Global uncertainty has created more volatile and linked markets around the world. Parts of the euro zone have dipped back into a recession, with the Netherlands being particularly hard hit. Israel and the Palestinian Hamas group are launching rockets at one another with Hamas firing rockets into Tel Aviv & Jerusalem for the first time in over 20 years. Business leaders in the U.S. are applying pressure in a concerted and organized effort to tell Washington to “Rise Above” the politics and avoid the looming “Fiscal Cliff”. One may feel it is all gloom and doom for the markets. But on the positive side, growth in the US has improved from about 1% to roughly 2.5% over the past few months. We know that events will always be going on around us causing global uncertainty and volatility. Some rather serious at times, others just noise. At SGI we take seriously our role as an investment manager to understand what is happening globally, work through the issues of today that may impact the portfolio and invest accordingly.
A question we are often asked by investors is: “Why don’t you just go to cash when……” This is an important question. I hope the answer to this question will help you understand the how and why of the way in which SGI actively manages equities.
- SGI’s portfolio risk is less than the risk of the S&P 500 or the market. Unmanaged baskets of equities (ETF’s) expose investors to the entire risk of the market or of that particular sector. SGI controls market risk through individual security selection, not by selling into cash or moving in and out of sectors. Whether you measure risk by Std. Deviation or Beta, the SGI portfolio today carries the same risk as having a $100 portfolio with $38 in cash and $62 in equities, yet the portfolio is 100% invested in equities.
- SGI actively selects the individual equities we own. By not holding baskets of unmanaged equities we avoid holding names we would not want to own.
- SGI is not constrained to only owning certain sectors or types of equities, (Large Cap, Growth, Value, Small, Mid, etc.). This is an important point to understand: SGI will hold stocks with a range of market capitalizations and style of equities. Our portfolio holds equities across the various size and style metrics.
- SGI manages to the risk of the market. At times the market shifts into a risk on mode, sometimes risk off, sometimes it is rather directionless. The SGI Low Volatility Equity Model seeks to position the portfolio to take advantage of where the market is heading. This is part of the Alpha Model developed specifically for finding specific equities that will exhibit lower volatile characteristics while participating in the upside the markets historically offer and protecting to the downside.
- SGI offers downside protection by maintaining a fully diversified low volatility equity portfolio. This allows SGI to stay positioned appropriately when markets experience large up or large down days. Have you ever left a sporting event early or turned off the game because you felt the game was over? I have on a number of occasions, but I sure wished I had not left some of them early because the comeback was epic. When the markets make their comeback, SGI will be in the market.
For the most recent performance please visit: Morningstar.
Disclaimer: Past returns are no guarantee of future results. Summit Global Investments U.S. Low Volatility Equity Mutual Fund is sold by prospectus only.