Several readers sent in positive responses regarding my post on Stadion’s ETFFX fund, which uses some form of trend tracking to avoid market exposure during bear market drops.
Stadion’s Senior VP Steve Beard had this to say:
Your recent writing in which you commented favorably about Stadion’s approach to managing money was gratifying. Thank you. Two things: ETFFX has actually been around a year longer than mentioned (since Sept. 2006), and we now offer an institutional share class without load or 12b-1, which brings the expenses down to just over 1.5%.
Added notes: Stadion has employed its money management model since January 1996. ETFFX is cloned from our longstanding SMA model, which has produced the same type of results but over a much longer period of time. In the ‘yardstick’ years of 2000, 2001, 2002, Stadion actually produced positive returns each year, not just over the 3 year period but in EACH of the 3 years (+12, +1, + a fraction).
And you are entirely accurate in saying that investors don’t need giant returns following bad markets if they haven’t suffered giant losses during the bad markets. In the ‘lost decade’ we delivered about 7% per year gain to our investors despite having no particularly remarkable ‘up’ years. As managers, we believe the emphasis should be on performance OVER time versus any given year IN time. We enjoy telling advisors and clients that while we may not be the prettiest girl at the dance (in any given year), we may be the one you want to marry.
I agree with his statement that performance should be judged over time and not just for a short recent period. More importantly, it should always include a period of bullishness and bearishness so that any shortcomings of an investment approach are clearly visible.
However, that is not standard operating procedure. For example, the bear market of 2000/2001 ended early in 2003. I remember reading many main stream media articles in 2006 and thereafter that referred to the fact that mutual fund performance references were about to improve as the ugly 3-year numbers were finally dropping off the records.
In other words, Wall Street likes to measure and publicize only returns for bull market periods. 5 years after a bear market ends, the records are “clean” again and unsuspecting investors will make the same mistake by judging only what’s in front of them (a bull market) and not considering the consequences once the bear returns.
I can only hope that this attitude has finally changed as 2 bear markets in the past decade should have sent a loud and clear message.