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Plan To Survive: Be Systematic! (Part 4)

My favorite strategy indices have a low correlation to both stocks and to bonds. As always, our cutting-edge strategy indices are only available to subscribers, but I hope that some of the strategy indices presented here will provide inspiration for readers to create their own methods for dealing with an increasingly difficult investment environment. Remember, hope is for people who do not use data. Wise investors plan using evidence-based methods. The logic behind this strategy index is that we can generate return from exposure to a leveraged S&P 500 position which only risks 30% of our capital. The position almost acts like a synthetic call option on the S&P 500. We can hedge this exposure imperfectly, but somewhat effectively, by buying leveraged long duration government bonds, getting short leveraged Euros (deflation anyone?), and by buying leveraged gold in case of monetary instability or inflation. I think this strategy could struggle if stocks and bonds drop simultaneously, with the dollar weakening vs. other currencies. Please note that even though the rules of this strategy index have been publicly released, like any other index, we require the execution of a licensing agreement with ZOMMA LLC for any form of commercial use, whatsoever. ZOMMA Quant Warthog II Rules: I. Buy UPRO (NYSEARCA: UPRO ) with 30% of the dollar value of the portfolio. II. Buy TMF (NYSEARCA: TMF ) with 20% of the dollar value of the portfolio III. Buy EUO (NYSEARCA: EUO ) with 40% of the dollar value of the portfolio. IV. Buy UGL (NYSEARCA: UGL ) with 10% of the dollar value of the portfolio. V. Rebalance annually to maintain the 30%/20%/40%/10% dollar value split between the instruments. Here are the results of a backtest of these rules in a log scale: (click to enlarge) Click to enlarge (click to enlarge) Click to enlarge This strategy index has powered through recent market volatility largely unscathed. Its Sharpe and MAR decimate the S&P 500 over the same period, with true multi-asset class exposure for both return generation and hedging. This helps the strategy achieve a lower volatility than that of the S&P 500, with a CAGR which exceeds the S&P 500’s by approximately 6% per year. Thanks for reading. We feature even more impressive strategy indices in our subscription service. If this post was useful to you, consider giving it a try. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results. Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in UPRO, UGL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Robo Rise Barred By High Client Acquisition Cost

Robo-advisors need clients to operate and the cost of acquiring clients in financial services is high. To us, this is the elephant in the robo-advisor room that is seldom discussed – which we believe is a strategic failure of the highest order. It is an overriding concern that hangs over all other discussions about robo-advisors. Acquisition costs include the costs of initially finding a prospect and then converting those prospects into clients, with the inevitable attrition rate that those conversions incur. When total costs are compared to clients gained, the results can be surprisingly high. Lucian Camp calculates the cost of acquiring a client in the UK to be around £200 (US$312). This cost is beyond the means of many advisory firms, which is why they grow rather slowly – largely through word of mouth referral. In the past, they might have relied on product manufacturers and distributors to provide them with marketing support. Under new regulations in the UK, such supports are now largely no longer possible, but they continue to thrive in the US marketplace. In a world where former specialties have become commoditized, being able to make a financial product or service no longer makes you special as it once did. Where, in the past, you may have been able to extract an economic rent because you occupied a position of advantage, market forces have now equalized you. Today, the ability (knowledge) and capacity (cash flow) to quickly market financial products to scale is what separates successful financial services businesses from the ‘also-rans’. It does not matter if you arrive at the marketplace with a better mousetrap if that trap is hidden where the mice cannot find it. Cheese – in the form of marketing, advertising and promotion – will help to attract them. But cheese isn’t cheap. We return, once again, to our initial caution – robo-advisors are very good at servicing customers, but do nothing to attract customers. Putting a robo-adviser to work effectively requires considerable investment in marketing and promotions, with no guarantee of success. Vitamins and supplements are equally generic. Yet, a family business in Australia figured out how to create a brand that made generic inputs ‘special’. In late 2015, a Chinese firm acquired the vitamin and supplement company, Swisse, for A$1.5 billion (US$1.05 billion). Swisse is a marketing machine – it is constantly in the news, through its sponsorship of high-profile ambassadors and it spends a lot of money on advertising. It is rumored that its annual marketing budget is A$50 million (US$35 million) when the cost of the raw materials for all of the products it makes is less than A$5 million (US$3.5 million). Vitamin C is not special – being part of the brand image and lifestyle Swisse promotes is special. More than US$1 billion worth of special! Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: For FA audience/ Gil Weinreich

Advisors May Need To Make Changes To Win HNW Business

High-net worth (“HNW”) investors, which are defined as households with investable assets between $5 million and $25 million, accounted for one-quarter of the nearly $64 trillion U.S. investable asset share in 2015. Obviously, HNW investors are highly prized by most financial advisory firms, but aspiring advisors often underestimate the breadth of business changes that are required in order to properly serve these customers, according to a recent white paper published by BNY Mellon’s Pershing: What Wealth Wants: Refining Your Firm’s Approach to the High-Net-Worth Market . Some of the required business changes may include: Addition of new services Expanded set of financial planning products and solutions Higher service standards Ability to scale More staff Increased spending on operations and technology Pricing adjustments “Serving this segment successfully is not just a matter of identifying prospects and converting them,” said Katie Swain, director of financial solutions at Pershing, in a statement. “It requires a substantial evolution and transformation of a firm’s approach to service and infrastructure to ensure that HNW clients can be profitably and sufficiently served over the long term.” Wirehouses and private banks were the types of firms that traditionally served the HNW market. More recently, however, independent advisory firms have been expanding their capabilities in pursuit of HNW business — and they’ve been successful, thanks in part to their ability to generate greater customer satisfaction by providing more individualized service. “HNW clients’ expectations for customized solutions are driven by the complex and unique circumstances they experience in their lives,” said Gabriel Garcia, director of relationship management at Pershing Advisor Solutions. “They seek solutions for leveraging existing intangible assets in a way that minimizes interest costs and tax consequences, and advisors need to deliver these services in a seamless way.” For the independent advisors that succeed in winning HNW investor business, the rewards are lucrative. The average client size for an advisor serving HNW investors is more than 30 times that of an advisor serving clients with less than $1 million in assets under management. For more information, download a pdf copy of the white paper .