Stock market investors are in the danger zone. This all-weather investment strategy offers protection

We are in a period of high inflation, with war disrupting energy markets and the Federal Reserve raising interest rates.

The bleak outlook calls for a multi-year cycle of central bank policy action that will be hostile to stock and bond markets.

An investment approach that can take advantage of price movements across all assets – not just stocks and bonds – can serve you well, especially if volatility is keeping you up at night, prompting you to sell in a falling market, or pushes you to chase performance.

One such example is the Standpoint BLNDX multi-asset fund,
+0.58%

REMIX,
+0.66%,
of which about half of its assets are largely invested in stocks and bonds (primarily equities) in developed markets through low-cost exchange-traded funds. The rest of the silver is used in the futures markets which include currencies, energy commodities, gold and silver, industrial metals such as aluminium, copper, zinc and nickel, as well as cereals and basic products such as sugar and coffee.

During an interview, Eric Crittenden, who co-manages the fund, explained his strategy and describes how he places long and short trades in non-equity assets to give investors “a smoother ride” in the long run. term.

Promising start

There are dozens of mutual funds that use futures trading strategies. Most are designed to mitigate risk in bear markets by taking advantage of price movements, up or down, between asset classes. They can be used by investors to hedge against declines in the stock or bond market, to complement a portfolio of stocks or bonds, or funds holding stocks or bonds.

The Standpoint Multi-Asset Fund’s objective is to perform both functions within the same portfolio, using a systematic approach to futures trading to limit risk while pursuing long-term growth. This way, an investor won’t have to make their own risk management allocation decision between funds and hopefully can limit their own emotional reactions to market turbulence.

There is always a bull market somewhere, in an asset class or region of the globe.


— Eric Crittenden, co-manager of the Standpoint Multi Asset Fund.

The Standpoint Multi-Asset Fund was launched in late 2019 and now has approximately $250 million in assets under management. The fund is too new to have a Morningstar rating. However, it has high performance rankings in Morningstar’s Macro Trading Fund category.

Here is an overview of the performance of its institutional stocks from inception through March 21, 2022, compared to the performance of the SPDR S&P 500 ETF Trust SPY,
+1.17%,
which tracks the US benchmark, and two funds that primarily use futures trading strategies, without the large stock component maintained in the Standpoint portfolio:

set of facts


There’s a lot going on in this chart, which shows total returns with dividends reinvested.

  • The multi-asset fund Standpoint was the best performer throughout the period from the end of 2019 to March 21, 2022, as the S&P 500, represented here by SPY, retreated from its peak in early January.

  • The two purest funds on the chart using futures trading strategies are the US-based Beacon Hill AHL Managed Futures Strategy Fund AHLIX,
    +0.44%
    and the Pimco Trends Managed Futures Strategy Fund PQTAX,
    +0.65%.

  • Looking to the left of the chart, from an early year closing high on February 19, 2020, SPY has fallen 34% from its coronavirus pandemic low on March 23, 2020. During this period, the Standpoint funds only fell 8% despite being about half invested in stocks. Crittenden attributed the outperformance to short positions in the energy futures market. Meanwhile, the two purer funds did very well during this short equity crash, with AHLIX returning 6% and PQTAX 12%.

All four funds have done their job from the stock market crash at the start of the pandemic to the ensuing bull market. The Standpoint fund has been the best performer since the end of 2019. Although it lagged the S&P 500 during the bull run until January 4, 2022, it has outperformed during the stock market decline since then. As expected, the two purest futures trading funds performed best during this year’s stock market decline, but once again the Standpoint fund held its own:

set of facts


Going back to the first graph, the blue line showing the performance of the Standpoint fund illustrates the smoothing of long-term returns that Crittenden and his co-manager Shawn Serikov are aiming for.

Futures for a smoother ride

Crittenden, who previously managed a hedge fund and was previously chief investment officer for Longboard Asset Management, which he co-founded, pointed out that instead of relying on fund managers’ intuition, he and Serikov use a disciplined process. and systematic to take advantage of price movements, up or down, in all developed markets. For the fund’s long equity positions, only US-listed ETFs are used. They are listed below.

For futures trading, “we only trade liquid vanilla futures contracts traded on regulated futures exchanges,” Crittenden said.

Discussing the systematic approach to futures trading, he said that “three variables matter to us and explain over 90% of any asset manager’s success”:

  • Market return on investment — without a crystal ball, decisions are based on recent price movements.
  • The term structure of the market — this includes the timing of stock and bond dividends. For example, all things being equal, if a company pays a dividend of one dollar per share on a given day, the stock price drops by one dollar on that day. Structural considerations also include the timing of bond interest payments, redemption dates and maturity dates, and for commodities, futures contract structures.
  • Market liquidity — Supply and demand imbalances create trading opportunities when prices rise or fall.

Without a crystal ball, Crittenden acknowledged that futures trading, such as the short positions in energy commodities that the fund used at the start of the pandemic, will not capture the best prices up or down. But the fund’s approach is to place them early enough during large price swings to mitigate the risk of the equity portion of the portfolio.

“There is always a bull market somewhere, in an asset class or a region of the globe,” Crittenden said.

When describing the fund’s overall approach, he said, “What we’re giving up is all the excitement” because the highs and lows are avoided.

Warning signs — stagflation

This decline in the stock market so far this year seems moderate, given decades-high inflation, tight monetary policy and the outbreak of war in Europe. With so many moving parts, investors can face great volatility.

Crittenden sees stagflation as a possibility in the years to come. Stagflation is a combination of high inflation and slowing or negative economic growth. This can have a devastating effect on business profits, as businesses are less able to pass on rising costs to their customers.

The Federal Reserve’s unprecedented economic stimulus, through ultra-low interest rates and bond purchases that dramatically increased the US money supply, combined with direct federal government cash stimulus payments to families, helped the economy recover quickly from the pandemic, but has now led to high inflation.

“The bill is due. The question is who will pay? I think it will be stagflation,” Crittenden said, noting that as a portfolio manager he is prepared for it.

ETFs held by the fund

Crittenden said multi-asset fund Standpoint holds the same group of eight ETFs and will occasionally make changes to prevent positions from getting too big or too small. He is not in favor of regular rebalancing.

“I found people were rebalancing too much too quickly,” he said. “They generate transaction costs and tax implications that reduce returns.”

The fund, available through major distribution platforms including Charles Schwab and Fidelity, avoids emerging markets, which make up only about 8% of the total international dollar stock market, according to Crittenden’s estimate.

Here are the eight equity ETFs held by the multi-asset fund Standpoint, according to the most recent information available from FactSet:

Exchange Traded Fund Teleprinter % of portfolio

SPDR Portfolio S&P 1500 Composite Stock Market ETF

SPTM,
+1.11%

7.4%

Vanguard Total Stock Market ETFs

VTI,
+1.23%

7.3%

iShares Core S&P Total US Stock Market ETF

ITOT,
+1.23%

7.3%

Schwab US Broad Market ETF

SCHB,
+1.20%

7.3%

Vanguard FTSE Developed Markets ETF

VEA,
+0.92%

3.9%

ETF SPDR Portfolio Developed World ex-US

SPDW,
+0.96%

3.9%

Schwab International Equity ETF

SCHF,
+0.93%

3.9%

iShares Core MSCI EAFE ETF

IEFA,
+1.02%

3.8%

Source: FactSet

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