A version of this article appeared in our Weekly Update on August 12, 2019. If you missed it the first time, here’s another chance to get to know more about our newest turnkey strategies (QFC Fusion 2.0, Multi-Strategy Core, and Multi-Strategy Explore), which you can use to add risk management and growth opportunity to your portfolio.

Listen to “In My Opinion”

Staff members were waiting for us at the airport, which was teeming with people when the transatlantic plane touched down. In a crowded, cavernous room, with signs everywhere in a foreign tongue, they found our luggage and escorted us through customs. Whisked into a private car, they sped us to the dock and our rivercraft.

On board the ship, they handed us a glass of Champagne and the key. Opening the door, we were in our private suite. Everything was provided: meals, a fully stocked bar, daily room cleanings, even free daily laundry service.

It was our home for 10 wonderful days as we toured Europe by river. It was the ideal turnkey experience.

Why turnkey investing?

Merriam-Webster Dictionary defines “turnkey” as “built, supplied, or installed complete and ready to operate.”

Investopedia.com states that “a turnkey solution is a type of system built end-to-end for a customer that can be easily implemented into a current business process. It is immediately ready to use upon implementation and is designed to fulfill a certain process. …”

At Flexible Plan Investments (FPI), we have recently launched a new suite of turnkey multi-strategy services. With them, I hope to make your FPI experience just as pleasant as our river cruise.

Of course, all of our individual strategies are already turnkey. You select them and leave the rest of the work to us: We monitor them, impose the discipline of trading them, and then report their performance to you.

But selecting which strategies to include in a portfolio remains difficult. We offer over 100 different strategies and risk profiles. How do investors or their advisers choose which strategies to include in their portfolios? How do they achieve one of our primary goals, which is true diversification in investor portfolios?

We provide a tool for that: our Illustration Generator, which allows you to design a portfolio of FPI strategies and analyze its historical performance, diversification, and correlation. But even armed with tools, picking the best combination and the proper weighting of each strategy can still be daunting.

FPI is a turnkey asset management program—or TAMP, as it is referred to in the industry. In 1998, we began to offer a wide variety of actively managed strategies on a single platform where they could be combined in an investor’s portfolio. As a TAMP, we also traded, monitored, and reported the performance of all of the strategies in the portfolio, in addition to handling the invoicing and fee collections.

This program is called Strategic Solutions. Having all of the strategies on a single platform makes it easy to change strategies. But deciding which strategies to drop, which to add, and when to do it can be challenging.

Take the stress out of investing with turnkey portfolios

During our more than 20 years of experience with multi-strategy portfolios, we have always had a turnkey, “strategy of strategies” option. These options choose among all of the strategies and risk profiles to pick the best portfolio of strategies for an investor’s risk profile.

QFC Fusion 2.0

Our Fusion strategy is the most recent—and most popular—iteration of our turnkey portfolio of strategies. Hundreds of millions of dollars have been invested in it over the years, and we have continued to improve it each year since it was introduced in 2013.

Our latest set of improvements has resulted in QFC Fusion 2.0.

QFC strategies are those that exclusively use our subadvised mutual funds, allowing us to deliver fee credits that lower the advisory cost of the strategy, as well as two levels of risk (and opportunity) management:

  1. Dynamic risk and opportunity management within each mutual fund.
  2. Dynamic risk and opportunity management among all of the funds used in each strategy.

In addition, as QFC Fusion 2.0 is one of our turnkey multi-strategy services, it also offers yet another level of dynamic risk and opportunity management:

  1. Active risk and opportunity management of the allocation among the QFC strategies.

One of the disadvantages of Fusion has been in its simplicity. Since Fusion provides a portfolio selected from all of the strategies offered—both core strategies and explore varieties (for more on the function of core and explore strategies within a portfolio, see this recent In My Opinion article)—it does not allow an investor or adviser to obtain the advantages of a dynamically managed portfolio where just one of the two subcategories, core or explore, are needed in a portfolio. It also gives up some customization opportunities.

QFC Multi-Strategy Core and QFC Multi-Strategy Explore

Many investors only invest in a core strategy. Usually, it is a portfolio of asset classes that is managed using an old-fashioned, essentially passive approach. Of course, FPI offers many ways to add a dynamically managed core to that portfolio. In fact, we have 12 different core strategies with multiple risk profiles. The challenge, of course, is how to choose among them. What combinations should investors use? And how should investors decide how to weight, change, replace, or add to them?

The same analysis applies to the “explore” or “satellite” approaches that many want to add to a core portfolio to customize it further. Investors use explore strategies to deal with an eventuality that they are concerned may happen, to add additional factors to the investment, or to simply enhance returns or reduce risk further.

Again, FPI offers many ways to add a dynamically managed explore strategy to that portfolio. We have 45 different explore strategies. But, again, how should investors choose? What combinations should they use? How should investors decide how to weight, change, replace, or add to them?

The solution? FPI’s new low-cost, turnkey “strategy of strategies”: Our QFC Multi-Strategy Core and QFC Multi-Strategy Explore services.

Now you can add a core strategy with multiple defenses (QFC Multi-Strategy Core) to enhance the risk management of a passive core portfolio that provides only the single defense of diversification. And because QFC Multi-Strategy Core is actively managed, it’s designed to take advantage of opportunities that are not available to the passive core.

