Tied After 27 Years

February 6, 2019

Since April of 2014 Trendhaven has been managing client accounts in a strategy that has just completed its 27th year. The tactical approach using high-yield bond funds has been very successful in achieving its absolute return investment goal. Only two calendar years had a modest negative return, and maximum drawdown net of fees has been held to only 5.9%. This degree of loss mitigation was achieved during a period that included several market corrections, two of which were amongst the most severe ever seen. Many believe we are late in the cycle of investment returns for risk assets. If so, our approach should prove to be a timely alternative to passive investing.

Last January, in “Tied after 26 years,” I pointed out that the rolling 5-year average annualized returns of the Managed Risk strategy (net of fees) and the S&P 500 (gross of fees) were exactly the same at 9.3%. This year’s review makes a more realistic and fair comparison between the active Managed Risk approach (net of a 1.8% fee) versus both the buy and hold performance of the S&P 500 and a total bond market index. An assumed 0.5% advisory fee was deducted from each of the buy and hold alternatives, as a realistic advisory fee for a passive investment strategy. Again, the results are quite compelling.

rolling 5 year average

For those who must, by rule or policy, have a diversified portfolio, replacing a buy and hold allocation to a bond index with the Managed Risk non-traditional bond strategy in a 60/40 portfolio can greatly improve returns while adding little risk over use of a bond index.

Recent market activity has many wondering if we are nearing the end of a bull market that has extended for over ten years. Some have even speculated upon the start of a secular bear market. Knowledgeable investors realize that prices of different asset classes tend to become more correlated in a downturn, lessening the protective value of diversification in a buy and hold approach. History shows that when big corrections come, they happen fast.

Moreover, the fed funds rate can’t be lowered by 5.5% as it was in response to the last two major market corrections. Nor can it be assumed that massive QE will be provided to shorten the period of drawdown recovery. Can you withstand a 30-50% loss of investment value that may take several years to recover?

Prudent investors are preparing now in anticipation of increased volatility in an aging bull market. The Managed Risk strategy offers a prospective risk/return profile appropriate for these uncertain times.

Contact Trendhaven to learn more.


Performance of the Managed Risk Strategy shown net of 1.8% annual advisory fee taken quarterly in advance, and includes reinvestment of dividends. Performance of any other indexes, securities or portfolios are shown gross of advisory fees, unless otherwise indicated. Trendhaven began implementing the strategy in separate accounts in April 2014. Performance of the strategy before that time is that of the owner / licensor of the same quantitative analytic used by Trendhaven. Performance 1994-2012 verified by Rothstein Kass. Performance 1992, 1993 and 2013 to present verified by Theta Research. Interested investors may request and receive the trade dates, securities used, purchase, sell and recent prices in implementation of the strategy over the past year. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. All investment involves the risk of loss. Past performance does not necessarily predict future returns.

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