A Tactical Approach to Investing08.11.2014
With the 2008-2009 global financial crisis still not fully receded from the rear-view mirror, some investors have discarded traditional buy-and-hold strategies in favor of more tactical strategies that enable them to get on and out of markets quickly and to manage volatility as an asset.
“They are looking for a way to participate in the market, but they do not want to take all the risk of the market,” Glenn Wiggle, partner and chief compliance officer at Neiman Funds Management, told Markets Media. “They are still shell-shocked from 2008. They are okay with not capturing all the upside.”
An example of the type of investment vehicle that appeals to this mindset is the newest of the Nieman fund family, the Nieman Tactical Income Fund, launched two years ago.
Tactical asset management with a focus on capital preservation has the potential to reduce the historically high downside associated with this asset class during recessions, credit crises and general market downturns.
“Especially in this environment it is very difficult for investors to find a place to get returns,” Wiggle said. “High-yield funds have a tendency to track the economy, and obviously in 2008 they got hammered, and I think that is still fresh on a lot of investors’ minds. They want the upside, but they want to have some measure of protection on the downside, that is why we focused on launching a tactical income fund as opposed to a regular high yield fund.”
Using a tactical approach to high yield bonds, the investment team identifies momentum, relative strength and other technical indicators to recognize trends in the markets. During periods of market declines, the team will seek to preserve capital by rotating to cash, cash equivalents and/or government bonds.
Nieman’s flagship Large Cap Value Fund uses a combination of dividend-paying stocks and covered calls to generate returns. “Selling covered calls on all or a portion of the stocks in our portfolio may result in lower volatility, as a measured form of risk in our fund, while at the same time earning additional cash for our shareholders,” said Wiggle. “The net effect of this program enhances the cash yield received by our fund.”
Covered call options are not sold on all of the Fund’s stock holdings so that, in the event of a strong bull market, it has the potential to capture upside gains on all those stocks for which there are no covered calls.
Although not a tactical fund in the same sense as the Nieman Tactical Income Fund, which can go in and out of high yield bonds up to four times a year, the Nieman Large Cap Value fund is a non-diversified fund, meaning it can raise large quantities of cash when the need arises, as it did in 2008..
“Being a non-diversified fund gives us a little bit more flexibility in going to a cash or even a government bond type of position,” said Wiggle. “Nieman Large Cap Value Fund has raised that amount of cash once in its history, and that was 2008, when it was 50 percent cash.”
Featured image via Maxim Kazmin/Dollar Photo Club
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