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2013: The Year of Trading Dangerously—Searching for Alpha for January 2013
With the fiscal cliff negotiations finally passing the House and Senate, it’s time to face the reality that markets will be dominated as much by politics as they will by economics in the coming year.
Debt ceiling worries here and concerns over the European Union will continue to produce rumor-mill style rallies and drops in equities worldwide. Every inflation number will be scrutinized, every durable goods report dissected as traders focus on predicting the next round of government intervention.
There are some ways to cope with the madness. Now more than ever, a long-term view is essential in building a sensible portfolio. Equity investors should heed to fundamentals Valuations will be an especially important metric. It will be vital to choose positions that offer enough runway to keep drawdowns as low as possible during the inevitable panic sell-offs that will likely occur in 2013.
Treasury securities will also be prone to speculative fervor, so increasing one’s allocation to corporate credit while reducing Sovereign exposure may make sense.
Ironically, the outlook for stocks is pretty favorable in the coming year. Buy-and-hold investors should do fine this year, but those trying to time rallies and pullbacks will likely have a much tougher time.
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
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