RTM Capital Advisors: Tactical Update

As we discussed from our last post and with the first month behind us, the markets have played out as anticipated. Based on weekly fund flows, investors jumped into the market at record numbers only to be put under immediate pressure with a massive bout of multi-day volatility.

With a strong market start of +6-10% (depending on the index) and no pull back, the averages are now off peak to trough more than 10% in a matter of days. This is precisely what we watch for and why it is critical to be tactical in managing client assets. RTM Capital Advisors made the shift to 100% cash late last week before the markets began their volatile ride and we will wait for the storm clouds to clear before jumping back in.

The important point to show is how all returns are not created equal. If you are a long-term, buy & hold money manager, then you are currently down for the year with a possible best return of +7% with a -10% drawdown. So, if by year end, the market recovers with a possible +10% by year end, you will have a substantial recovery and your total return with the risk you took will be 1:1.  If the sell-off gets worse, or a recovery doesn’t occur, it could be far worse.  If you took a tactical approach and had a real process to raise cash when warning signs appear, you have side-stepped most of this pain and will be in position to capitalize on further upside, from a better position, when the storm clouds clear.

We still believe that equities will do well in 2018, but remain cautious, which is why we raise cash quickly when we see signs of danger. A tactical approach can bring criticism from clients as they ask “why am I paying you to be in cash?”  However, our response is that you are “paying us to know WHEN to be in cash.” This current market condition serves as a perfect example to show why our clients’ capital is currently sitting high and dry and waiting for what we believe will be a better and lower risk opportunity to re-enter the markets. RTM Capital Advisors is currently outperforming the general market in terms of total return and substantially outperforming on a risk adjusted basis.