Volatility returned with a vengeance for the month of October with the US equity markets down over 8% at one point from their September highs. However, a late rally in the last days of October saw the Dow end down 5.76% for the month while the S&P 500 ended the month with a loss 7.28%.
October tends to be an emotionally charged month with traders and investors mindful of the 1929 stock market crash and 1987 October 19th Black Monday. You also had the Long Term Capital Management Crisis in late 1998 and of course more recently the Global Financial Crisis late 2007.
Perhaps its that traders and investors expect increased volatility in October that it becomes a self-fulfilling prophecy or that it’s simply the spookiest month as it contains Halloween…. I guess we will never really know but this October certainly didn’t disappoint.
It seemed that each negative headline and story was followed by another with no respite.
Hedge funds which had averaged around .25% for the year (yes that is ¼ of a percent) as of the end of September were also hit hard losing an average of 4.9% for the month. Here we were in a time of increased volatility which “technically” should have been the perfect environment for hedge funds…………but all that many funds seemed to do was lose a little less than the market.
At first this baffled me but then I came across an interesting interview which explained how approximately 85% of hedge funds were really long/short funds. In other words, they were still invested in the market and as such were correlated to market moves. So, not only did an investor in an average hedge fund fail to capture the upside for the year to date…But the downside protection also failed them.
So, if 85% of hedge funds are exposed to market moves then there is truly only 15% of funds that can offer investors some sort of protection from falls in the market and these are generally counted more as Alternative Investment Strategies than Hedge funds although in reality they are not mutually exclusive of each other.
As you can see from the graph below FTM is firmly within that 15% group.
As of the end of October FTM Class C outperformed the S&P 500 based on an investment from October 2014 to October 2018.
Comparing FTM to our peers also highlighted our level of out performance. In this table FTM is represented as Advisor.
This month also had an interesting article about whether you should stay invested in a volatile market and ride it out or get out and get back in later.
While the article had a bias towards the Australian stock market it did make a few interesting points
- Key Australian share indices can take nearly six years to return to pre-crash levels after a major correction.
- Global funds and property trusts remained underwater for more than seven years, with many never resurfacing, while emerging markets took up to six years to recoup their losses for investors
Let’s be generous here and say than on average after crashing it only takes 5 years to come back to square one.
As we are living longer and start to invest earlier. How many times will the typical investor be exposed to this sort of crash?
This isn’t limited to Australian markets either as Wall Street has managed to lose 45% of the typical investor’s money twice over the last 21 years and we could well be setting up for the third time now.
Keeping in mind that the investment landscape is far more interconnected and correlated now than its ever been. After all a tweet here and a tweet there can seriously ravage your portfolio. This being the case I think you need to plan for at least 3 of these large crashes over an investment life time.
So, assuming each instance takes 5 years to come back on average then that’s 15 years of an investors life that their money isn’t growing.
But what if you were able to avoid 15 years of going nowhere and instead were able to generate an annualized return of say 8.87% a year as that is the annualized return of FTM class A for almost 9 years now.
In that case a $50,000 investment at 8.87% a year for 15 years would grow to $164,317.99 which means it would have made an additional $114,317.99 without the sleepless nights.
So, as an investor you really need to ask yourself if potentially going nowhere for 5 years at a time, biting your nails down to the quick, tossing and turning at night and hoping you claw back the losses is really the best way to invest? Or is there perhaps a better way?
FTM ended October with a return of between 0.30% and 0.90% depending on the share class and this return would have been exactly the same if the market fell 20% or rose 10%.
And while FTM is more illiquid than a typical equity investment it is not at the mercy or correlated to the market.
This table from Barclay Hedge shows the top 10 fixed income funds
As you can see below FTM is only second and third based on a comparison of 12 month returns. However, when you look at the performance on a risk adjusted basis by way of the Sharpe ratio then FTM takes the first 2 places on the table.
FTM ended the month and the year to date with the following.
FTM Class A 0.73% October and 7.47% year to date
FTM Class B 0.30% October and 4.46% year to date
FTM Class C 0.90% October and 8.79% year to date
FTM Class D 0.83% October and 8.33% year to date (simple interest)
So, if you are sick of the market volatility and sleepless nights worrying about your nest egg. Then isn’t it time you took a closer look at FTM.
FTM generates the same returns irrespective of market condition or direction. It has no correlation to the market and the perfect way to grow your nest egg month in and month out.
This month I have included a link to our fact sheets to download the fat sheets visit https://ftm-investments.com/fact-sheet/