Our Approach

INVESTMENT PHILOSOPHY

The marketplace can be difficult to navigate. Anyone who has lived through the tech wreck in 2001 or the 2008 financial crisis knows that the ride can be bumpy along the way.

We developed a principled investment philosophy that guides our decisions to mitigate the risk of losses in the short-term, while producing competitive returns over the long-term. We identified three primary indicators: Momentum, Economic Fundamentals and Market Valuation. These indicators work in tandem to provide a heartbeat for the market.

Our investment philosophy is known as the Three Dials.

THREE DIALS

Momentum/Sentiment

Current Reading

Negative

Despite the sharp rally, all major equity indexes remain below their long-term support levels. Continued uncertainty around treatment and eradication of the virus will likely manifest itself in above-average market volatility in the coming months. While our base case remains that the market lows seen in March will hold, plenty of downside risk remains at current levels. Thus, our Momentum and Sentiment Dial remains in a “Negative” position for the time being.

Economic Fundamentals

Current Reading

Negative

The advance estimate of Q1 GDP shows that coronavirus shutdowns impacted US growth more quickly than anticipated, with the economy contracting by -4.8% in the first quarter. With roughly 30 million Americans having filed for unemployment since the start of the pandemic and the unemployment rate expected to push 15%, the global economy faces a long road to recovery. As such, our Economic Dial has moved into a “Negative” position.

Market Valuation

Current Reading

Negative

April’s rally in stock prices in the face of deteriorating earnings indicates that, while stocks sit well below their all-time highs, valuations remain stretched by most metrics. There may yet come a day where stocks become a bargain purchase, but until then our Valuation Dial remains “Negative”. Although the negative reading on our three of our dials indicates a defensive posture, we would stress that this does not mean that it is time to panic. We reiterate that the market lows may already have been established, but given the ample downside risk that remains, we find it prudent to apply a degree of caution going into the rest of the year. As always, having a plan and sticking to it wins out in the end, and Archetype’s asset allocation framework, built around our Three Dials philosophy, is built to help clients invest for the long haul in all market environments.

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