Perspectives On Risk & Volatility

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By Gary Stringer, Kim Escue and Chad Keller, Stringer Asset Management

Investors have a right to be nervous given the age of the current business cycle and bull market, along with the daily headlines highlighting various geopolitical risks. It should be no surprise that investors have frayed nerves, but Financial Advisors have tools that can help soothe those nerves and provide some important perspective on risk and volatility.

Richard Thaler recently won the Nobel Memorial Prize in Economics for his work on Behavioral Economics. Behavioral Economics suggests that falling markets affect investors at least twice as much as gains. Down markets create significant emotional stress and when people are stressed, they often want to take action to relieve the situation. Making emotional decisions in a down market often leads to mistakes, such as locking in losses when markets are down and missing out on potential gains as the markets recover.

From a Behavioral Economics perspective, utilizing an asset allocation strategy that has a tactical element to managing risk in real time, as well as a process to raise cash in case of an emergency, can be an important tool in navigating volatile markets. Strategies that are managed in this style can help investors sleep better at night knowing that their investments are not locked into the market at all times. These types of strategies, when properly implemented to reduce volatility, can act as behavioral relief valves by letting off pressure and helping investors to stay the course. Staying on a well-charted course is the key to realizing investment success.

Volatility management is another tool that Financial Advisors can use to help their clients achieve more success during stressful times. Mathematically, the level of volatility correlates with increased uncertainty, which makes sense as volatility measures the deviation around the mean. Therefore, an investor will likely be less confident in the outcome of their forecast when using higher volatility strategies. Conversely, lower volatility strategies should allow for greater confidence in the outcome.

The following histogram of the Stringer Growth Portfolio compared to its benchmark, the MSCI ACWI, highlights this nicely. Ideally, you would want to see a nice, tall stack of returns in the middle and fewer outliers.

Consistency counts and the Stringer Growth Portfolio has a much tighter distribution of monthly returns than the MSCI ACWI Index. For example, the Stringer Growth Portfolio has 83 months that returned within the –4% to +4% range, compared to only 75 months for the MSCI ACWI Index. This tighter range of returns should offer more confidence in the expected results.

Pulling the tools and concepts of Behavioral Economics and volatility together, it is clear that reducing downside risk and volatility, in general, increases investor confidence. Greater confidence should help investors stay the course and increase the potential for achieving their financial goals.

This article was written by Gary Stringer, CIO, Kim Escue, Senior Portfolio Manager, and Chad Keller, COO and CCO at Stringer Asset Management, a participant in the ETF Strategist Channel.


Any forecasts, figures, opinions or investment techniques and strategies explained are Stringer Asset Management, LLC’s as of the date of publication. They are considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect to error or omission is accepted. They are subject to change without reference or notification. The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment and the material should not be relied upon as containing sufficient information to support an investment decision. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested.

Stringer Asset Management LLC is a registered investment adviser that generally provides services through model portfolios on a sub-advisory business. The firm primarily allocates client’s investment management assets among exchange-traded funds (“ETFs”) and secondarily among mutual funds. A fully compliant GIPS presentation along with a complete list and description of all composites is available at or by calling 901-800-2956. Stringer Asset Management LLC claims compliance with the Global Investment Performance Standards (GIPS®). The Growth Composite includes all portfolios that mainly invest in equity and alternative ETFs selected from the global investment opportunity set. The Growth Composite has risk characteristics similar to that of the broad equity market and include but are not limited to equity risk, international investing risk and capitalization risk. The total returns presented are gross and net of fees. Advisory fees and any other expenses incurred in the management of the account will reduce actual returns.

The benchmark is the MSCI ACWI Index rebalanced quarterly as of January 1, 2016. The benchmark is market-cap weighted and is composed of several country-specific indices. Sources of foreign exchange rates may be different between the composite and the benchmark; however, there have not been material differences to date. Prior to January 1, 2016, the benchmark was the MSCI World Index rebalanced quarterly. Prior to January 1, 2015, the blended benchmark was 70% Russell 3000 Index and 30% MSCI ACWI xUS Index rebalanced quarterly. In both cases, the benchmark was retroactively changed to more closely follow our investment strategy. The index represented does not bear transaction costs or management fees, and cannot be actually bought or sold. It is not possible to invest directly in an index. For index definitions, see the Index Definitions section at the end of this document. The U.S. Dollar is the currency used to express performance. Material use of leverage, derivatives and short positions are not used in this composite.

Past performance is not indicative of future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares when redeemed may be worth more or less than their original cost. Current performance may be higher or lower than the performance data quoted. Advisory fees and any other expenses incurred in the management of the account will reduce actual returns. The performance of any individual portfolio may not be considered comparable to the Composite performance.

ETFs are offered by prospectus. Investors should carefully consider a fund’s investment objectives, risks and charges before investing. The prospectus contains this and other information. Your financial advisor can provide prospectuses which you should read carefully before investing. Any discussion of the individual securities that comprise a portfolio is provided for informational purposes only and should not be deemed a recommendation to buy or sell any security.

Index Definitions:

MSCI ACWI (Net) Index – This Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI Index consists of 23 developed and 23 emerging market country indexes. Net total return includes the reinvestment of dividends after the deduction of withholding taxes, using a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties.

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