He typically places half of a client's portfolio into active management, leaving the other half in buy-and-hold. "Our goal is not to beat the market, but to get competitive returns," he says. "What my client is looking for is good return with reduced risk." Risk has been reduced, he feels, with charting and market timing that allows him to move assets into and out of cash. His small- and micro-cap investments, for example, sit in cash about 40% of the time, he notes.
Thus far, he says, the conversion of style has given him the low-side protection he's been looking for. In early September, he was up 17% in long index trading, up 12% in sector funds and up 14% in high-yield bonds. At the same time, year-to-date, the Nasdaq was up 34%, the Dow Jones was up 12% and the S&P 500 was up about 13%.
He says about half of his clients, about 50, have agreed to move their assets into active management. The rest remain buy-and-hold. "I have clients I don't even mention this to," he says.
Martin L. Hopkins, president of M.L. Hopkins & Co. LLC in Princeton, N.J., saw about the same ratio agree to convert to a tactical asset approach-about half of his 40 clients. He made the move in January, after using a fixed asset allocation approach for two years.
He made the change after tracking model portfolios put out by Littman/Gregory Fund Advisors, and found that they offered him more flexibility than his fixed strategy. Hopkins, for example, says Littman/Gregory's models convinced him to overweight in high-yield bonds a year ago-which turned out to be one of the better moves he's made over the past year.
Among the other noticeable differences in client portfolios between last year and this year is more exposure to REITs and allocations in cash, which was rare in his previous strategy.
Under his prior strategy client portfolio allocations were generally fixed, with the thinking that they would only be revisited every three years.
"I still see myself as a long-term investor, but I do feel after going through the last few years of the down market that there have been some obviously under-valued opportunities," he says. "Had I caught that high-yield bond opportunity earlier in the cycle, it would have been very helpful to clients."
For some advisors, market turbulence has propelled them in a completely different direction. At CPA Wealth Management Services in Melbourne, Fla., the decision was made four years ago to build an in-house research team to direct its investing. For three years, the firms invested in individual securities largely based on its own fundamental and technical analysis. The firm even had two analysts and two RIAs who were devoted exclusively to research.
Firm President Tom Kirk considered it a solid strategy until he, like others in America, saw his world abruptly change on September 11, 2001. The changes went even deeper in the following months, as Enron and other corporate scandals led to developments that defied the prognosticating abilities of any analyst.