Nearly a year and a half ago, we published an original piece entitled “An Alternative to Liquid Alternatives.” At the time, we wrote: “many of the currently investible vehicles have not been truly tested in a dramatic drawdown environment like 2008.” Since publication, the investing landscape has changed substantially; interest rates are rising, the S&P 500 has endured a 20% drawdown, and the yield curve has inverted, to name just a few of the many notable developments.

Given the path of global markets since Oct 2017, there has been ample opportunity for liquid alts to prove their mettle, so we thought it was time to update the data for one of our most popular blogs. Let’s look at the revised story…

“The three greatest risk to investors: Behavior biases; loss of compounding from large portfolio losses; and the opportunity cost of being too conservative.”

- Jon Robinson, Systematic Investing And The Rise Of Emotional Intelligence -

As most know, investors notoriously underperform the market by aggressively buying at the highs and selling at the lows. In fact, a DALBAR study released this week shows the average equity fund investor experienced twice the loss of the S&P in 2018.  However, it is possible to conquer this reactive fear and respond effectively to the inevitable presence of market volatility.

The race to zero in the ETF world has its first winner.  On February 25th, online personal financial services company Social Finance, Inc. (SoFi) announced the industry's first zero-fee ETFs. The filing consists of four ETFs in total, with two of the funds (SFY, SFYX) having fee waivers in place until at least March 27, 2020, effectively bringing their total fund expenses to zero for the first year of operation. But much like a buy one get one free offer, it is not immediately evident that a zero fee ETF is always a good value. We believe there is more to the story, and make the case below.

As anyone who has read Blueprint insights over the last few years knows, we believe in two types of diversification.  First, asset diversification is a keystone of investing and we embrace the benefits.  Second, we add time diversification using trend following techniques to mitigate the vagaries and cycles of markets. Why? Because, historically, when given enough time (say 20 years), asset diversification (buy and hold) has been almost unbeatable. However, humans do not naturally invest or even think that long term and struggle with staying the course when the market inevitably course corrects either in a short-lived correction or sustained drawdown. This in turn reduces the probability of achieving their long-term financial objectives. Please allow me to elaborate.

Execution is everything

Do your job. This simple three-word phrase has served as the mantra for the New England Patriots and their long-time coach Bill Belichick during their incredible run since 2000. Being from North Carolina, I’m proudly a Panthers fan, but I have always respected and appreciated the ‘Patriot way.’ Six Super Bowl wins in nine appearances is a spectacular achievement, particularly in a sport theoretically geared to ensure parity and discourage dynasties.