The Product Team at Fintuple, has developed a tool in the iQ platform, that has helped IFAs, Wealth Managers and Investors analyse and understand, their Portfolio Management Services (PMS) Strategy of choice, in more depth. If I was an investor, what would I want – I would want my invested PMS Strategy to do better than the index in a bull market and have a lower drawdown that the index in a bear market. At its very core, that’s how we have thought through the analysis which is represented in a visually intuitive way.
Typically, there are three follow-up questions that we get asked:
- What is a Bull and Bear analysis?
- How do I identify a Bull / Bear Market?
- How is this going to help me make a better decision?
A Bull Market is a market that is on the consistent rise of 20% or more, where the economy is sound, markets are characterised by optimism and expectations of strong results.
A Bear Market exists in an economy that is receding with a consistent fall of 20% or more, where most stocks are declining in value and most businesses are unable to record huge profits because consumers are not spending nearly enough.
Key Indicators of Bull/Bear Market:
Investing during Bull and Bear Markets requires one to take a different approach during each of these markets. There are many investment methods that seasoned investment professionals use, to take advantage of opportunities during both the Bull and Bear Markets. Methods such as dollar-cost averaging, selling short, and diversification exist. However, before thinking about any of this, when making an investment decision, one should take some time to determine how the market is currently behaving.
Let’s look at an example of a PMS Strategy on the iQ Platform and walk through how our partners use the Bull-Bear Analysis for better evaluating the performance of the Strategy
Strategy: A (name omitted on purpose)
This Strategy has consistently outperformed the market during multiple Bull and Bear Markets in the past. A green arrow next to the Strategy’s returns indicates that the Strategy outperformed the index.
However, during this recent downturn in 2020, the Strategy underperformed the index for the first time
The analysis on IQ does not stop there, one can dig deeper to understand why this happened in order, to make an informed decision on the next course of action
On further analysis, you can see that this strategy has its highest exposure of 29.97% in the Financial Services sector and its underperformance can be attributed to the big hit that the sector took due to the COVID-19 pandemic during March to June 2020, with its lowest in 3 months on 23 March 2020.
Are you curious to find out more about the impact of Covid-19 on the Financial Services sector? Click here to read Part 1 of the 4 Part Analysis.
Typically, Bull markets tend to be longer than Bear markets. Did you know that Morningstar conducted a study that took a look at market trends from 1926 to 2017 and discovered that the average Bull market lasted NINE years?
If your goal is to build a long-term investment portfolio, then investing your money into the market over the course of decades is the winning approach that seems to work for most average investors.
However, you should continue to invest in both Bull and Bear markets based on your personal risk appetite.
In the words of Warren Buffet, “What the wise do in the beginning, fools do in the end.” When it comes to planning for your financial future, you are already staying one step ahead of the curve, by looking at such analyses before making investment decisions.