Think diversification and risk reduction only apply to investment portfolios? Think again. They actually apply to many aspects of our everyday life, especially during these coronavirus times. For example, if the Denver Broncos’ quarterbacks had better managed risk, i.e., not exposed themselves to the virus which then forced a quarantine for Sunday’s game, the outcome of the game might have been very different.

The holiday season is upon us, and with that, many of us are ready for a break. Since most of us will be spending the holidays at home this year, it’s a good time to catch up on some reading. So, we asked our 361 team for some book recommendations to add to your shopping cart.

The ‘K-shaped’ recovery will definitely impact retailers this gift-giving season. Those households with stable employment this year could see very good holiday spending as they draw down their cash accounts which have grown to record sizes because consumers haven’t been able to spend on travel, dining or entertainment in 2020.

Traditional expectations of the 60/40 portfolio may be due for a rethink.

Based on today’s yield levels, bonds simply can’t contribute to a portfolio the way they have historically. For advisors, this could mean shifting assets away from fixed income and into alternatives if they want to preserve the risk/return profile that the 60/40 portfolio has historically delivered.

They say that a fair deal is negotiated when each party walks away a bit disappointed. I think that it’s fair to say that most American voters are a little upset at the current election results because they didn’t get everything they wanted. But given the split decision, we could also say that we did get something that we voted for. While many of us in the investing world had looked at the polling data and prepared ourselves for a blue wave takeover in Washington, D.C., the end result could end up being a better outcome for investors.

With uncertainty in the air, the potential for subdued-to-negative economic growth looming, and a bleak outlook for fixed income, advisors are challenged to rethink foundational portfolio elements of investor portfolios—which means seeking out strategies that bolster the core going forward.

We recently asked readers of our popular market commentary, the Weekly Research Briefing, to submit market-related questions for author Blaine Rollins, CFA. We had a lot of questions come in, so we thought we would use this week’s blog to share some of Blaine’s responses.

In last week’s blog, we examined the wide dispersion in the long/short equity category, including a couple of funds that have had incredible performance in 2020. We too were curious about this performance, so we thought we’d look a bit closer at these strategies, including how it has impacted their longer-term results. Additionally in this blog, we’ll discuss things to consider when doing due diligence in a category that can be difficult to evaluate.

2020 has been interesting for about a million reasons, all of which we won’t get into here. But one thing it’s highlighted in our little corner of the investment universe is the massive dispersion that exists in the long/short equity category.

The ease with which retail investors can trade equity securities has risen dramatically this year. The increasing popularity of fintech trading apps like Robinhood—which allow investors to trade quickly on their smartphones—and the availability of zero trading commissions at traditional brokerage houses have made it easier for the average investor to trade equity securities. Market makers such as Citadel Securities (a division of Citadel LLC) report that retail traders now account for about one-fifth of stock market trading and as much as one-fourth of trading on the most active days.

While 2020 has been a year of many firsts, there are some things that never change, like letting our behavioral biases guide our investing decisions.

This week is a special one in my family…it’s time for the 120^th U.S. Open Golf Championship. As a young boy growing up, I loved watching my golf heroes like Watson, Nicklaus, Norman, Couples, Stewart. Every year on Father’s Day, I would sit and watch with my dad (a personal hero of mine) and dream about how amazing it would be to stand there with that trophy in my hands after enduring what is commonly known as the toughest test a golfer can face.

Last month, Harin de Silva, CFA, Ph.D., Portfolio Manager for the Wells Fargo Asset Management Analytic Investors team and sub-advisor to our long/short equity strategies was one of three guests featured on the podcast, On the Trading Desk® with Brian Jacobsen. In it, he discusses how the strategy navigated the ups and downs of 2020 and how they plan on approaching the continued uncertainty for the rest of the year.

In the next few years, a client’s evaluation of their advisor will boil down to the professional’s ability to do two things: add alpha and keep them invested. True, these have always been core components of an advisor’s role, but in the coming years they will take on added significance.

Why? It’s a function of a low-return environment, and the psychological roller coaster that is likely to unfold.

We recently asked readers of our popular market commentary, the Weekly Research Briefing, to submit market-related questions for author Blaine Rollins, CFA. We had several interesting questions come in so we thought we would use this week’s blog to share some of Blaine’s responses.

