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Posted by Craig Basinger on Nov 29th, 2019

How Purpose Tactical Asset Allocation Can Help Manage Uncertainty

We are currently in the eleventh year of a bull market that has been primped and poked with previously unimagined amounts of monetary stimulus. Now, global economic growth is slowing. Uncertainty is rising,  given the length of the bull run and the unprecedented amount of  central bank intervention. That leaves investors in a difficult  position.

One could easily argue for turning up the defence of your portfolios.  However, cycles often last longer than many believe. With central banks  becoming more accommodative and some positive signs on economic growth,  the cycle could just as easily keep going. For how long? Years perhaps.  Nobody really knows.

Navigating market uncertainty can feel like a full-time job. Getting  more defensive often involves reallocating portfolios towards defensive  assets, such as dividend stocks, government bonds and precious metals.  But, acting too soon can leave you underexposed to the continued rally,  leaving returns on the table.

Purpose Tactical Asset Allocation Fund (RTA) can help by providing a tactical sleeve for your portfolio. It is  designed to tilt more towards equities when times are good and tilt  towards bonds when markets weaken.

It’s a rules-based strategy that can range from 100% equity to 100%  fixed income, moving between risk-on and risk-off positioning to adjust  to the market. It’s not a traditional alternative fund, but it provides  the same sort of volatility management that can greatly improve  risk-adjusted returns.

1. Reducing the human emotion from the process

The fund is rules-based, systematizing the process of allocation.  This removes emotion from the decision-making process as changes are not  based on what someone thinks is going to happen in the markets. The  strength comes from the fund’s ability, using broad based equity &  bond ETFs, to change its allocation quickly if the market is changing  direction. With RTA, you can help avoid the emotional mistakes that all  of us are prone to make.

2. Adding a dynamic component to your asset allocation

Asset allocation is the primary driver of portfolio performance and  volatility. And while a portfolio’s long-term asset allocation should be  based on an asset mix that puts an investor in the best position to  reach their long-term goals, we believe value can be added by tactically  tilting the asset mix at times. RTA provides this tactical allocation,  and since it can move from 100% equity to 100% bonds, even a small  allocation can help tilt the overall portfolio and make a meaningful  difference in outcomes.

Graph showing equity allocation versus S&P 500.

3. Save time and energy

Because the fund automates the process, investors can, quite  literally, set it and forget it. By holding RTA, you can avoid the time,  effort and cost of trying to be tactical yourself.

The Bottom Line

The traditional way to navigate uncertainty is with asset allocation,  but it’s often easier said than done. The decisions required can be  tough and increase stress levels. Recognizing our own human biases makes  the process even harder. Purpose Tactical Asset Allocation Fund is a simple way to outsource the tactical process and ensure your  portfolio has the flexibility to adjust to any market environment.

– Craig Basinger is the CIO of RichardsonGMP 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.

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. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” intend,” “plan,” “believe,” “estimate” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose Investments and the portfolio manager believe to be reasonable assumptions, Purpose Investments and the portfolio manager cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

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.