My Stable High Yield model defies interim performance measurement, because it seeks to achieve, over its existence and no shorter period, returns that approximate the historical average annual return of equities without the latter’s volatility.
Hence are we not at all rattled by “underperformance” vis-à-vis the stock market during intervening periods, as we have witnessed during the market’s rally of the past three months. The model’s composition simply does not include securities that would be expected to linearly match a stock market rise or decline.
It is precisely that variance that theoretically makes the model attractive to an investor who seeks historical-average returns with significant insulation from market swings. The model’s low beta coefficient of 0.21 vs. the S&P 500 means it is 79% less volatile than that broad market index.
That’s an attractive number for someone who has become, as Mark Twain was, “more concerned with the return of my money than the return on my money.”
We therefore, for this particular model, do not attempt to compete with the stock market over any period of time other than since the model’s inception. To measure it otherwise (year-to-date, or over 30-, 90- or even 365 days) is contrary to the model’s raison d’être, i.e., average historical market returns with lower risk over the long term.
The Stable High Yield model has lagged the market’s performance over the past year, but since the inception of the model on July 7, 2011, its annualized return is 11.7% compared to 6.0% for the S&P 500 Index.
One may ask, why not just invest in an S&P Index fund to get the average annual return over time? To do so would subject the investor to the very market swings that our model is designed to avoid. An investor may need to sell when the stock market is at its nadir. The theoretically greater stability of our model, we believe, will reduce such extreme portfolio pricing and thereby benefit subscribers when they need to raise cash.
Disclosure: Performance discussed is net of advisory fees. The index comparisons herein are provided for informational purposes only and should not be used as the basis for making an investment decision. There are significant differences between client accounts and the indices referenced including, but not limited to, risk profile, liquidity, volatility and asset composition. The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry, among other factors.
Certain of the information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. Covestor believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
I am John Gerard Lewis, a registered investment adviser representative based in Olathe, KS, and the Founder and President of Gerard Wealth Management, Inc. I have over 30 years of investing experience. My investment goal is to protect the invested capital of my portfolio; I focus most of my investment decisions on that principle.