While the term “alpha” is widely used, in our experience, it’s not particularly well understood. Alpha, properly defined, is return in excess of what could have been expected given the risks assumed to generate the returns. Notice that this is not strictly outperformance relative to a benchmark, but rather, its relative performance given the level of risk taken.

It goes without saying that this has been an unconventional year with everyone’s plans flipped upside down. If nothing else, this odd year has taught us all the importance of being able to pivot. We’ve had to pivot our work environments, pivot our vacation plans, and pivot many in-person events to virtual.

As you may have seen recently, a Japanese amusement park asked patrons to stop screaming on roller coasters in an attempt to contain the spread of COVID-19. For me, I know that would be an impossibility since I scare easily, and so I was impressed when I watched the video of well-dressed riders barely reacting at all. While not an actual roller coaster, the markets have been quite a ride themselves this year with the MSCI World Index seeing a peak to trough drop of -31.82% in Q1, and an aggressive recovery up 38.22% through June 30^th.

Last week we hosted a 2020 Mid-Year Market Review with Blaine Rollins, CFA, author of our popular 361 Weekly Research Briefing. We had several interesting questions come in from attendees so we thought we would use this week’s blog to share Blaine’s responses.

One of the things the team at 361 Capital has noticed during the pandemic is that we’ve had a lot more time to listen to podcasts while working from home. One of the programs we follow is The Meb Faber Show, so it was exciting to listen to a recent episode featuring Harin de Silva, CFA, Ph.D., Portfolio Manager for the Analytic Investors team at Wells Fargo Asset Management and sub-advisor to our long/short equity strategies.

In its 63-year history, the S&P 500 Index has become the center of the investment universe. In many cases, investors would be wise to resist its gravitational pull. Its ubiquity has also caused many investors and investment professionals to mistakenly apply the index as a mental benchmark for relative performance, even though the strategy it is compared with may invest in entirely different markets or securities.

Recently, Harin de Silva, CFA, Ph.D., Portfolio Manager for the Wells Fargo Asset Management Analytic Investors team and sub-advisor to our long/short equity strategies was a guest on the podcast, On the Trading Desk® with Laurie King to talk about how traditional risk—as measured by price volatility—may be improved upon by measuring and managing environmental, social, and governance (ESG) profiles within a portfolio.

Summer is here and that means people will be hitting the out of office button for a mid-year break. While many more of us will be doing road trips or stay-cations this year, it’s still a good time to do some summer reading. So, we asked our 361 team for some recommendations to add to your shopping cart.

After a decade-long bull market run, the sudden market uncertainty brought on by the COVID-19 outbreak, and its potential long-term effects on the market, understandably have caused many to be concerned about the market losses experienced by their portfolios.

Recently, Harindra de Silva, Ph.D., CFA, Portfolio Manager for the Wells Fargo Asset Management Analytic Investors team and sub-advisor to our long/short equity strategies was a guest on the podcast, On the Trading Desk® with Laurie King to talk about how a new factor, namely the stay-at-home order, has changed historical risk profiles and what it may mean for a portfolio’s risk profile.

The famous Springsteen song begins with “The Boss” bumping into a friend from high school and, of course, talking about the “Glory Days.” I don’t think it’s possible to listen to that song and not think about one’s own version of “Glory Days.”

We recently asked readers of our popular market commentary, the Weekly Research Briefing, to submit market-related questions for author Blaine Rollins, CFA. We had several interesting questions come in so we thought we would use this week’s blog to share some of Blaine’s responses.

When evaluating the performance of a manager, it is easy to get caught in the trap of judging them on their average annual return over a 3-, 5-, or 10-year period. It seems intuitive that we would want to hire the manager with the highest average annual return, right? It turns out, that is not always the best way to evaluate potential investments. We also need to consider the volatility of that return set.

One of the most puzzling market-related stories to come from COVID-19 is the disconnect between the stock market and the economic numbers. The market would be much, much lower if it weren’t for the Federal Reserve’s actual and promised buying of credit assets (e.g., Treasuries, Investment Grade Bonds, BB junk bonds, auto loans, residential and commercial mortgages, credit card debt, etc). They have provided a floor to the markets that help companies raise money by selling bonds and to keep the foreclosure and repo man away from all the personal assets of people who just lost their jobs.

