Buttonwood Financial Group – Proactive Investment Strategy

October
24

Written by: Jon McGraw

 

You may have seen recent headlines calling for the possibility of a recession by the second half of 2017…  With Buttonwood Financial Group’s proactive approach to investment management we have processes designed position investments appropriately for each stage of the economic cycle.

Above is the current view from Moody’s Analytics of the Global Business Cycle Map. This map is designed to provide a snapshot of where various countries are in the economic cycle. At Buttonwood, the economic cycles drive our investment positioning and are ALWAYS on our radar. You may remember the 15% decline in the major stock markets from May 2015 to February 2016 – then again you may not – as our more defensive positioning helped to buffer the decline.

The objective of the Investment Policy Committee at Buttonwood is to produce a more consistent rate of return through economic cycles. Proactively positioning assets to both defend against, and to take advantage of opportunities in future economic cycle stages, is key to realizing that objective. Recently we have seen an increase in later stage economic cycle indicators, and as such we have continued to reduce risk – position investment assets more conservatively.

We use the following logic when positioning investment assets:

  1. Our baseline allocation is determined by stock and bond world index allocations.  We adjust the baseline annually.
  2. We then make specific allocation changes based on our perceived changes over both U.S. and foreign economic cycles.  We review economic cycles at least quarterly.
    1. Once allocation targets are defined by the economic cycle stage, we then determine specific investments that align with these targets.
    2. Once investments are made, we implement a rigorous process to track and monitor each investment.
  3. Beyond tactical economic cycle allocation, we also overlay shorter term technical market indicators to determine ‘cash’ strategy (invest cash OR hold cash).

In action: We began to decrease overall investment risk in 2015 based around signs of later stage economic cycles (#2 above).  As we moved into 2016, we have, and will likely continued this trend.  From a shorter term cash perspective (#3 above); in September 2016 we began to let cash build. And with the final two months of 2016 yet to unfold, we may once again end the year overweight cash.

Our proactive, logic based, investment approach provides us a much greater probability of success. At the same time, our strategy presents Buttonwood clients the ability to sleep well at night – even when the future of the markets looks uncertain.

View more details about our specific positioning in our latest quarterly newsletter