Award-Winning Risk Management Strategies

The last pillar of our investment process focuses on our award-winning risk management strategies.  These “tactical asset allocation” strategies help keep clients fully invested during positive markets and economies and potentially more conservatively during negative environments.  They also offer advisors a defined, objective methodology as a way to “see through the noise” of geopolitical events, policy risk, as well as the slurry of regular economic data releases.

We view are tactical asset allocation as the “icing on the cake” of our investment process.  In other words, strategic, long-term positioning is the main driver of investor return, and it’s our goal to keep investors in the market for the long-run.  That said, on the rare occasions when risk-reward tradeoffs are exceptionally skewed, we may to temporarily shift 5-15% of a strategy to either more or less conservative investments.  These decisions are driven by rules-based, vigorously tested criteria, and utilize a composite of unique indicators to maximize precision.

Identifying Negative Market Conditions

Negative stock market returns are most frequently associated with economic slowdowns.  Recessionary bear markets, which occur roughly once per decade are the biggest culprit of portfolio drawdowns.  We utilize four separate indicators from varying disciples to identify these periods of economic and stock market weakness.  These indicators, created and maintained in-house, include:

  • Weekly Leading Economic Index (Economic Health)
  • Operating Surplus Liquidity (Business Conditions & Supply Chains)
  • Advance-Decline (Market Breadth)
  • Technical Quantitative (Money Flow)
We combine the signals of these four systems, and only make a recession call when all are indicating weakness.  See below for a historical record of previous four-signal alerts as well as other, bullish times when our indicators would urge investors to remain fully invested.
Data above is primarily backtested - System components were first created and deployed in segments between 2013 and 2015 with improvements made to the Leading Economic Index in 2023

Award-Winning Systems for Bull Markets

As financial professionals, we know the long-term trend of stocks is upward.  However, market panics can happen even during the strongest of bull markets.  These short-term periods of volatility and heightened investor emotion frequently prove to be excellent buying opportunities, with monthly returns following a panic often over double the average.  How does one identify when investors are throwing in the towel, pricing stocks at bargain levels?  We have a methodology, and in fact won the internationally-recognized Charles H. Dow award for our algorithms in our 2019 white paper, “Making the Most of Panic.“

In practice, we use our research to make modest adjustments during market panics and buy more stocks.  As always, our signals are rules-based and thoroughly tested to validate statistical significance.

Chris presenting his Dow Award paper, "Making the Most of Panic" on Wall Street in 2019

WELLthPro - An Investment Engine to Drive Firm AUM

WELLthPro’s clients enjoy a comprehensive, evidence-based investment process to drive returns and client acquisition.  From asset allocation, to stock picking, to handling discussions about current events, we provide objective and actionable insights and strategies.

Want to learn more?  Schedule a complimentary call with our Founder and Chief Investment Officer, Chris Diodato, here today.

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