The beta of a stock or portfolio is a widely used measure of risk—capturing the sensitivity of the security to “market wide movements.” Regardless of the source of the movement of the market, this measure captures what the market and the security have in common. A security that has low beta is described as having low sensitivity to the market and vice versa.

Lately we’ve fielded a lot of questions about fund fees. It seems both advisors and clients alike are finding fee disclosure confusing and there’s a lack of clarity around what investors are actually paying. This can become even more of a challenge for long/short equity funds.

Like so many others, 361 Capital employees began working from home in mid-March. Now that we are in week five, we thought it would be fun to share some of our staff’s experiences during quarantine. Below are our staff’s answers to what they are watching, what they are enjoying and what they are missing during this quarantine.

In a recent blog, we addressed the opportunity of funding a long/short equity position from existing fixed income holdings given the less-than-optimistic outlook for that segment of the market. I certainly agree that holding an overweight to core fixed income, at current interest rates and credit spreads, just doesn’t provide the same attractive risk/return trade-off that investors have gotten used to over the last 10 (20? … 30?!) years. Today, we offer a second approach to funding a long/short equity position.

The rapid spread and wide-felt human and economic impact of the novel coronavirus (COVID-19) have continued to roil global equity markets. The chart below plots factor performance since the market began pulling back on February 19. Low volatility continues to be the best-performing factor by a wide margin, with the majority of the other factors underperforming.

By the end of 2019, equity markets finished off an incredible decade with returns well above historical averages, and volatility well below them. Investors that had any kind of diversification or hedging in their portfolios were likely frustrated about lagging, long-only U.S. equities and may have gone either full beta or deployed ‘hedging strategies’ that had been performing well relative to the broader market (likely due to their higher beta). Now with the sharp decline that markets have experienced since February 19th, investors have perhaps been reminded why protecting capital on the downside is still so important.

As the world becomes increasingly concerned with the economic fallout related to the COVID-19 virus, global equity markets have sharply retreated. The chart below plots worldwide Google search activity for “coronavirus” relative to the performance of the MSCI World Index. Not surprisingly, the index performance is negatively correlated with the rise in searches for coronavirus, with the recent spike in searches inversely mirroring the steep drop in the MSCI World Index

Nearly two years ago, we wrote about the increasing beta we saw in many Long/Short Equity funds and the potential downside it could cause if markets were to stop their upward trajectory. At the time of that writing, we were smack in the middle of a record bull market run and it likely wasn’t a concern to many readers. A few months later, in late 2018 we did see some volatility, but by the time anyone noticed, markets shot higher (in early 2019) and strategies with higher beta continued to outperform those that were less sensitive to overall market movements.

Investors have enjoyed a record-long bull market in equity markets—with potentially many more periods of upward movement ahead. But, as this bull market stumbles and volatility increases, maintaining return sources and risk exposure beyond stocks and bonds seems increasingly prudent. Recent market turmoil further highlights why a best practice in portfolio construction includes varied return sources.

Like many of my co-workers, I listen to a lot of podcasts in my spare time. This one struck me as particularly interesting—so I thought I would recommend it.

Financial TV networks are filled with investors offering their insights into where markets will move in the future. Will there be a recession in 2020? Will the S&P hit new records? The reality is no one knows.

One of my least favorite things about prognosticators, whether it be sports, investments or Oscar favorites, is that when people make predictions, they only bring them up again when they are right. It is rare when people look back and say, “Wow, was I wrong. You definitely shouldn’t have listened to me.” Well, I’m not a prognosticator, but I am here to shake up that trend and grab my fork to eat some crow.

Tesla has been the Excalibur sword that active investors needed to fight the growing passive industry over the last four months. With the stock excluded from most indexes due to lack of profitability and float limitations, it has been one of the big market cap names that active investors could invest in for outperformance. While an investment in Tesla was problematic for active investors from 2014 thru 2019, the electric car maker has shifted gears in the last few months with over-weighted owners now rejoicing. Recent momentum in the name has lifted the stock 250% since October.

We recently hosted a 2019 Market Review & 2020 Outlook with Blaine Rollins, CFA, author of our popular 361 Weekly Research Briefing. We had several interesting questions come in from attendees so we thought we would use this week’s blog to share Blaine’s responses.