Total Market (S&P 500)
OBJECTIVE: Match the performance of the US stock market (via an equal-weighted investment strategy in the S&P 500, the Nasdaq, the Dow Jones Industrial Average and the Russell 2000) in bull cycles; go to cash in transition cycles; and, invest in the inverse of the same indexes in bear cycles.
MANAGEMENT APPROACH - Goal of 25% invested, each, in the SPY (S&P 500 index ETF), QQQ (Nasdaq index ETF), DIA (Dow Jones Industrial Average index ETF) and IWM (Russell 2000 index ETF) in bull trending markets. In transition markets, the model tends to hold cash in money markets. In bear trending markets, the model invests in the inverse ETFs of these same four indexes.
Portfolio Strategy At-a-Glance
- Holds the SPY, QQQ, DIA and IWM in bull cycles
Moves to 100% cash in Transition Zone cycles
Holds inverse ETFs of the S&P 500, NASDAQ, Dow and Russell 2000, in bear cycles
Turner Capital has developed a set of proprietary analysis algorithms that provide the portfolio manager with the following information:
TREND AND CONTINUITY OF TREND - The Turner Capital investment strategy is predicated on the assumption that market and equity trends tend to stay on trend more than they change trend. Therefore, the methodology relies on the mathematical likelihood that a trend will remain reasonably constant until such time as the trend is detected as having reversed.
BULL, TRANSITION OR BEAR CONDITION - The Turner Total Market Index, in general, and equities in particular, are rated by the Turner Capital software system as either in a bullish, transition or bearish trend. A bullish trend exists when the index or equity is trading above the Turner (High-Risk) Band and trending higher. A bearish condition exists when the index or equity is trading below the Turner (High-Risk) Band and trending lower.
OVERBOUGHT/OVERSOLD WARNING - The financial objective of Turner Capital's market-directional investing is to keep client capital invested in equities when the risk is lower, relative to normal markets, and to capture profits when risk becomes overly elevated. Once such example of overly elevated risk is when the market becomes "overbought" or "oversold". It is at such times that management looks for opportunities to take profits and move some or all of a client's portfolio to cash. Overbought conditions can occur when the market is trading excessively high above the Turner Band or excessively low below the Turner Band.
DOWNSIDE EXIT - According to the Turner Capital analytics, equities held in a client portfolio will typically fluctuate within one standard deviation of normal volatility on a weekly basis. Once an equity moves higher than one standard deviation of normal volatility above the equity's Turner Band, the equity is typically held in the client's portfolio until such time as it triggers its Stop Loss price, which is generally one standard deviation of normal volatility below the equity's most recent Friday closing price.
Moving Into the Market - When the Turner Total Market Index moves from inside the Turner Band to either a bullish bias or a bearish bias, the manager of this portfolio model has the discretion to put 100% of capital to work.
Minimum Account Size - $50,000
Fee and Fee Structure - Clients pay a management fee to Turner Capital Investments, LLC. This management fee covers all management services but does not cover trade commission fees. This means TCI clients pay a commission to the broker for trades made in their portfolio(s) either in the form of an "Asset Based Pricing" or a "per trade" transaction fee. Trading fees are paid directly to the broker. TCI does not receive any portion of the transaction fees. "Asset Based Pricing" is recommended for clients with less than $1 million in any one account. This is currently a fee of 0.2% (annual) of the net asset value of the client account regardless of the number of trades made in the client account. TCI management fees range from 1% to 2% of the net asset value of client account(s). The percentage rate is based, in part, on the aggregated total of an individual client's accounts being managed by TCI (see "Family Discount", below). One-twelfth of the fee is deducted from the client's account(s) monthly.
Family Aggregation for Fee Assessment - When calculating the net asset value of a client's account for the purpose of determining the appropriate management fee, TCI aggregates all the client's personal accounts, plus all of the client's family accounts, such that the aggregate amount of the client plus family accounts are used to get the lowest possible management fee for the client and the family accounts.
Cash Strategy for Client Accounts – When client accounts are not fully invested in individual equities, the balance is typically held in money markets. It is the goal of the Manager to keep client accounts fully invested except when the Turner Capital Composite Index is inside the Transition Zone, but depending on market conditions and risk assessment, the Manager may choose to have client accounts in cash or cash equivalents.
* Transition Zone
The key to knowing when to have a bullish, bearish or go-to-cash investment bias hinges, in our opinion, on measuring the current trend of the market and to avoid whip-saws. Having the correct investment bias is crucial to improving the odds of making better, more profitable, trading decisions.
Management Approach - We consider having the correct or best investment bias (mindset) is an important part of the battle when determining whether to be a buyer of long position ETFs, holding cash, a buyer of short position equities such as inverse ETFs, and certainly, when to sell. The key for our investment strategy is to know when the market (as defined by multiple index ETFs) has moved from a bullish trend to a bearish trend and vice versa. This is done by measuring the current trend and mathematically determining whether the trend has changed or not. One of the tenants of our Market-Directional investment methodology is the assumption that the current market trend will continue until it doesn't; so, it behooves us to be vigilant in the measurement of the current market trend to see if it has stopped trending in its previous manner and has reversed course. Certain key assumptions are made in this quantitative analysis; one of which is the "Transition Zone".
We believe that the best time to have capital exposed to the market, is when the risk of the market changing directions is relatively low; as in the case of longer-trend bull market cycles and longer-trend bear market cycles. When the market is not in a longer-trend, as in the case when the market is inside the Transition Zone, we believe risk of loss of capital is elevated and the tendency of whip-saws (moving in and out of the market in quick, successive, moves where the odds of losing capital increase) occur. We look for opportunities to be invested in the market in both bull and bear cycles, but move to cash when the market is in the higher risk, Transition Zone.
Turner Capital has developed a proprietary market index called, "The Composite Index". This index is a composite of the S&P 500, the Nasdaq, the Russell 2000 and the DJIA. The "Transition Zone" is a volatility band, the width of which is one standard deviation of normal volatility of the Composite Index, on either side of a 200-day moving average of the Composite Index. The investment bias (whether to be bullish, neutral or bearish) is predicated on where the weekending close of the Composite Index is located in relation to this Transition Zone. The investment bias is bullish if the Composite Index is above the Transition Zone and trending higher; neutral if the Composite Index is inside the Transition Zone; and, bearish if the Composite Index is below the Transition Zone.