Bobby M from Tucson, AZ asks: Mitch, as an investor I’m less concerned about achieving high long-term returns/growth rates on my portfolio…I’d rather have a portfolio that attempts to hedge downside and reduce volatility, and if I can do that and achieve modest growth I’d be a happy investor. Does Zacks have any options available for that objective? A strategy that’s not just pure stocks and bonds?
Thanks Bobby—that’s an investment objective I hear from clients more and more these days. People still have the 2008 financial crisis imprinted in their memories, and with all the uncertainties today (Brexit, the U.S. election, terror attacks, China growth, etc…) I think investors are more concerned with “not losing money” than with achieving long-term growth.
To answer your question directly, the answer is yes – Zacks Investment Management does have a strategy designed to limit downside where possible by taking a “market neutral” approach to investing. In this strategy, we have ‘long’ positions to give us equity exposure in rising markets, but we also have short positions designed to do well when the market is in decline. On balance, our hope and expectation is that we can reduce volatility both ways by having this long and short exposure.
It sounds like the Zacks Market Neutral strategy could work to meet your investment needs, but I’d suggest making it part of a broader, more diversified investment approach that gives you exposure to other types of equities and fixed income. More categories and styles in your portfolio can help you reduce risk and achieve better long-term returns, which could ideally give you the best of both worlds.
According to a Historical Look at a 50/50 Portfolio by Ben Carlson, a simple diversified portfolio split evenly between stocks and bonds (50/50), rebalanced annually, produced close to 8% annualized returns over the past 90 years, but also gave investors cushion during extreme downturns. Sounds to me like the exact outcome you’re looking for. Indeed, that same 50/50 portfolio would have lost 10.7% during the 2000-2002 bear market, compared to the S&P 500’s 43.2% loss. During the financial crisis of 2008, the S&P 500 lost as much as 50% of its value, while the 50/50 balanced portfolio lost 22.8% at the bottom of the cycle. You get the picture.
My advice: look to balance your portfolio out even further than it is now, and consider making the Zacks Market Neutral strategy a part of that overall balance.
If you or any other readers would like to learn more about additional strategies at Zacks Investment Management that could meet your specific investing needs, I urge you to download our Dean’s List of Investment Strategies. Our Dean’s Lists outlines five of our investment strategies that are currently ranked in the top 10% of their respective classes according to Morningstar (as of 6/30/16). To learn more click on the link below:
Disclosure