QFC Multi-Strategy Core also takes the work out of choosing the right mix of core strategies to add to a portfolio. The strategy selects the core strategies to use and decides when each is appropriate. It then weights the components; allocates; and, over time, reallocates the strategies for you.

Like QFC Fusion 2.0, QFC Multi-Strategy Core is available in five suitability profiles: conservative, moderate, balanced, growth, and aggressive.

QFC Multi-Strategy Explore is available for four different investment scenarios: low volatility, low correlation, special equity, and equity trends. The first is for those with more conservative expectations, the second is moderate to balanced focused, and the final two would be deemed more growth-oriented.

In addition to adding these strategies to existing portfolios, the QFC Multi-Strategy Core/Explore offerings can stand alone or be combined together.

If you simply want a core portfolio but don’t want to choose among our many QFC core strategies, we can create a blended, managed portfolio of all of our QFC core strategies for you. You acquire asset and strategy diversification, three levels of dynamic opportunity and risk management, five suitability profiles to choose from, and a low-cost separately managed account. And you can stop there.

Or, you can go on to add one to four QFC Multi-Strategy Explore options and pick the amount to allocate to each.

We recommend starting with at least 65% in QFC Multi-Strategy Core. QFC Multi-Strategy Explore options can be added to complete a “core and explore” portfolio—turnkey plus customization!

The minimum investment in QFC Fusion 2.0 or QFC Multi-Strategy Core is $25,000, while a QFC Multi-Strategy Explore option requires $5,000.

Investors who maintain accounts with a balance of at least $100,000 in either QFC Fusion 2.0 or QFC Multi-Strategy Core receive all of the added benefits of our Prime accounts. These include added risk customization (QFC Fusion 2.0 only), longevity fee credits, waiver of our paper delivery fee, and access to our quarterly conference call.

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Turnkey solutions provide a superior user experience. They are designed to be easier to walk into and a better way to cruise throughout all of the varied seas the financial markets can deliver to bring us to new lands of opportunity.

Market update

Global equities were largely up last week, shrugging off the mixed results of recently released global economic data. The U.S. economy continues to be among the strongest in the world while some European countries struggle—nearly on the brink of recession.

Among major asset classes, equities were up. The S&P 500 increased by about 1.8%, small-cap stocks gained about 0.7%, and Europe climbed about 2%. Safe-haven assets were largely down, with gold falling about 1.3% and long-term Treasurys slipping about 0.8%. All of these market movements seem to suggest market strength; however, economic reports released last week from a number of geographic locations suggest caution.

August started off very weak this year. It then went sideways for the rest of the month with repeated short-term tumbles and rallies. The S&P 500 closed down for the month. In September, however, we have broken out of the churning and are actually approaching new-high territory.

Last week, 30 different economic reports were issued. Half were better than expected, 13 were worse. While the manufacturing sector seemed to contract further, the service sectors moved back into expansionary mode.

The Citi Economic Surprise Index has now returned to positive territory. This normally suggests positive stock market returns over the next three to six months (4%–6%). Inflation numbers will be the highlight of this week’s reporting.

Last week, U.S. employment figures for July were once again revised downward. August numbers were also released, and they were softer than even the July revision. This seems to suggest issues in the U.S. economy despite some healthy merger and acquisition activity and consumer/investor confidence increases last week. Overall, employment is still increasing, but it is doing so at a rate that is slower, on average, than last year.

 

Still, unemployment rates for black and Hispanic workers fell to record lows, and prime-age (workers aged 25 to 54) employment set a new cycle high. Wage growth was still solid and was especially strong among non-supervisory employees.

In addition, news came out last week that the European Central Bank is considering another round of quantitative easing. This is a potentially controversial move, as it is expected to be less effective as bond-buying activity increases. There appears to be very little that Europe can do to stimulate its economy with monetary policy since interest rates are already in the negative range.

Germany has already come dangerously close to a recession, and with interest rates so low, quantitative easing would seem to be a last resort. Fiscal policy changes would likely be more effective, but it does not appear that European countries have the will to implement them. Should the U.S. or other major global economies begin to teeter, Europe may be among the first to feel the pain.

On the positive side here in the U.S., the yield curve has reversed and is no longer showing an inversion.

Overall, the market is looking for direction. It is clear that the global economy is not as healthy as it has been previously in the current market cycle, and it remains to be seen whether the global central banks will be able to reverse or mitigate some of the recent market softening.

Our equity strategies largely remain fully invested. STF is at 1X long, along with our Classic strategy. In bonds, our Fixed Income Tactical strategy remains underexposed to long-term bonds.

A new high was registered on the broader advance-decline line, market sentiment continues to be negative among small investors, and stocks have not yet hit overbought levels. This all suggests stock market strength for the time being.

All the best,

Jerry

Jerry C. Wagner is Founder and President of Flexible Plan Investments, Ltd. Formerly a tax and securities attorney, Mr. Wagner recognized early on that technology and hedge fund techniques could be applied to help individuals successfully invest, while managing their downside risk. After spending time pioneering new techniques in market analysis, designing quantitative methodologies, and managing investment portfolios, Mr. Wagner founded Flexible Plan Investments in February 1981.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.  Inherent in any investment is the potential for loss as well as profit.  A list of all recommendations made within the immediately preceding twelve months is available upon written request.  Please read Flexible Plan Investments’ Brochure Form ADV Part 2A carefully before investing. View full disclosures.