“How do you manage risk?” Not surprisingly, this continues to be one of the first questions out of investors mouths as they consider any strategy. Even with the last five years providing one of the strongest bull markets in history, investors vividly remember the pain of the last two bear markets.
How we manage risk depends on the strategy. For some of our portfolios, rotating out of equities and into fixed income, currencies, or even inverse equities is an option. However, for our Systematic RS Growth portfolio, risk management is handled, in part, by employing an exposure overlay that, when activated, causes sales to go to cash and not be reinvested until indicated. This portfolio invests in up to 25 U.S. Mid and Large Cap equities demonstrating, what we believe to be, favorable relative strength characteristics. The strategy will hold up to 50% cash if necessary. Our exposure to cash in this portfolio is shown below:
Source: Dorsey Wright. Estimate based on monthly cash values of a sample Growth portfolio.
Using cash as a way to seek to mitigate market losses has real appeal to investors who want to invest in equities, but also want to know that that there is a plan for risk management. Over time, the results have been very good as shown below. While the portfolio has still had periods where it has lost money, the cash overlay has indeed helped to buffer some of the downside risk.
As of 7/31/14
Click here for a fact sheet or contact Andy at 626-535-0630 or [email protected] with questions. Click here for a list of platforms where our separately managed accounts are available.
Historical Performance Of the Dorsey, Wright Systematic Relative Strength Growth Strategy: The performance represented in this brochure is based on monthly performance of the Systematic Relative Strength Growth Model. Net performance shown is total return net of management fees for all Dorsey, Wright & Associates managed accounts, managed for each complete quarter for each objective, regardless of levels of fixed income and cash in each account. The advisory fees are described in Part II of the adviser’s Form ADV. The starting values on 12/31/2006 are assigned an arbitrary value of 100 and statement portfolios are revalued on a trade date basis on the last day of each quarter. All returns since inception of actual Accounts are compared against the S&P; 500 Index. The S&P; 500 is a stock market index based on the market capitalizations of 500 leading companies publicly traded in the U.S. stock market, as defined by Standard & Poor’s. A list of all holdings over the past 12 months is available upon request. The performance information is based on data supplied by the Manager or from statistical services, reports, or other sources which the Manager believes are reliable. Past performance does not guarantee future results. In all securities trading, there is a potential for loss as well as profit. It should not be assumed that recommendations made in the future will be profitable or will equal the performance as shown. Investors should have long-term financial objectives when working with Dorsey, Wright & Associates. The inception for this strategy was 12/31/1994. However, the strategy underwent a material change that was complete on 12/31/2006. The material changes included adding an exposure overlay and a systematic stock selection process.
