Portfolio Manager Perspectives

Jeff Benjamin

F-Squared's Present staying fully invested

Quant manager zeroes in on historical stock prices and volatility to decide allocations across S&P's nine sectors

Jan 27, 2010 @ 12:45 pm

By Jeff Benjamin

ERROR: Macro getaudioplayer is missing!All signs point toward staying fully invested, according to Howard Present, co-manager of the Virtus AlphaSector Rotation Fund (PWBAX).

The $193 million fund, which relies on forward-looking quantitative analysis to determine allocations to the nine sectors making up the S&P 500, is looking like one of the hottest strategies around.

Sub-advised by F-Squared Investments Inc. to track the AlphaSector Rotation Index, the fund's assets have more than doubled over the past three months and net inflows are currently averaging $3 million a day.

“This strategy has allowed us to deliver a return profile that we think is very important to people,” said Mr. Present, president and chief executive of F-Squared, and co-manager of the fund.

He attributes much of the fund's recent appeal to downside protection, which comes from an ability to move out of the market if the near-term outlook for stocks in any or all underlying sectors is grim.

“All of our investment decisions are designed to avoid loss,” he said.

The protection paid off in 2008 when the strategy declined by just 8.5%, while the S&P finished the year down 37%.

Last year, when Mr. Present's analysis kept him out of the market until early April, the strategy gained 25.4%, while the S&P gained 26.5%.

The quantitative analysis concentrates on three primary inputs for each sector: historical price, volatility and changing levels of volatility.

The data is evaluated based on rolling averages, and those rolling average periods can vary from six months to more than two years, depending on the level of volatility in a given sector.

“Being able to shorten the rolling average windows is what makes us more responsive to the market conditions,” he said. “It allowed us to be more patient in times like 2005 and 2006, and it allowed us to get out of the market in 2008.”

The focus on sector volatility had the strategy carrying a 75% cash position in September 2008, with consumer staples representing the only allocation to equities.

A month later, when the stock market began its six-month free fall, the strategy was already 100% allocated to cash — an allocation it maintained until shortly after the market bottomed in March.

From the April 2001 start of the AlphaSector Rotation Index through the end of 2009, it has generated an annualized return of 6.7%. The annualized return for the S&P 500 was 1% over the same period.

And with that performance, the strategy has held the index's volatility to just 65% of the volatility of the S&P 500.

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives .


What do you think?

View comments

Recommended for you

Featured video


These are the federal and state rules that will most impact 401(k) advisers

Will Hansen, chief governmental affairs officer for the National Association of Plan Advisors, discusses regulation and legislation poised to have the biggest impact on advisers.

Latest news & opinion

Social Security funding outlook improves slightly

Retirement reserves extended one year; disability fund by 20 years

IBD report: Another impressive year

Despite a stock market decline, revenue is up. And the streak isn't expected to end anytime soon.

IBDs with the most CFPs

How many of the more than 83,000 certified financial planners are employed by the big independent broker-dealers?

Richard Thaler wants to use 401(k)s to boost Social Security payments

The Nobel laureate wants to simplify drawing down retirement assets, which he thinks is 'way harder' than saving the money.

InvestmentNews announces 2019 Innovation Awards winners

Sheryl Garrett is this year's InvestmentNews Icon.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print