Why Tactical Portfolio Management?

TACTICAL PORTFOLIO MANAGEMENT

A long-term perspective of the Dow Jones Industrial Average since 1896 reveals the reality that there are extended periods of time in which the US equity market will trend generally upward, and also lengthy periods of time where the market will instead stagnate or move generally lower. There have been nine such alternating cycles since 1896, with each averaging 14 years in duration. Let’s say an individual begins to accumulate meaningful wealth with which to invest around the age of 40, and has a life expectancy of about 85 years, he or she will likely experience three of these cycles during their investment lifespan. With this in mind, it is important to have at one’s disposal strategies that are effective in both generally rising (bull) markets and falling (bear, or “fair”) markets.

As such, many years ago 1st & Main Investment Advisors undertook the exercise of examining risk-management as the primary orientation of what we deemed our Tactical Allocation Portfolio (TAP). Through a variety of trials employing a large amount of statistical analysis we created the initial formation of our approach. Always looking to improve, the model itself has witnessed a handful of enhancement over the last decade.

MANAGEMENT

The most recent being the adoption of a computer generated mathematical modeling system to handle the majority of the ‘heavy lifting’ in terms of data and analysis. Our algorithmic approach to pricing and sizing positions came to fruition in mid-2018 and has become an invaluable tool. By narrowing the scope of our universe and layering a robust back-testing technique over historical data we gained confidence enough for implementation. We feel the enhanced strategy provides a systematic, disciplined way of determining security selection and position weighting and also provides a path to limiting downside exposure using cash and cash equivalents within the portfolio.

From an implementation perspective we use various ‘sleeves’ to represent different equity strategies within the broader model. Each meant to achieve something different from its peers in an attempt to diversify and potentially bolster return, while again, maintaining a diligent focus on risk. Data is updated and analyzed daily to accomplish these goals. In simplified terms the process looks like this:

STEP 1

Universe Selection

STEP 2

Multi-Factor Screening

STEP 3

Security Selection

STEP 4

Portfolio Construction

STEP 5

Daily Portfolio Risk Managemet

We are excited to share this confidence with clients and prospective clients moving forward. Please do not hesitate to reach any one of us with questions or comments.

2 investment advisors looking over stock market and graphs

OBJECTIVE

Consistent, risk-adjusted rates of return over a complete market cycle.

APPROACH

1st & Main Investment Advisors employs a technically based, active approach to managing assets using primarily index and sector based Exchange Traded Funds (ETF) and individual equities

Disciplined risk management measures to monitor underlying exposure are determined daily based on a series technical indicators

BENCHMARK

Blended based on risk tolerance and portfolio selection

Min. Investment: $25,000

Liquidity: On Demand

Mgmt Fees: 1.50% Annual

Ticket Charges: $0 on equity trades, varies on fixed-income

*DIFFERENT TYPES OF INVESTMENTS INVOLVE VARYING DEGREES OF RISK INCLUDING MARKET FLUCTUATION AND POSSIBLE LOSS OF PRINCIPAL VALUE. THERE CAN BE NO ASSURANCE THAT ANY SPECIFIC INVESTMENT STRATEGY WILL BE PROFITABLE