Tactical Investing With Andrew Gogerty of Newfound Research

In this episode of Strategic Investor Radio, host Charley Wright talks with Andrew Gogerty of Boston-based Newfound Research. The firm was founded in 2008 and is known for its tactical investment models and the mutual funds that are based on them. Prior to joining Newfound, Mr. Gogerty spent a decade analyzing alternative investment strategies for Morningstar.

What exactly is meant by “tactical” investing? In Newfound’s case, the term refers to using sector momentum and asset-class volatility to inform investment decisions. The models are based on the premise that investors always care about capital preservation, no matter what their other investment objectives may be.

Newfound’s tactical models generally work across all asset classes and represent strategic “tilts” toward either better returns or more safety – whatever suits the investor’s needs. The firm originally provided research and sub-advisory services, but in 2013 it built its own suite of strategies that are now available in both mutual funds and separately managed accounts (“SMAs”).

When asked were the optimal conditions for the Newfound models’ success, Gogerty cited consistent trends, either up or down. The worst conditions for the strategies are when markets are choppy, with big swings up and down but no consistent pattern.

No investment strategy can be right 100% of the time, and that’s why Newfound dollar-cost-averages into and out of positions. According to Gogerty, every time the S&P 500 has gone up or down 20%, the index has taken more than a year to complete the move – thus, an incremental, dollar-cost-averaging approach to entering or exiting positions doesn’t present a great deal of timing risk.

When asked what keeps him up at night, Gogerty said people who “invest walking backwards through time.” He drove home the point with a Yogi Berra quote: “The future ain’t what it used to be.” Just because “60/40” worked in the past, doesn’t mean it will in the future.

Gogerty also cited Research Affiliates projections for ultra-low returns from the stock and bond markets over the next ten years, and added that the “FANG” stocks – Facebook, Amazon, Netflix, and Google – accounted for the vast majority of the S&P 500’s gains in 2015.