Clear and Defined Process

“If you can’t describe what you are doing as a process, you don’t know what you’re doing” – W. Edwards Deming

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Identify Market Trends

The first step in our investment process is to identify trends to determine the strength or weakness in the current market environment. The major question we are trying to answer is, how much risk is currently in the market. Do we want to be fully invested or should we raise some cash and take some risk off the table?


We do this by analyzing a universe of over 100 technical trading indicators built on our in-house technology platform. Each indicator is rigorously tested on an individual basis to determine which combinations provide the best indication of market direction. The technical trading indicators are then combined into sophisticated algorithmic composites that guide our decision-making process. 


The raw data used in our systems include but are not limited to:


  • Index Analysis: S&P 500, Dow Jones Industrial Average, Russell 2000, S&P 400 Mid Cap, NASDAQ 100, Dow Transports, Dow Utilities and Dow Corporate Bonds.
  • Market Internals: Index Advance Decline, Trading Volume and High/Lows.
  • Economic Sensitive: Prime Rate, Discount Rate, Treasury Bill Rate, Fed Funds Rate and Commodity Research Bureau.
  • Sentiment: Commercial Longs and Shorts, NYSE Short Interest, AAII Bullish and Bearish Percentages.


The raw data is analyzed using the following technical tools:


  • Moving Averages
  • Bollinger Bands
  • Relative Strength
  • Stochastics
  • Oscillators
  • Non-Confirmation Analysis
  • Trend Following
  • Overbought and Oversold Analysis

Research Investments

Once we have determined the current risk levels in the market, the next step is to identify the best investments to utilize. We believe that mutual funds provide our clients the best chance to achieve superior risk-adjusted returns. Different market conditions require different tools, so we utilize both active and passive mutual funds. When investing in diversified active mutual funds, we are relying on the stock picking expertise of experienced money managers while we manage market risk. However, during certain market conditions and in specific investment strategies, we may use passive index funds that do not utilize the skill of a portfolio manager and offer broad-based exposure. 


The mutual funds we use are those available on the No Transaction Fee platform provided by our custodian partners Fidelity Investments and TD Ameritrade. Our custodian partners offer over 3,500 mutual funds to choose from, which has its advantages and its disadvantages. A wide range of investment choices is great, but with all these choices how do you decide?




Step 1:  Long-Term Filtering of the Database

Our first step in the selection process is weeding through the incredibly large database of mutual funds that are available for purchase. To filter the database, we focus on long-term risk-adjusted performance.


The key to fund selection is using multiple combinations of filters to ultimately develop a strong fund list. For example, we could run the following hypothetical combination of filters:


Filter 1: 10-year Sharpe ratio, 10-year annualized return, and 10-year Alpha.

– and/or –

Filter 2: 10- year Beta and 10-year maximum drawdown.




Step 2:  Short-Term Filtering of the Database

Once we have developed a fund list, it is important to monitor these funds on a shorter time frame to identify the winners for today’s market environment.  The list is ranked by performance over a weekly, monthly and quarterly basis.


The end goal of the filtering process is to identify the mutual funds with the best long-term risk adjusted track record and decide which ones to select based on the best short-term performance.

The combination of filters is used to identify funds that had consistent high returns over multiple time periods with better risk adjusted returns than the overall market.  This type of search also may identify newer funds that are rising stars and worth some further monitoring. If a newer fund warrants attention, we have occasionally found that the manager has a longer history of management of private accounts using that fund’s strategy.  In such instances, we may include the fund in our strategies.  But generally, we want to see a fund with at least a ten-year track record and/or one that has experienced a bear market.


The result of the filtering process is to select the best 2-4 funds from each asset class.  For example, we want to identify the best small-cap value, large-cap growth, international, etc.  This list is dynamic and is reviewed on an ongoing basis.



Once the funds we monitor have been through the long- and short-term filtering process, we determine the allocations for each investment strategy. We have various strategies that range from conservative to moderate that clients can utilize depending on their risk profile and investment goals.


In our “Core” strategies, the allocations are typically allocated among 4-8 mutual funds. However, we retain the flexibility to overweight certain positions and asset classes depending on market conditions. Our “Explore” strategies are much more focused and typically only invest in one mutual fund at a time.


Once all the steps in the process are in alignment, our investment committee will execute the order to invest our clients accordingly. We are a process driven firm!