Market Timing? Too Risky.

Posted by Dana Funds Investment Team on Aug 24, 2022 12:10:14 PM

We asked one of our senior portfolio managers, Mike Honkamp, about risk controls at Dana. His answer: by taking market timing out of the equation, he can focus on choosing the best stocks, quarter after quarter.


In our last post, we offered an overview of each step in our process and we promised to dive deeper on each one in future posts. Now we present the first step in building a resilient portfolio: removing market timing risk. Mike explains how we take market timing out of the equation with:

  1. Equal weights among securities in each sector

  2. Benchmark-driven, neutral sector positions &

  3. Avoidance of cash as an asset

Our portfolio managers are free to focus on security selection for their strategies, which is what our clients are paying us for. Makes sense, right?

 

HubSpot Video

 

The key to our risk controls is the structure we maintain in each portfolio. We remain convinced that there is no consistent way for any investment professional to time the market. So we stay sector neutral, regardless of economic conditions, because timing those conditions is impossible. Each stock holding is equally weighted as well, which means we are more likely to notice poor stock performance within sectors and industries. We don’t “chase winners,” which helps us keep human bias out of your investments.

Finally, we remain fully invested, we don’t hold cash. You hire us to run a strategy, so we use our expertise to choose the best stocks in that strategy. No need to keep any cash that needs to be backed out in order to properly measure performance.

We avoid timing the market, choosing instead a sector-neutral approach and equal-weighted position sizes. This helps us avoid overconfidence in any one sector or company, and limits the risks human biases and egos could create in the portfolio. When we talk with clients, the focus is not on overweight or underweight sector choices, not on stocks on a roll, & not on heavy cash positions that need to be backed out to determine the portfolio’s true performance. Those conversations are about the stocks we’ve chosen, and that’s how we like it.

Check out our Superprocess presentation to see how we can help build resilience in your portfolio. And stay tuned for more “under the hood” insights into each step in the process.

 

OPEN QUESTIONNAIRE

 

The Adviser’s judgments about the attractiveness, value and potential appreciation of a particular asset class or individual security in which the Fund invests may prove to be incorrect and there is no guarantee that the Adviser’s judgment will produce the desired results.

The thoughts and opinions expressed in the article are solely those of the author. The discussion of individual companies should not be considered a recommendation of such companies by the Fund's investment adviser.  The discussion is designed to provide a reader with an understanding of how the Fund's investment adviser manages the Fund's portfolio. 

Distributed by Ultimus Fund Distributors, LLC. (Member FINRA) There is no affiliation between Ultimus Fund Distributors, LLC. and the firms referenced in this blog post.
Dana Large Cap Equity, Tickers: DLCIX, DLCEX
Dana Epiphany ESG Small Cap Equity, Ticker: DSCIX
Dana Epiphany ESG, Ticker: ESGIX

You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Dana Funds before investing. The Funds’ prospectus contains this and other information about the Fund, and should be read carefully before investing. You may obtain a current copy of the Funds’ prospectus by calling 1-855-280-9648. Past performance does not guarantee future results.

The universe of acceptable investments for the Dana Epiphany ESG Funds (DSCIX & ESGIX) may be limited as compared to other funds due to the Dana Epiphany ESG Funds’ ESG investment screening. Because the Dana Epiphany ESG Funds does not invest in companies that do not meet its ESG criteria, and the Fund may sell portfolio companies that subsequently violate its screens, the Dana Epiphany ESG Funds may be riskier than other mutual funds that invest in a broader array of securities. There is no guarantee that this, or any, investment strategy will succeed. Past performance of the strategy is not an indicator of future performance of the funds. Given the significant differences between separately managed accounts and mutual funds, investors should consider the differences in expenses, tax implications and the overall objectives between separately managed accounts and mutual funds before investing. Small cap investing involves greater risk not associated with investing in more established companies, such as greater price volatility, business risk, less liquidity and increased competitive threat. Alpha is a measure of performance on a risk-adjusted basis. ESG investing is considering environmental, social and governance factors into your security research.