Stop worrying about a double-dip recession — the current economy is bad enough as it is.
That's the message of Sharon Snow, chief executive of Metropolitan Capital Strategies LLC, a tactical asset management shop that's been sitting in cash since April 21. The all-in or all-out separate account strategy has generated a 24% gain so far this year.
“With a 1.6% GDP, the unemployed won't get jobs, the employed won't get raises and consumers won't spend money,” Ms. Snow said. “The U.S. economic situation is precarious at best, and we can't count on fake government money-printing to stimulate our economy.”
This is the kind of jarring reality check investors should expect from a manager who will shamelessly camp out in money market funds unless the risk-return ratio is lopsidedly on the side of big gains.
“We feel very confident that over the next six months we'll have an opportunity to get back into the market,” Ms. Snow said. “But people have to be very cautious about what they get into right now, and I would not recommend buying and holding anything.”
The Metropolitan Capital strategy, which Ms. Snow oversees along with the firm's chief investment officer, David Schombert, is all about grabbing performance and then holding on to it.
Over a typical five-year period, Ms. Snow said the portfolio will be fully invested between five and eight times for periods of between seven weeks and four months at a time.
Prior to the move out of the market in April, the strategy was fully invested between February and April in three exchange-traded funds; Direxion Daily Emerging Markets Ticker:(EDC), ProShares UltraPro S&P 500 Ticker:(UPOR), and Direxion Daily Technology Bull Ticker:(TYH).
“There's always a time during a five-year period when you can grab some money and run,” she said. “But we've never spent as much time on the sidelines as we have over the past two years.”
The self-imposed benchmark is to generate a 15% annualized return over a five-year period.
To that end, the strategy employs a three-pronged approach that starts with an analysis of broad technical indicators including market momentum, relative strength and value.
From there, the process involves fundamental analysis on the companies represented in various broad-market ETFs, with the highest relevance going to revenue and earnings.
The final stage takes into consideration the broad economic indicators.
Ms. Snow said the portfolio will move off the sidelines only when there is a 90% certainty of a gain of between 10% and 20%.
“We're not market timers, we're risk timers,” she said. “Once we move in and get out upside, we exit and got to protection mode.”
The analysis process will produce up to 14 opportunities in a typical five-year period to capture gains of at least 10%, she said.
But unless that outlook comes with a “90% confidence factor,” Ms. Snow said the portfolio will wait in cash.
“You have to work with what the market gives you and you should be skeptical of anyone giving you linear returns,” she said. “We are very leery of asset allocation and diversification because you're allocating into a declining asset class and that's just nonsense.”
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