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What is a TAMP? title card.

The advisory business is a crowded field (Trillions of dollars are invested in the stock market as I write this.) which is why every advisor wants to and should differentiate themself. If you’re an advisor who doesn’t, it may be holding you back more than you realize.

There is a myriad of ready-made portfolios out there for investors, and every advisor strives to fully capitalize on the market.

It’s during the volatile times when clients request answers, and during the extremely volatile times—they demand answers. So, what are you using to facilitate conversations with clients about what’s going on in the markets?

Advisors look to market research as a resource of what to do when times go awry, but there’s different research across the board. Everyone has their own opinion, so it’s not as simple as “read this playbook and achieve success.”

When advisors are reading research, the first question that should arise is, “Is this person implementing this in their own portfolios?” If not, then the next question should be, “how sound is this advice?” 

Research by Potomac was created to give advisors insight into Potomac’s investment mind  — it’s for advisors who manage money from our money managers.

“Having spent ten years on the institutional side talking to some of the largest investors in the world, I have a pretty good understanding of how these investors think about markets,” Dan Russo, Potomac’s Director of Research and Portfolio Manager, said. “I think there is a disconnect between people who just write research and people who then actually have to implement that research,” he continued.

Anyone can write research with their ideas and thoughts, but at the end of the day, if they aren’t putting any of their own capital at risk and things don’t work out—well, they don’t lose; the only person who does is the one who took their “so-called” advice.

Research by Potomac recognizes that there is a broad audience who is working with clients that have different goals, objectives, timeframes, and risk tolerances because no investor is alike—well, maybe the billionaires, but for the average person who has a drawdown of 70% that could be their entire retirement.

So, Research by Potomac’s content is structured not just to be specific but broad as well—taking a top-down approach. Here is a list of some of the content advisors will have access to:

Monthly Chart Book

The monthly chart book shows significant trends playing out in the markets across asset classes, including geographies, different ETFs, and what’s the big picture right now. Our committee gives insight on the big picture trends over the past 10-15 years and how it’s changing (if it is changing).

So, for advisors making long-term investments for themselves or their clients, it’s a great product for those with a focus on a long-term view and not getting caught up in the day-to-day flow of the market.

From there, it drills down even farther. Our investment committee does a lot of work around sector allocation, volatility, and how different volatility regimes can impact the short and intermediate-term market.

The toolkit looks at different asset classes because we recognize that advisors building portfolios for clients are not putting 100% of their client’s money into stocks or bonds.

There are different asset classes to choose from, whether in the US or even outside of the US—it comes down to taking that information and understanding your clients and how it can best be implemented.

Weekly Scans

Here, our investment committee highlights key technical parameters that they think advisors should be aware of.

The reports could be making a new six-month high, one-year high, a one-year low, or even crossing below a moving average rate. If you’re an advisor who is reading this weekly, then they will gather information and the patterns playing out within the marketplace.

For example, this happened within the fixed-income landscape this year and has been playing out for the past six to eight months.

Our team has been looking at this universe of fixed-income ETFs over time, and their report points out that fewer funds are above their 50-day moving average and fewer funds are below their above 200-day moving averages—alluding to the act that not all is well in fixed-income.

This is essential for advisors because if they’ve been paying attention to the highlighted points in our Weekly Scan, they’ll already hear the alarms blaring before anyone else.

We understand that different clients have different needs—some clients may need to have an allocation to fixed-income; even within those portfolios, there are opportunities for advisors to be a little bit more tactical.

Sector Deep Dives

First, let’s call it like it is—if somebody says their decision is 100% right, they are lying.

We know things don’t necessarily work out. Still, we do the work to understand the market drivers and take a probabilistic approach to make decisions or make allocations when those odds align in favor of the research.

The Sector Deep Dive is a substantial way of looking at that. The S&P 500 comprises 11 sectors, which are not equally weighted. Technology is about 25% of the S&P 500, and Healthcare is 14-15%¹;  so, if Technology is not working, the S&P 500 will have a difficult time performing well, mathematically speaking.

And if you have an index fund and it’s a bad month for Technology, then you are willingly having outsized exposure to those areas of the market that aren’t working; however, what if Materials in the best-performing sector—how can you work that in your favor?

What the investment committee is trying to do with the Sector Deep Dive is identify those sectors that are outperforming relative to the market.

Advisors who are structuring their portfolios can a take step back and realize if Technology is not working, why would they have an index fund? That’s going to be a drag.

What if they could potentially get better performance by allocating a little more capital to Materials, which are performing well—then the portfolio is going to look a lot greener.

Know What You Own

This is designed so you know your sh*t, even when you might not know it.

Let’s say a client enters an advisor’s office (or Zooms them) asking questions about why they don’t have “this” stock or “that” ETFs in their portfolio because they heard it was doing extremely well—Know What You Own will give advisors insight of those data points, which then leads to a constructive conversation with their client saying “ohhh, I’m taking the prudent approach.” Maybe not those exact words.

Often, people look at the name of an ETF and say, “okay, that’s what I’m getting,” whether it’s a value ETF, growth ETF, momentum ETF, etc.

The best example is Consumer Discretionary ETF which tracks the S&P 500 Consumer Discretionary Sector rate.

If an advisor looks at Consumer Discretionary ETF XLY, they might think, “consumer will be strong here, so I want exposure with this ETF.” In that instance, XLY has 40% of Amazon and Tesla.²

So, when buying XLY, they aren’t investing in Consumer Discretionary because the concentration of the bet is on two stocks that most people think are tech stocks, which brings us back to the point that advisors might not even know they were making that bet.

In Know What You Own, our investment committee takes those advisor questions and steers them in a more perceptive direction. If they want to allocate capital to Consumer Discretionary, then RSP might be a better bet for a pure play on the sector as opposed to XLY, which is a concentrated bet on two stocks.

Level Up Your Reading

This is only a fraction of Research by Potomac. We’re trying to tell you that technical research is f/**ing important. What’s even more critical? The place you get it.

We believe your morning chart news should not only cover the broader market but the individual sectors as well. So, when you’re going about your morning routine tomorrow and flipping through analyses of the market sectors, ask yourself if it’s predicting what you want to hear or is it sticking to the probability.

It’s easy to figure out where we fall under.

1 As of 05/17/22

2 As of 05/17/22

Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.