“There are no secrets to success. It is the result of preparation, hard work, and learning from failure.”
– Dwight D. Eisenhower
A strategy is a long-term plan of action designed to seek a specific objective or objectives. Our strategies focus on return and the risk associated with obtaining that return. Strategies are especially important in modern times as conditions of relative stability rarely occur for any great length of time, for example a bear market (as defined by a 20% drop, or more) occurs on average every 3 ½ years, and lasts almost 11 months.
One notable exception is the bull market of the 1990’s which excellently illustrates the point. The 90’s made everyone an investor, as it was difficult to make a mistake, but the false sense of security caused few people to be prepared for what was to come when the bubble burst.
Although market declines tend to be relatively short, there are notable exceptions such as the 1929 crash where it took investors 16 years to restore their investments, had they invested at the high. Or take the more recent decline in 2000 where it took almost 5-years to recover. To complicate matters, trying to time these bear market declines require two near perfect actions – getting out at the right time and getting back in at the right time. As no one can predict consistently when market declines will happen or how long they will take to recover, we believe the best course of action is to use a disciplined approach to investing, utilizing self-adjusting strategies, with predetermined process of handling these fluctuations.
To be able to take advantage of the bull markets and minimize the impact of bear markets is the primary reason Carl F. Petersen, Inc. utilizes various strategies. Actual strategies used depend on the client’s objectives.
We believe in this disciplined approach to investing and utilize our proprietary technical and quantitative methods to achieve our results. All our strategies are not only created from the ground up to serve specific objectives, but they are also thoroughly back tested in some cases over thousands of stocks over several decades to minimize, or if possible, completely eliminate, curve-fitting.
Although our proprietary technical and quantitative strategies differ markedly from each other, they all focus on risk adjusted returns, and can be categorized as conservative and active strategies.
The conservative strategies utilize either large-cap stocks or mutual funds with proven performance records, in order to achieve our objectives. They can be split between growth and value stocks. Unless otherwise specified the selection of the securities is instrumental for the performance, while the diversification aids significantly in minimizing the risk.
The active strategies seek to exploit trending opportunities in daily markets worldwide. These opportunities include, but are not limited to, Equities, Exchange Traded Funds, Mutual Funds, Currencies, Commodities, and Interest Rates. The investment instruments selected are leading instruments from their respective fields and categories in order to insure adequate liquidity.
Although past performance is no guarantee of future performance, our disciplined approach to investing, significantly aids us in understanding the market cycles and thus serving our clients better.
Fixed Income ETF Strategy
The Fixed Income ETF Strategy strives to achieve an above average interest and capital rate of return compared to the bond market (after fees) over a full market cycle while focusing on achieving a superior risk/reward ratio. The strategy consists of five equally weighted (90%) high-quality fixed income Exchange Traded Funds (ETF) and a Gold ETF (10%).
The strategy is invested in predominately intermediate- to long-term bonds, with the largest proportion in long-term bonds. The strategy is semi-passive with regular evaluation of the ETFs, ongoing reinvestment of income (if so desired) and yearly rebalancing. It appeals to investors seeking a disciplined approach in the quest for a relatively stable level of income, or investors seeking a diversified bond investment to balance the risks of a portfolio containing other asset classes.
The strategy may use a hedge, is not utilizing direct leverage, and is long only.
The Allocation Plus Strategy strives to achieve solid and consistent returns over a full market cycle while focusing on achieving a superior risk/reward ratio, by potentially investing in foreign markets, domestic markets, real estate, commodities and bond components.
Diversification is achieved both through traditional asset allocation, plus proprietary timing indicators (including separate proprietary indicators for each asset class within the portfolio). The timing indicators are used to move money out of the investments and into short-term bonds or in some cases cash when timing indicators indicate market cycle downturns.
The strategy is seeking to find relatively stable capital growth in good times, and capital preservation in bad times. The strategy appeals to moderate investors (including retirement plans such as active 401K and 403B) seeking a highly disciplined approach in the quest for a superior risk-adjusted capital appreciation.
Equity ETF Strategies
The CFP Equity ETF Strategy focuses on large capitalized stocks consisting of both high dividend stocks and growth potential stocks, and strives to achieve an above average rate of return over a full market cycle while focusing on achieving a superior risk/reward ratio. In addition, our objective is to fall no further, or faster, in a bear market than the corresponding market given a 24 to 36-month cycle.
The main strategy is invested in up to six Exchange Traded Funds (ETF) focusing on four dividend paying stocks and two growth stocks.
Three hedge components, a gold ETF, a short-term bond ETF, and inverse market ETF, focus on protecting the overall strategy in volatile times, although it would not be considered a perfect hedge.
The strategy uses multiple technical- and quantitative-analysis models to determine the trend of each security and the overall direction of the market; but the models are not intended to pinpoint the tops or the bottoms. Rather, they are intended to be implemented in a bear market, or if possible, an impending bear market, allowing for normal market movements during normally trending times.
The strategy is not utilizing direct leverage and is normally long only, however, when the hedges are in effect the strategy can in effect be short.
Global ETF Strategy
The CFP Global ETF Strategy strives to achieve a solid and consistent return over a full market cycle while focusing on achieving a superior risk/reward ratio, by investing in various asset classes, stock markets, and sectors globally through Exchange Traded Funds (ETF), as dictated by the various market conditions.
The strategy uses quantitative and technical analysis to evaluate the ETFs, and it seeks capital appreciation in all economic environments.
The strategy is not leveraged; however, from time-to-time, the strategy may employ ETFs that are leveraged, but in those cases where a leveraged ETF is used, the position will be adjusted so as to negate the leverage, thereby fulfilling the mandate.
The strategy is long only, but may take advantage of inverse ETFs when this is dictated by the various market conditions.
This is an active strategy and as such it is very volatile. It appeals to investors seeking a highly disciplined approach in the quest for a superior long-term risk-adjusted capital appreciation, or investors seeking to diversify their portfolio in order to achieve a higher return, a better risk/reward ratio, or both.