategies.

The Asset Allocator*

The Asset Allocator strategy adopted a more aggressive stance mid-quarter. In the equity portion of the model, the strategy favors large cap growth followed by mid cap growth, while avoiding the small cap area of the market. Also included in the equity allocation are investments in areas that we view to have some defensive capabilities such as financials, health care, technology and consumer cyclicals – as well as a dollar hedged international position.

Interestingly, while the strategy continues to maintain positions in health care and technology, our analysis led to the replacement of managers in these areas in the quarter. The strategy’s fixed income allocations continue to favor high yield bonds – in light of a likely federal funds rate increase, while maintaining a position in a higher quality intermediate-term bond. The strategy also added a position in emerging markets debt, while exiting a position within an energy MLP investment.


The Portfolio Protector*

The Portfolio Protector strategy adopted a fully-invested position by mid-quarter. At this time, the equity portion of the portfolio is invested in large cap growth, mid cap growth, financials, technology, health care and consumer cyclicals. The strategy does not currently hold a position in international equity. The fixed income component is allocated to US Aggregate Bonds, High Yield Bonds and Emerging Market Bonds.


The Sector Selector*

The Sector Selector continues to maintain its defensive positioning, with a third of the portfolio allocated defensively. This strategy is currently invested in Aerospace & Defense, Consumer Cyclical and an MLP. Contact Absolute Capital or your financial professional if you would like to learn more about deploying our active risk management strategies on other accounts that you may have.


Steering Through the Choppy Waters

By: Brenden Gebben, MBA, CIMA®, Managing Director & Thomas Kapfer, MPA, Associate

We all see the market news making headlines. When will the Fed finally raise interest rates? The Greek crisis is behind us (for the moment). The Chinese market has recently cratered. Fifteen major markets are all below their 200 days moving average. A “Death Cross” (where the 50 day moving average falls below the 200 day moving average) has recently occurred in the S&P 500. The presidential election is forthcoming.

What do all of these types of events have in common? We believe they are all ingredients contributing to an unsettled market characterized by increased volatility, as evidenced by a recent 10% market correction.

Absolute Capital Management has been deploying active management strategies for client accounts since 2002. We believe in the importance of tactically managing a portfolio in response to the dynamic nature of the markets. Particularly in light of the unsettled nature of today’s market, our responsive strategies are in contrast to a “buy and hold (hope)” or “set it and forget it” strategy. Our programs are designed to actively navigate market conditions according to our analysis.

So what are we looking at today? Clearly, we are watchful for signs to indicate whether the recent bull run is over or merely taking a breather. It is commonly thought that a correction is when an index such as the S&P 500 falls 10% from its recent high. This has recently occurred. Furthermore, a bear market is defined as a 20% drop from the recent high. This has not yet occurred.

In our opinion, market risks have been rising. Our current thinking is that increased volatility will occur through at least the end of the year. In response to these market conditions, Absolute Capital Management has been deploying tactical allocation shifts within client portfolios. The purpose of these moves is to attempt to lower volatility and to help protect against the downside.


Let’s now take a closer look at how we implement these shifts within the various strategies.

The Asset Allocator*

On July 28, the Asset Allocator program implemented a defensive portfolio shift, which involved trimming existing equity and bond positions, as well as fully exiting a small emerging markets bond position. The slightly more defensive outlook is highlighted by an overweight cash holding, as well as the programs’ continued preference for large cap stocks, which generally have lower beta figures than the small cap stock positions that the program exited earlier in the year.

The rotation from small to large cap investments has recently been supported by a variety of trend, seasonality, and secular trend factors. Other equity allocations within the programs include investments to outperforming sectors that also have the possibility to be more defensive – financials, health care, technology, and consumer cyclicals – as well as a dollarhedged international position. The program’s fixed income allocations continue to favor high yield bonds – in light of the likely impending increases to the Fed funds rate – along with small multi-sector bond and energy master limited partnership (MLP) investments.


The Portfolio Protector*

In a series of trades occurring between June 24 – August 5, the Portfolio Protector program has adopted a more defensive positioning, gradually shedding market exposure in favor of an overweight cash holding, as invested positions dropped below moving average trendlines. The equity model within the strategy is currently in a 61% defensive position, with the invested position favoring large cap, high quality growth stocks. The fixed income model is in a 75% defensive position, with the invested position favoring high yield bonds. Accordingly, the blended model (shown below) is currently in a 66% defensive position.


The Sector Selector*

On September 11, the Sector Selector adopted a more defensive position by trimming existing allocations in Energy, Health Care, Construction and Aerospace & Defense. Overall, the portfolio continues to favor Consumer Cyclicals, Health Care and Industrials. The reduced allocation to Energy has helped minimize exposure to the recent downward trend in energy markets. Contact Absolute Capital or your financial professional if you would like to learn more about deploying our active risk management strategies on other accounts that you may have.