are designed to maximize growth in all market cycles and to minimize market risk in poorly performing markets. We do that through a tactical management approach.
We accomplish the portfolio management goals by:
Mitigate risk by utilizing options to leverage positions so you have little exposure to the market risk but with all the potential gain.
To create profits using a proprietary timing model to capitalize on both bull and bear market trends over the near and intermediate term.
Utilize hedging strategies that will further reduce risk and in many cases provide returns in a down trending market.
Utilize up to 80% of the portfolio in low risk fixed income and cash allocations to mitigate risk exposure to the market.
This Is No Longer Your Fathers Stock Market
Your fathers stock market rewarded Buy & Hold strategies.
Your fathers stock market believes Black Monday 1987 was devastating.
Your fathers stock market gained +2.03% the Black Monday year 1987.
Your fathers stock market brought no-load index funds to relevancy.
Your fathers stock market had time on its side.
Your fathers stock market was easier to predict.
Your fathers stock market had 1 trend in 20 years.
Your fathers stock market provided steady opportunity for upward growth.
Your fathers stock market made accumulation seem ski-jump-easy.
Your fathers stock market made retirement planning look simple.
Your stock market penalizes Buy Hold strategies.
Your stock market believes Black Monday was cute & cuddly.
Your stock market lost -38.49% in the Financial Crisis year 2008.
Your stock market makes no-load index funds irrelevant.
Your stock market has already had 4 trends in under 10 years.
Your stock market has times-to plant and times-to-harvest.
Your stock market makes accumulation roller-coaster-complex.
Your stock market makes retirement treacherous.
With nearly two decades of volatile and sometimes fiercely downward markets, we believe a philosophy different from the conventional approach is required to produce meaningful investment results. Buy and Hold strategies have disappointed investors for a generation, and simply arent enough when investing in todays market.
The goal of the Absolute Return Portfolio is to create profits using a proprietary timing model to capitalize on both bull and bear market trends over the near and intermediate term. Our objective is to attain net positive returns independent of overall stock market performance and regardless of market direction.
The strategy utilizes a proprietary timing model to determine the near and mid-term directional bias of the S&P 500, then purchases ETF put or call options to obtain either a long or short exposure to the market.
The portfolio will generally hold positions less than 120-days, and should be considered to be more aggressive given the shorter time horizon of its portfolio selections. At any given time, the funds equity component will vary widely within a range from 100% long to 100% short depending upon the prevailing risk-reward dynamic.
Many people mistakenly believe that options are always riskier investments than stocks. This stems from the fact that most investors do not fully understand the concept of leverage. However, if used properly, options can have less risk than an equivalent position in a stock.
Leverage has two basic definitions applicable to option trading. The first defines leverage as the use of the same amount of money to capture a larger position. This is usually the definition that gets investors into trouble. A dollar amount invested in a stock and the same dollar amount invested in an option do not equate to the same risk. The second definition characterizes leverage as maintaining the same sized position in a security, but spending less money to do so. This is the definition of leverage that we apply.
If you were going to invest $10,000 in a $50 stock, you would receive 200 shares. However, instead of purchasing the 200 shares, you could also buy two call option contracts. By purchasing the options, you spend less money but still control the same number of shares. The number of options you purchase is determined by the number of shares that could have been bought with your investment capital, in this case $10,000.
Say that the options cost $2.00 per contract. To control 200 shares of the stock, you would need to purchase two contacts at a total cost of $400. For the small sum, you now control $10,000 in stock, but at a much lower cost. That calculates into a savings of $9,600 on your capital outlay for the purchase.
This savings can then be used to take advantage of other opportunities in the fixed income arena, thereby providing you with greater diversification and lowering your portfolios overall risk profile. The collection of the interest from the savings youve made by using options for your purchase creates what is known as a synthetic dividend.
Hedging is the calculated installation of protection and insurance into a portfolio in order to offset any unfavorable moves, and is designed to reduce or eliminate financial risk.
We actively pursue this strategy by using a proprietary model to determine when markets have become near-term overextended, then enter transactions that we believe will protect against portfolio loss through a compensatory price movement. Put simply, our hedging strategy warns us of impending market downturns, and prompts us to purchase put options that will rise as the current equity position falls.
Most investors who buy and hold for the long term are counseled to ignore the short and mid-term fluctuations along the way. They completely ignore the necessity of hedging under the false sense of security that the stock markets will rise over time without fail.
While this may arguably be true over the long term of about 20 to 30 years, short term declines of up to a couple of years can and do happen, and they can destroy portfolios that are not hedged. Not hedging in the markets today is similar to not buying accident insurance because youre a careful driver who always obeys the rules. Theres never a guarantee that unforeseen circumstances wont happen.
Consider this chart of the 2008 financial crisis:
As an investor, how did your portfolio fare during the crisis? As you can see, hedging downside risk can make the difference between you getting to retire this year, or having to put it off until further down the road. Strategic purchases of SPDR S&P500 (SPY) puts during the above periods would have mitigated much of the damage caused by market declines, thus protecting the portfolio and adding to overall portfolio performance.
80/20 is 80% Fixed Income Component plus Cash and 20% Option Strategies.
70/30 is 70% Fixed Income Component plus Cash and 30% Option Strategies.
60/40 is 60% Fixed Income Component plus Cash and 40% Option Strategies.
Utilizes a proprietary timing model to determine the near and mid-term directional bias of the S&P 500, then purchases ETF put or call options to obtain either a long or short exposure to the market.
Will leverage assets by utilizing options therefore exposing a small portion of the portfolio assets to
David is an investment professional with over 24 years experience. His career spans a wide spectrum of finance, ranging from that of a traditional Investment Advisor, to an exchange floor Trading Specialist, to Hedge Fund trader. His extensive background has given him the opportunity to trade on virtually every market in almost every country around the globe at some point in his career.
In addition to his professional career in the global capital markets, David also served for 17 years in the military, primarily with naval special operations. Not only did the military provide him with the fundamental underpinnings of discipline and self-motivation, but the experience ignited a passion for global affairs for him, which has easily translated over into the field of global finance. Its given him a unique perspective on world affairs and the impact of global events on the financial markets.
Prior to joining Hansen & Associates, David worked for a large multinational bank, where he actively developed and executed equity, derivative and currency trading strategies for the banks investment management team. He also designed and managed a proprietary portfolio insurance product, which he used to hedge the banks investment portfolios against market declines. In that role, he managed all facets of the hedging process, including portfolio construction and all active trading.
David has now brought his knowledge and experience to Hansen and Associates, where he has applied his concepts to develop a range of investment products focused on mitigating investment risk and maximizing returns through tactical asset allocation.
Hansen & Associates Financial Group is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Hansen & Associates Financial Group and its representatives are properly licensed or exempt from licensure. This website is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Hansen & Associates Financial Group unless a client service agreement is in place.