Our Investment Philosophy
Our investment philosophy recognizes that market conditions are ever-changing, and that the investment approach that worked last year may not be effective this year. We do not believe that making a single investment decision to buy stocks or mutual funds for the long term is effective risk management. A passive approach to investing is high-risk, and exacts a heavy toll when markets collapse.
We have learned that investing on the basis of return needs to be balanced with an individual’s tolerance for risk. One way to achieve this balance is to diversify your portfolio among several tactical asset managers.
There are many successful managers who use skill-based active money management strategies to control risk. We are constantly seeking the most talented managers to be part Sage Capital Resources Network. Our goal is to provide access to the world’s best tactical asset managers who have sound, disciplined strategies that seek to protect as well as grow assets in changing market environments.
Dynamic Asset Management
Traditional investment methods, such as strategic asset management, are passive, inflexible and take too much risk. Passive strategies continually expose assets to market volatility and disappoint investors when markets decline. Traditional asset allocation strategies attempt to ride out the declines, betting that the markets will be higher when the investor needs his or her money. Their success, like the markets, is uncertain.
Those who utilize a tactical approach understand that in rising markets it makes sense to be invested, while in falling markets it is better to remain on the sidelines. Active strategies can react quickly to changing market conditions. Tactical managers can adjust asset allocations frequently, positioning investors to take advantage of the opportunities in the market.
Active Management 101
The active money managers of the Sage Capital Resources Network use investment strategies that can react quickly to changing market conditions. An active manager can adjust asset allocations frequently to position investors’ assets to take advantage of the unfolding potential he or she perceives in the market. Some managers trade frequently, even daily. Others change positions a few times a year. None of the Sage Capital Advisors managers are passive – all use an active management process and avoid the high risk of buy-and-hold investing. Their choice of asset classes varies, ranging from index and sector funds to international and bond funds.
Active management is the opposite of passive management. Investors who believe in active management do not follow the efficient market hypothesis which states that a stock market cannot be outperformed because all available information is already priced into stock prices. Instead, they believe it is possible to profit from the stock market through any number of investment techniques.
Tactical Asset Allocation
Tactical Asset Allocation, also know as Dynamic Asset Allocation, is an active investment approach that distributes assets among the different asset classes in domestic and international equity and bonds investments and money markets. That distribution is adjusted on a continuing basis in response to market and economic conditions, based on the advisor’s perception of the return potential and relative risk of each asset class.
Tactical asset allocation, like a "fixed" asset allocation strategy, seeks to reduce risk through diversification among different investment categories. Using tactical asset allocation, however, investors select or weight investments based on those categories with the greatest perceived potential for superior returns, given current market conditions. The allocation of assets becomes tactical (dynamic) by changing in response to market conditions and perceived opportunities for profit.
Tactical asset allocation makes good sense because the financial markets tend to move in cycles. The dynamic asset allocator uses technical and/or fundamental analysis to identify where the market is in a cycle and what investment categories appear to have the strongest potential for appreciation.
The objective to dynamic asset allocation is to reduce risk by a greater amount than return is sacrificed and achieve real growth after taxes and inflation. Eliminating risk from a portfolio is very easy. All one has to do is buy Treasury bills. But the lower risk comes with lower returns. Dynamic asset allocation is a strategy for managing risk without unduly diminishing returns and it works well with mutual funds. Using mutual funds in a dynamic asset allocation strategy further reduces risk by providing instant diversification across hundreds of securities within each asset class.
Sector Rotation
Investing in the right industry group (sector) of the market at the right time can dramatically increase returns. Sector funds are mutual funds that are invested in a diversified list of securities, but all in one specific industry group, such as energy, transportation or utilities. There are also country-specific sector funds with investments in one country or region, like Japan or Europe.
If you look at sector funds over a period of time, it quickly becomes apparent that above-market returns one year may be canceled out by a loss in the subsequent year; therefore, a buy-and-hold strategy for sector investing is typically a recipe for disaster. No one sector remains continually in favor.
Using technical and/or fundamental analysis, professional sector rotators attempt to take advantage of trends in a particular industry or group of industries. When an industry sector shows strength (meaning that it is coming into favor), a sector rotator takes an equity position in that sector. Rotators attempt to generate capital gains by identifying the current trend of an industry group, an emerging change in the economy or a change in market conditions that will affect an industry group.
Market Timing
Market trend timing is an investment strategy designed to reduce the risk of investing in the stock market and improve the opportunity for investment returns. Its principle objective is to preserve capital by avoiding major market price declines and position client assets in the asset class most likely to excel in rising markets.
Market timers use technical analysis to determine when to make moves completely in or completely out of specific asset classes. In most cases, these asset classes include US stocks (or stock funds), money market funds and bonds.
Most market timers use mutual funds to implement their strategies, moving investments between industry sectors and among various types of equity, fixed-income, and money market funds, in both domestic and international arenas. Increasingly, timers are moving to use index-based, exchange traded securities develop specifically to facilitate active management. These investments include "bull" and "bear" funds designed to correlate with the major indices.
Using computers, professional market timers have developed timing strategies that take advantage of both long-term and short-term trends in the equities markets. Market timing involves moving in and out of the market in response to indicators typically generated by mathematical models. These models attempt to identify either the current trend of the market or the possibility of a change in that trend.
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Sage Capital Advisors, Inc (“Sage”) is registered as an
investment advisor with the Office of Financial Regulation of the Florida Financial
Services Commission. The information and opinions contained in this document
are for background purposes only and do not purport to be full or complete,
and is subject to change. No representation, warranty, or undertaking, express
or implied, is given as to the accuracy or completeness of the information or
opinions contained in this document, and no liability is accepted as to the
accuracy or completeness of any such information or opinions. Sage does not
provide tax, legal, or accounting advice. In considering this material, you
should discuss your individual circumstances with a tax, legal and/or accounting
professional before making any decisions.
This document is not an offer, nor the solicitation of an offer, to enter into an investment advisory contract with Sage.