Offense or Defense? Defining Your Stance With Tactical Tilt

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Written by: Andy Hyer, Dorsey, Wright & Associates, a Nasdaq Company

Advisor Tip: Knowing when to take the Offense or Defense in Various Market Conditions is Easier to Define with Tactical Tilt

As we closed out the third quarter of 2016, it was clear that investors were feeling relatively calm. The extreme volatility of the past 18 months seemed to settle into much less choppy waters. But with interest rates poised for a hike, a new President headed to the White House in a matter of months, and high global economic uncertainty fueled by Brexit, the Middle East, and more, it’s unlikely the ship will remain so steady for long.

When the market does begin to react, your clients will once again be looking for guidance and assurance. To be sure you’re prepared, now is the time to implement a more focused process and discipline into your investment approach. At Dorsey, Wright & Associates (DWA), a Nasdaq Company, we use the power of Tactical Tilt using the DWA Research Platform.

If you’re unfamiliar with the concept of Tactical Tilt, it’s an approach designed to create a careful balance between offensive wealth accumulation and defensive wealth preservation based on current market conditions.

The result: Tactical Tilt offers the potential to outperform the market without the level of increased risk that’s often associated with tactical asset allocation.

At Dorsey Wright, our approach to Tactical Tilt works like this:

  • Looking through a trend and relative strength lens, we create three specific indexes—conservative, moderate, and aggressive—to match different investors’ investment goals and thresholds.
  • Each Index is designed to provide variable exposure to ETFs and other securities that represent the highest ranked asset classes based on Relative Strength Tally Rankings in the form of point-and-figure charts.
  • To determine the most appropriate balance of assets in current market conditions, each major asset class (including cash) and each major investment sector within each class, is ranked by Relative Strength.
  • To complete the ranking, we systematically analyze the hundreds of Point-and-Figure Relative Strength charts by aggregating Buy Signals and Sell Signals within a “Matrix” format. When a column of Xs exceeds a previous column of Xs, the chart indicates a “Buy Signal” (also referred to as positive Relative Strength). When a column of Os exceeds a previous column of Os (also referred to as negative Relative Strength), the chart indicates a “Sell Signal.”
  • Once the analysis is complete, we are able to weight the four major macro asset classes—US Equity, International Equity, Fixed Income, and Cash—to dynamically balance risk and return based on each investor’s specific criteria. (In some market circumstances, additional asset classes may be added to the mix.)

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