Why Outperformance In Down Markets Is More Important Than You Think 

Much of the world is in the midst of a downturn, triggered by the deepest and fastest drop in economic activity we have witnessed in several decades. While the April rally, which saw the S&P 500 index posting its strongest monthly gain since January 1987, provided investors with some respite, no one knows if it is a sustainable recovery or a dead cat bounce. 

Uncertainty remains and stocks are likely to remain volatile as investors digest news on the lifting of lockdowns, corporate earnings reports, economic indicators, potential COVID-19 treatments and vaccines, and further geopolitical developments.

With so many variables yet unknown, our goal has been to safeguard our clients by making our portfolios more resilient in a downturn. Has our automated risk managed investing (ARI) strategy worked? Two months may not be sufficient to tell the full picture, but our performance so far has been superior, and underscores why protection from market crashes is so important in the long term. 

Syfe’s continued outperformance

Since markets first began to slide in mid February, our ARI strategy has been cushioning that impact for our clients. Although the S&P 500 has declined 14.4% since its February peak, our popular 15% Downside Risk portfolio only dipped 8.6% (from February 19 to April 30). In contrast, a comparable benchmark like the Morningstar Moderate Index fell 9.1% within the same period (the index is akin to a traditional 60 / 40 portfolio of stocks and bonds). 

It is also worth noting that in the tumultuous month of March, the S&P 500 had lost 23.5% from February 19 to March 31, while the 15% Downside Risk portfolio dropped 10.1%. The Morningstar Moderate Index on the other hand, lost 15%.

Why outperformance in a downturn matters 

Why is it important that Syfe portfolios outperform when markets crash? Imagine checking your investment portfolio and seeing it in the red with double-digit losses. Most people would have felt panicked and scared. That fear can drive investors to exit their investments and flock to cash, thus crystallizing a paper loss to a permanent one. It can also cause investors to miss subsequent rallies. 

Although our portfolio asset allocation is now more conservative amid the current market volatility, we have still performed better overall. As volatility subsides and the market makes its eventual recovery, ARI will again increase the shares of equities across portfolios so investors can capture the market upside.

This is why we believe in managing risk, during both good times and bad. Syfe’s risk management strategy strengthens portfolio resilience, and allows our portfolios to outperform the broader market and other traditionally diversified portfolios.

With ARI managing risk across our portfolios, investors have the assurance that they will not lose more than the downside risk level they have chosen, given their risk appetite. The end result is the confidence to stay invested, even when markets turn dicey. As we have said before, sticking to your investment plan is the smartest decision you can make for future you during this downturn. 

Remembering Warren Buffet’s rule 

Simply put, whether you are decades from retirement or near retirement, you don’t want to incur huge losses. Never lose money – that’s Warren Buffet’s rule number one. 

If you are close to retirement, can you really afford to incur a catastrophic loss on your investment? And even if you don’t need to touch your investments for the foreseeable future, a 50% loss would need a 100% gain on the investment just to breakeven. 

While avoiding losses is not always possible in investing, successful investors accept this and focus on minimising huge losses instead. And that’s exactly what our risk-managed portfolios are designed to do. We will shield you from significant losses when markets crash and be on the front foot when markets recover. 

No one can predict how the pandemic will unfold. But at Syfe, we can promise you that our ARI algorithm is working 24/7 to safeguard your portfolio. Amid these uncertain times, your investments with Syfe are in good hands. Our dedicated advisors are here for you as well to help you limit your risk exposure and make smart investment decisions.