Smoothing The Path For ETF Investors

June 20, 2016

[This interview originally appeared in our July 2016 issue of ETF Report.]

Beaumont Capital Management (BCM) is an all-ETF offshoot of Beaumont Financial Partners, a firm that’s been around for more than 30 years, offering comprehensive wealth management—including tax preparation, financial planning and investment management—for high net worth individuals, as well as institutions in 401(k) profit-sharing and other retirement plans.

The decision to create BCM as a separate division stemmed from client demand for access to the institutional defensive tools and strategies Beaumont was known for, at a time when the market was facing its worst downturn since the Great Depression. BCM was started in 2009, and today it boasts nearly $3 billion in assets under management, with roughly $4 billion as a firm. David Haviland, portfolio manager and managing partner heading BCM, tells us what sets the company apart.

Why is defense the best offense when it comes to investing?

Haviland: I learned a long time ago, from my father, that what clients care the most about is not losing a lot of money. And it is borne out in the philosophy of our firm: The No. 1 rule of successful long-term investing is to avoid large losses that become present in bear markets.

We’ve been around since 1981, and we’ve lived through the 2001-02 and the 2008-09 downturns. Our clients asked us if we could institutionalize our defensive philosophy in managing money, and so in 2009, we started Beaumont Capital Management, where we used long-only ETFs and some rules-based systems to provide this defensive capability during downturns.

Is 2009, then, the first time you used ETFs in your practice?

Haviland: No, we’d used them before. We find ETFs to be a very easy and beneficial vehicle to form investment strategies with. You need to learn how to trade them, but once you do, the trading and liquidity is tremendous. You avoid individual company risk, and you can get both passive and active management within ETFs. It’s low cost. ETFs are a great tool, particularly for BCM, where we’re 100% dedicated to providing tactical and dynamic investment strategies.

In a vast world of investment managers, what sets BCM apart?

Haviland: Having an investment advisory background really gives us some unique perspectives on managing money. To be clear, at BCM, we don’t compete against our investment advisor client base. But what sets us apart is Beaumont’s long history of being an advisor, and sitting down with clients. We’ve got a very good understanding of what clients want and/or need. And when we bring this perspective to asset management, it allows us to bring many advantages.

Let me give you an example. In the 401(k) space, when we’re working with a client, we’ve literally been in each and every role within the 401(k) space. We’ve been an advisor to a plan. We’ve been an advisor to a participant. We’ve been an advisor to a sponsor. We’re a sponsor. And now we’re a fund manager in the 401(k) space. That gives us unique perspective when it comes to managing money.

Let’s talk about one of your flagship approaches, which is centered on sector rotation. Why do you think that’s a good way to go?

Haviland: Sector rotation, and momentum-based investing, have been around for at least 50 years.

We’re seeking to take advantage of how sectors perform in different stages of the business cycle, and the stock market cycle. There are times when various sectors are going to outperform, and times they’re going to underperform.

When you're in a roaring bull market, almost all the sectors are on. But in a market like we’re in right now, we’re only invested in some sectors in U.S. large-cap. We’re able to avoid the volatility that’s been present in the energy and materials sectors. That goes to our process, where we’re taking advantage of momentum in each sector. There are more inputs involved, but if the momentum and price movement of a sector is positive, it’s likely we’ll own it. And we equal-weight them in the portfolio.

How are your clients using these sector strategies in their portfolios?

Haviland: Many of our advisor clients use the U.S. sector rotation as a core holding, and as a substitute to the S&P 500, taking advantage of the fact that their clients are looking for an automatic sale process before you get too deep into a rout such as 2008 or 2009. Remember that it’s all about being defensive, so in these strategies, we’re getting out of the way before sectors see large losses. In fact, recently, we were as much as 75% cash during a market downturn, but we got invested fairly quickly as the momentum was re-established.

You also have a separate series called Decathlon. How is that one different?

Haviland: The momentum-based sector rotation series is tactically constrained, meaning it’s constrained to the indices where each of those sectors resides, and uses cash as the defensive mechanism. The Decathlon series is tactically unconstrained. It uses pattern recognition technology to seek investment opportunities that are positive, regardless of where they are. And by “unconstrained,” I mean they’re unconstrained across geography, asset class and market capitalization—we have currency funds, commodity funds, real estate funds; there’s a plethora of choices in equity and bonds.


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