Volatility sparks new look at market timing

Market timing for the masses — that is the general concept behind a program, to debut as early as this week, that will give financial advisers access to a screened universe of market-timing strategies.

Schreiner Capital Management in New York is launching the Select Advisors program, which packages nearly 500 market-timing strategies from 230 active mutual fund traders in a unique, wraplike format.

Roger Schreiner, president of Schreiner Capital and co-founder of Select Advisors, says the program, which completely rebuffs any notion of buy-and-hold investing, gives advisers a tool for investing regardless of market conditions.

“Some advisers are great asset gatherers, and others are great money managers,” he says. “Our system lets the adviser focus on what he or she does best.”

strategies

While the system’s final details are being considered by lawyers, the concept will enable financial planners to allocate client assets with advisers that actively trade mutual funds using a variety of market-timing strategies.

Select Advisors will offer exposure in such strategies as short-selling, leveraged long-selling and bonds through active allocators with turnover rates that could range from 200% to 2,000% annually. Clients pay a 2.5% asset-based fee, of which 1% goes to the adviser bringing the assets to the program.

The program expects to sign its first 10 advisers this week. The minimum investment is $100,000.

Targeted to financial planners who believe in active trading principles, Select Advisors might influence a wider audience, its sponsors say.

Program co-founder Paul Montgomery says that at times like these, when the markets may be out of sync with traditional asset-allocation strategies, financial planners need to consider their options or risk losing clients along with their assets.

“Rather than have clients leave, advisers can now retain their clients and help them find managers and investment programs that better suit their needs,” Mr. Montgomery says.

Mr. Schreiner, a longtime member of the Society of Asset Allocators and Fund Timers Inc., is from the school that boldly challenges the notion of buy-and-hold investing.

As an adviser with $125 million under supervision and first-quarter 2001 performance in excess of 30%, Mr. Schreiner believes market timing is the most responsible way to oversee a client’s portfolio.

“Passive investing doesn’t work,” he says, taking a shot at some of the mutual fund industry’s proudest sons. “What the Peter Lynches and John Bogles of the world are telling you is not true. I don’t think buy-and-hold investing is good for any point in time. I think passive investing is a guarantee that you’re going to get hurt.”

converts

And the market-timing mind-set is attracting converts, thanks largely to the volatile and increasingly bearish stock market conditions.

Robert Levitt, an adviser in Boca Raton, Fla., believes that buy-and-hold strategies are costing advisers their clients. Mr. Levitt, who is responsible for $130 million in client assets, began taking cash positions more than a year ago and currently has about a 40% total cash position.

“There’s no need to stay in the market just because the long term has shown that markets go up,” he says. “When markets like this crash, they don’t just come right back. We’d rather risk the opportunity than risk the capital.”

Of course, while Mr. Levitt understands that cash may be a safe position, he knows that it is not exactly what his clients are paying for. So he is offsetting the remaining equity exposure with hedged positions in options and various short-selling strategies.

Regarding the buy-and-hold mantra that was made popular by mutual fund company marketing efforts in the early 1990s, Mr. Levitt points to the fact that the Dow Jones Industrial Average first reached 1000 in 1966 but didn’t sustain that mark until 1982.

“We think for younger investors, dollar cost averaging makes sense,” he says. “But when it comes to older investors, they’ve already become rich, and you only need to become rich once. And they don’t pay us to lose their money.”

In the Select Advisors model, the underlying managers that will trade mutual funds in a handful of fund companies which allow and encourage such activity will do all the timing. The fund companies will primarily include Rydex, ProFunds and Potomac, but the idea is to expand to more exotic instruments that will include some individual securities.

Participating investors and financial planners can track the daily performance of the Select Advisors’ various strategies on the program’s website, AmericasBestTimers.com.

However, while it is OK to invest in active trading strategies, actively moving among managers in the program is discouraged and even penalized if it becomes too frequent.

Select Advisors program manager Kevin Sareyka says that advisers who move client assets among underlying managers more than three times per year will be charged $100 per move.

“Switching among managers adds cost,” says Mr. Sareyka, sounding eerily like the mutual fund industry in the early 1990s.