Congratulations to Newfound Research for winning the 2016 award for Best ETF Strategist with their QuBe portfolios.
Editor’s Note: WrapManager does not provide direct investment access to the QuBe portfolios. WrapManager provides investment access to several other Newfound products, including the Risk Managed Sector Series.
After the announcement of the winners of the 2016 ETF.com awards WrapManager spoke with Newfound Research about their place in the rankings.
Answers were provided by Justin Sibears the Portfolio Manager at Newfound. A frequent speaker on industry panels and contributor to ETF Trends, Justin holds a Master of Science in Computational Finance and a Master of Business Administration from Carnegie Mellon University as a well as a BBA in Mathematics and Finance from the University of Notre Dame.
Q: What makes Newfound Research’s ETF strategies unique?
A: Our strategies are unique in that we invest at the intersection of quantitative and behavioral finance to deliver systematically managed portfolios designed for both the destination and the journey. We believe in quantitatively-driven investment approaches, powered by the evidenced-based insights of thoughtful research and we feel that our brand of quantitative is differentiated by three qualities.
The first quality is consistency. We believe that in implementing these approaches, consistency is paramount for long-term success and is best achieved through a completely rules-based, systematic process. Consistency helps us avoid cognitive biases that, when repeated over time, can compound and create negative investment results.
The second quality is simplicity. Our research shows that simple processes are more robust to future uncertainty than complicated ones. Black box, over-optimized models tend to do well only to the extent that the past repeats itself, a dangerous assumption to rely on in the markets.
The third and final quality is our philosophy of quantitative integrity, the idea that an idea must not only be supported by data, but also be grounded in sound theory. Put differently, identifying investment approaches with compelling evidence behind them is only half the battle. We also have to understand why these approaches work. Without understanding the why, it is very hard to determine whether the strategy’s past success can realistically be repeated in the future.
Our strategies also reflect our view that investing isn’t easy. Emotional decisions can derail even the best laid plan. Therefore, we believe that the optimal investment plan is, first and foremost, one that clients can stick with. Research shows that investors feel the pain of losses more than they feel the joy of gains. This is reflected in a deep desire to protect the capital that they have worked hard to accumulate. Accordingly, we seek to improve risk-adjusted returns and investor experience by prioritizing downside risk management and seeking to avoid large losses.
Q: Newfound was first founded in 2008. What made your team want to strike out on your own?
A: In our opinion, investing is too often dominated by a search for the holy grail: strategies, managers, or asset classes that will outperform regardless of market environment. We find this approach to be deeply flawed because there is no holy grail. Even Warren Buffet, perhaps the greatest investor of all time, has underperformed the broad equity market by 20% or more over numerous one year periods.
Instead, we believe that investors should think about their portfolios like golfers think about their clubs. There is no one club that will work in all situations. A driver can be great off the tee (at least for those of us that can actually hit it straight!), but will be totally worthless for a buried lie in a sand trap.
Similarly, most investment strategies will work well in some environments and not so well in others.
In our view, market crises do not imply that traditional asset class diversification is broken. Rather, they highlight that diversification is not perfect. A balanced stock/bond portfolio works best when equity and fixed income valuations are cheap to fair, growth is strong, and correlations are low.
Speaking of objectives, the strategies that are available at WrapManager are designed to help investors manage volatility, enhance diversification, and find income.
Our Risk Managed Sector Series seeks to provide access to equity markets within a disciplined risk management framework that aims to side-step large drawdowns by actively managing the stock/bond mix within the portfolio. Over the long-run, these strategies are meant to complement traditional, buy-and-hold asset allocation models. We offer global large-cap, U.S. large-cap, and U.S. small-cap versions of the strategy. Strategies within the suite can be used to proactively dial equity exposure up and down depending on market environment.
Our Multi-Asset Income strategy provides access to both traditional (e.g. Treasuries, dividend stocks, and corporate bonds) and non-traditional (e.g. high yield bonds, REITs, MLPs, preferred stocks) income-based asset classes through a systematic process that prioritizes downside risk management. The strategy operates under the guiding philosophy that long-term income generate relies on both finding attractive yield opportunities and protecting the capital base. The strategy can be used to enhance overall portfolio diversification, increase portfolio income, or generate growth during periods of depressed equity returns.
To learn more about Newfound Research, request a detailed money manager research report here. To find out if Newfound Research could be an appropriate investment for your goals-based investment plan, request your free Money Manager Recommendations here.
This rating is not indicative of the investment adviser's future performance. Opinions expressed are as of April 7, 2017 and are the opinion of by Justin Sibears of Newfound and do not necessarily represent the opinions of WrapManager, Inc. or its employees and may change as subsequent conditions vary. Information provided in this report is for informational and illustrative purposes only. This material is not intended to be relied on as a forecast, research or investment advice, and is not a recommendation, - or solicitation to buy or sell any securities or to adopt any investment strategy. NewFound and WrapManager are not related entities. WrapManager and NewFound have entered into an agreement by which WrapManager recommends certain NewFound strategies to clients.
Strategy descriptions listed represent a brief outline of the portfolio’s objective. There is no guarantee that any manager or product will be successful in achieving the objective described. The strategy used by the money manager listed is not suitable for all investors. This material does not represent a personalized recommendation and does not reflect individual investor’s risk and return goals nor does it serve as the receipt of, or a substitute for, personalized advice from WrapManager, Inc. or any other investment professional.
While WrapManager, Inc. believes the information obtained from the money managers regarding their strategies is reliable, WrapManager, Inc. is not responsible for any damages or losses arising from use of this information, and does not assume any liability for erroneous information provided by such companies.
Please Note: The ETF.com Award winners are selected in a three-part process designed to leverage the insights and opinions of leaders throughout the ETF industry.
Step 1 – The awards process began with an open nomination period running from Dec. 5, 2016, through Jan. 4, 2017. We received hundreds of nominations from participants in all corners of the ETF space.
Step 2 - Following the open nominations process, the ETF.com Awards Nominating Committee—made up of senior leaders at ETF.com, Inside ETFs and FactSet—voted to select up to five finalists in each category. Votes were tallied on a majority basis.
Step 3 -Winners from these finalists were selected by a majority vote of the ETF.com Awards Selection Committee, a group of independent ETF experts. Committee members recused themselves from voting in any category in which they or their firms appeared as finalists. Ties were decided where possible with head-to-head runoff votes.
Voting was completed by Jan. 20, 2017, but results were kept secret until their announcement at the ETF.com U.S. Awards Dinner on March 30, 2017.
This rating is not indicative of the investment adviser's future performance.