Active Market-Timing Strategy
Rather than a passive buy-and-hold
strategy, (more aptly called buy-and-hope!)
our active market-timing strategy
seeks to maximize returns and to minimize
quarter-to-quarter volatility of investment
results by responding to intermediate
term market moves. We position portfolios
for both the up-trends and the downtrends,
i.e. we go short or long depending
on conditions. Thus in theory, we
are able to make money as long as
the markets are trending in one direction
for an intermediate period of time
(defined as three weeks or more).
We accomplish this strategy by responding
to intermediate-term technical indicators
with the use of no-load mutual funds,
some of which go short or long the
market indexes, and some employ leverage
of up to 2:1 on positions.
In the year 2001, while the S&P
lost 12%, our Active Market-Timing
Strategy produced double-digit returns
for our managed growth accounts. Since
1995 Goddard Company managed growth
accounts have made positive double-digit
returns every year except 2000, the
beginning of the current bear market.
To achieve the combination of lower
risk with attractive returns, we incorporate
elements from the Seasonal Timing
Strategy, (which is a modified buy-and-hold
strategy) into our Active Market-Timing
Strategy. The basis of the Seasonal
Timing Strategy is the historical
fact that the market makes most of
its gains in the winter and spring
each year (the favorable season) and
suffers most of its corrections in
the summer and fall (the unfavorable
season).
With this in mind we overweight equities
during the "favorable season"
and underweight during the "unfavorable
season" as compared to a "buy-and-hold"
static approach. A similar market
timing approach has been shown by
Sy Harding, (founder of the Seasonal
Timing System) to produce higher returns
than the market with less risk because
exposure to the markets is reduced
during the unfavorable season. The
exact timing of the beginning and
ending points of these seasons is
determined by using the short-term
momentum-reversal indicator, MACD,
for the S&P 500 Index when it
is near the calendar seasonal pattern
beginning and ending dates (which
are the next to last trading day of
October, through the 4th trading day
of May). When the calendar is within
30 days of these dates (either before
or after), the MACD indicator will
be the mechanical signal for the start
or end of the favorable/unfavorable
periods.
The extent of the over/underweight
and the tactical market-timing decisions
made within the seasons, such as which
securities to purchase and when to
buy or sell, are made on a discretionary
basis by the senior portfolio manager,
Mark A. Goddard, CFP. His research
team includes Mr. Sy Harding, president
of Asset Management Research Corp,
the originator of the Seasonal Timing
System, author of Riding The Bear,
How to Prosper in the Coming Bear
Market, published in 1999, and Mr.
John Murphy, author of Technical Analysis
of the Financial Markets, and Ike
Iossif, president of the Aegean Capital
Group.
The securities purchased for the
accounts may include individual stocks,
bonds, and mutual funds and include
the ability to leverage the portfolio
and to short the portfolio to plus
or minus 200% of the strategic allocation
percentage for equities defined in
each account’s investment policy
statement. For example a growth account
with a strategic allocation of 75%
equities, has a normal tactical range
of 50%-90% equities, but could within
our Active Market-Timing Strategy
be leveraged plus or minus 150% of
the portfolio at the extremes (when
market conditions are judged to have
inherently less risk, such as when
the market is trending strongly).
The tactical market timing decisions made by Mr. Goddard
are based in part on research he purchases from Sy Harding,
John Murphy and Ike Iossif- esteemed market technicians who
track technical indicators such as overbought/oversold conditions,
momentum reversal indicators, investor sentiment, money flows,
breath and participation indicators, etc. Our objective is
to go after intermediate-term rallies and corrections, which
may take place without regard to seasonality (summer rallies
in the unfavorable seasons, corrections in the favorable seasons).
Additionally, each asset class may be moved to cash equivalents
(money markets) at any time for defensive purposes in an attempt
to reduce risk and/or enhance returns.
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