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|Smart Bear Balanced Accounts
As the stock market struggles to maintain current levels, companies are increasingly challenged to deliver earnings that justify these lofty stock prices. Due to the market's historic over-valuation, prudent investors are looking for alternative methods to generate growth and protect capital, but to date have felt limited in their investment choices. Perhaps they are not aware of the various options at their disposal, such as a portfolio with a combination of stocks short, and short-maturity, AAA & AA bonds.
Lang’s Smart Bear Balanced product is designed to perform well in any market environment, but for the next several years the plan is to take advantage of a likely declining stock market environment. It also attempts to reduce the volatility associated with an up and down stock market. This is done through the use of inverse ETFs and high quality (AAA & AA) short-term fixed income securities that are interest bearing, and provide the total product with low volatility. Our overiding objective is to minimize risk in a very uncertain environment. We accomplish these objectives by limiting the inverse ETF exposure to 15% of the portfolio with the remainder of the portfolio (85%) in the above mentioned fixed securities.
All our accounts are set up in the client's own name with a third party custodian broker or bank, as opposed to being "pooled", as in a mutual fund. This eliminates the main (and valid) criticism of hedge and mutual funds: lack of transparency. With our product, you may access your account online with the custodian anytime, and see exactly all assets currently held. In addition, one may redeem at any time without any penalties or special fees, as opposed to a quarterly or annual limitation. Finally, our minimum account size of $300,000 is much lower than most hedge funds.
The following annualized returns should give you a basis for understanding what has been achieved under various volatile market scenarios. The composite returns are composed of two sources: Our real fixed income returns and our real three inverse ETFs (DOW, S&P, and Nasdaq 100) composite returns.
This product is specifically designed to perform particularly well during bear markets (amazingly only 5 down years during the last 17). In 3 of the 4 down years since 1999 "Smart Money" has achieved double digit positive returns, and a 6.5% return in the other down year of 2001. Finally, most importantly for building wealth, when equity returns were very strong, we are pleased to have kept losses to a minimum (-0.66%, -2.06%, -4.75% and -2.00%). The relative weighting is 85% fixed and 15% ETFs. It turns out that this combination, over this 16 year period, reflects the greatest return with the least risk.
Consultants are increasingly recommending this type of asset class, similar to their endorsement of international equities as a diversification measure a number of years ago.
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About the market...
"Mr. Prechter’s Conquer the Crash is a must read. It gives the investor a unique insight into the market that is not available anywhere else. If Mr. Prechter's thesis is correct (and I believe that it is), and action is taken accordingly, financial devastation will be averted. If he is wrong, you will have only lost an “opportunity cost”, which may or may not be meaningful. At a time of record high stock prices, rampant speculation, and valuations higher than in 1929, the choice would seem to be easy."
BARRON'S • Profile Going Short, Winning Big Talking With Julie Lang Kirkpatrick, Portfolio Manager, Lang Asset Management By J.R. Brandstrader Updated Jan. 19, 2009 11:59 p.m. ET THE WORST MARKET IN MORE THAN 75 YEARS HAS BEEN pretty darned good to the clients of Julie Lang Kirkpatick. Their separately managed accounts were up smartly in 2008, with many hitting double-digits. Kirkpatrick pulled off this feat by following three strategies, she says. The portfolios of some her clients were made up largely of short positions in stocks, or bets on price declines; those accounts shot up more than 50%. Another group had a mix of short and long positions -- and a nearly 25% gain. Finally, Kirkpatrick's investors who chose to stick with municipal bonds enjoyed 8%-plus returns, despite convulsions in that market. The daughter-father team has a knack for short-selling stocks, and investing in muni bonds. Craig Bromley for Barron's: Strong returns appear to be nothing new for Kirkpatrick, 56, who runs Atlanta-based Lang Asset Management with her father, Robert B. Lang, 79, Lang Asset Management, Inc.