It pays to be tactical
Some years, it really pays to be tactical. 2020 was certainly one of those years with multiple all-time highs and a very deep multi-year low. Then again, the last number of years have been tactical-friendly with two corrections in 2018, followed by a very strong 2019.
Markets rarely move in a straight line. Unfortunately, the options for implementing a tactical component into a portfolio have proven elusive for most. Getting the moves right, tax implications, administration and trade costs are all common hurdles to being more tactical.
Given our belief that markets will continue to experience big swings in the years ahead and a lack of accessible, high-quality tactical strategies led us to launching Purpose Tactical Asset Allocation Fund (RTA), which marked its fifth birthday in November.
It pays to follow the rules
RTA is a rules-based strategy that is designed to complement a portfolio by adding a tactical component. The Fund can be as much as 100% equity or as little as 0% equity (100% bonds/cash).
Thanks to its foundation of rules, the Fund can adjust to changing conditions quickly, leaning more towards equity in up-trending markets and more towards bonds in down-trending markets. The asset mix can shift rapidly at times and oscillates to such a high degree that it can make a real difference in a portfolio with only a modest allocation.
5 tactical years
As the Fund reached its 5-year anniversary, we thought this was a good time to reflect upon the journey.
As a rules-based strategy, RTA has performed as designed. Getting defensive during periods of market weakness, including the correction of 2016 (driven by slowing growth in China), Q1 2018 (caused by the sudden unwind of volatility investment vehicles), Q4 2018 (trade tensions) and, of course, the mama bear of 2020.
Source: Richardson Wealth
Defensive in tough times
It’s one thing to be defensive in tough times, but it’s equally important that you appreciate over time as well. Since its inception in November of 2015, RTA has appreciated at a 6.57% annualized rate (as at November 30, 2020). If you can avoid losing a lot of value during market downswings, it makes it much easier to make money over time. This video explains the benefits of complementing the portfolio with a rules-based tactical strategy.
While returns have been good, it is the defensive characteristics that have caused many investors and advisors to add RTA to their portfolios. The adoption of this strategy has really accelerated over the past couple of years and the Fund has grown to well over $400 million in assets, including both the mutual fund and ETF versions.
A quick pivot to stability
Looking out to the next five years, we don’t know what the future holds. Maybe the pandemic fades, the economy recovers and governments find a way to pay for all that accumulated debt. Just in case this doesn’t occur smoothly, RTA provides some peace of mind that if the markets tumble, it will pivot quickly to get defensive and provide a stabilizing influence for your portfolio.
– Craig Basinger is the CIO of Richardson Wealth and the portfolio manager of Purpose Tactical Asset Allocation Fund
All data sourced from Bloomberg unless otherwise noted.
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