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Posted by Craig Basinger on Dec 9th, 2020

5 Years, 5 Stars and 5 Reasons to be Tactical

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.

Charts showing Purpose Tactical Asset Allocation Fund versus S&P/TSX

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.

The content of this document is for informational purposes only, and is not being provided in the context of an offering of any securities described herein, nor is it a recommendation or solicitation to buy, hold or sell any security. The information is not investment advice, nor is it tailored to the needs or circumstances of any investor. Information contained in this document is not, and under no circumstances is it to be construed as, an offering memorandum, prospectus, advertisement or public offering of securities. No securities commission or similar regulatory authority has reviewed this document and any representation to the contrary is an offence. Information contained in this document is believed to be accurate and reliable, however, we cannot guarantee that it is complete or current at all times. The information provided is subject to change without notice and neither Purpose Investments Inc. nor its affiliates will be held liable for inaccuracies in the information presented.

Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. The indicated rate of return is the historical annual compounded total return including changes in share/unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.

Fund mentioned in this story

Craig Basinger

Craig Basinger is the Chief Market Strategist at Purpose Investments. With over 25 years of investment experience, Craig combines an educational foundation in economics & psychology with years of experience in both fundamental and quantitative research. A long-term student of the markets, Craig’s thoughts and insights can be seen in his Market Ethos publications and through his regular contributions on BNN.

Craig and his team bring a transparent and cost-efficient approach to investment management. The team provides asset allocation OCIO services and directly manages over $1 billion in assets. The team manages dividend mandates, quantitative risk reduction strategies and asset allocation services.