"Obviously that's been very good for us because there are not too many advisors that would do that," he says. "It tends to be more of a proactive solution versus more of a buy-and-hold strategy, and unfortunately a lot of people got hurt during this downturn."
He says that the model gathers decades of market data to measure market sentiment and then uses moving averages to gauge the market's overall risk. "We are big users of moving averages," he says. "What we've found is that, in negative markets, when the majority of stocks are below the 15-week moving average, that means it's really not a good environment to be owning equities. We've found that there is much higher risk in owning stocks."
When market behavior goes to extremes, some like Lip believe technical analysis has a place. If market sentiment is penalizing risk, the firm goes to cash; if it suddenly becomes more tolerant of risk, the firm goes back into equities.
Lip concedes that the strategy could raise hackles among some, who might call foul for market timing and also see in it a subtle appeal to investor emotion. But on the other hand, he says, this is a spotlight moment for such a strategy, when entrenched notions about buying and holding are no longer pieties among investors and no longer graven in the Biblical tablets. "A lot of people who are big believers in the whole buy-and-hold strategy are really questioning that now, especially since, in the last 10 years, investors who have subscribed to [that] strategy have really not made any money, or in fact have actually lost money. So clients are starting to see what we see and are looking for different solutions and are looking for managers who may be proactive."
Sanders echoes the sentiment. First Genesis first positioned itself as an African-American owned concern that serves the needs of the African-American community, deploys new wealth, and tackles smaller accounts with as little as $25,000 (which it does through its alliance with holding company Creative Financial Group and the bench strength of its broker-dealer and custodian, New England Securities). But after the market meltdown, the firm's absolute return strategy has become more of a major marketing point in and of itself, especially since that model allowed Sanders' firm, like Lip's, to shed stocks last August.
"Around August, September we were significantly underweight in stocks," he says. "We look at stocks, bonds, cash currency, commodities, international and real estate. We only use a pure ETF strategy. That helped us avoid the 40% rundown that a lot of advisors experienced in their assets."
The firm takes a global thematic approach, he says, tracking some 64 indicators, including inflation, unemployment, manufacturing, consumer spending, GDP and the LIBOR to OIS spread (which points to the willingness of banks to lend). In August, he says, "consumer confidence was beginning to wane, retail sales were slowing and unemployment was starting to tip up. And the real big one, bank lending, was starting to slow down."
Sanders believes that the reason more clients are at play is less about fees and commissions and more about expertise and economic analysis. "It's almost good to see sort of this change in the industry," he says. "That's going to call upon all of us to step our game up a few more levels so at the end of the day when it's all said and done, the industry will have a much better grade of investment advisor or registered rep out here. Those that survive will be a lot smarter, a lot stronger, much more prepared and able to handle clients and have a better understanding of economic fundamentals and market concepts."