Co-Founders' Monthly Note For Financial Advisors

May 2024:

Don’t Underestimate the Value Of ‘Wait & See’

The S&P 500 looks like it will close down in April. The ride has been particularly volatile, with the S&P at one point down 5.5% as of April 19.

Spoiler alert: we are not reducing U.S. equity exposure heading into May. As intermediate- to long-term trend followers, we design strategies that generally keep us invested during times like this, which happen with more regularity than one might realize. We intend to (hopefully) ride out what we believe may be, over the long term, immaterial downside volatility.

While passive asset managers might make a similar argument about not getting anxious when routine declines happen, we differ from the passive crowd because we absolutely intend to act when there are material downtrends. We purposefully designed the timeframes utilized by our systematic investing process to ignore noise but react when there’s meaningful evidence of a trend change. We believe you need a time-tested, repeatable mechanism to alert you to the difference, which we detailed in our blog, “The Anatomy of a Bear Market.”

In this month’s Co-Founders’ Note, we put the S&P 500’s performance in greater context, specifically relating to monthly declines of 5% or more. Additionally, we discuss how one of the biggest benefits of trend following is its ability to influence investor behavior by applying a disciplined, repeatable process that can help investors stay rational during unsettling times. In our view, this is the key to long-term compounding and helps financial advisors and their clients achieve their financial goals.

But first, here’s a summary of our take on what transpired in the markets in April.