UTRNX as an SMA
How to Take Advantage of the Short-term Reversals in Quality Stocks
What is a Separately Managed Account?
- An SMA is a portfolio of assets managed by a professional investment firm. The portfolio manager is responsible for the day-to-day investment decisions. The advisor or client pays the manager to run the strategy.
- A Separately Managed Account (SMA) offers direct ownership of securities and tax advantages over mutual funds.
- The account owner has the ability to see the holdings and activity in the portfolio.
- SMAs offer more customization in investment strategy, approach and management style than mutual funds do.
- Because there are no “stock commissions” charged, (i.e. no cost to trade), high portfolio turnover doesn’t create a performance drag.
UTRNX, the Short-term Reversal Strategy
UTRN provides investors with the opportunity to capitalize on the tendency for stocks which have experienced sharp, short-term declines to quickly bounce back. UTRN attempts to improve on this market should be anomaly by applying a proprietary methodology – the Chow Ratio – to identify stocks that have the greatest potential for a weekly rebound.
The Chow Ratio
Decades of research have shown that strategies capitalizing on the short-term reversal effect (while controlling trading costs) can add value and reduce volatility relative to the major market indices.
I am a quantitative analyst who designs trading strategies for various firms and family offices. My platform of choice is Portfolio123 which utilizes CapIQ and Computstat data feeds.
My personal research has uncovered a vast amount of alpha in smallcaps and microcaps. Yet just buying small stocks is no guarantee as the size premium has been non-existent over the past 20 years. To harvest the alpha, a skilled analyst must use sophisticated institutional-grade data
Dr. Chow and the Chow Ratio, Taking Advantage Of Short-term Stock Reversals
"...capitalizes on one of the most powerful anomalies that I have ever tested - short -term reversal. This anomaly has been researched for decades, and because it is rooted in a behavioral bias, I don't think it is going away anytime soon."
Seeking Alpha, Kurtis Hemmerling, April 15 2009
The Chow Ratio: Case Studies
The Result: UTURNX vs. S&P 500
What about Bear Markets and Volatility?
The Bear Market of 2020
In the last two major corrections (2000-2002 and 2007-2009), our short-term reversal index (symbol UTRNX) substantially outperformed. However, in both instances, it lagged during the initial phase, then outperformed in the middle and late phases.
In 2020, UTRNX has experienced a similar pattern.
According to Dr. Victor Chow’s research, some of the best periods of relative performance for this strategy have come at the tail-end of the downturns, while the reversals were actually occurring.
Englebert Financial Advisers as the SMA Manager
Englebert Financial Advisers has an exclusive license with Vesper Global, the provider of the Chow Ratio
EFA will manage a portfolio of individual stocks that follow the Chow Ratio methodology.
Vesper Global exclusively provides EFA the names for the portfolio on a weekly basis.
Englebert Financial Advisers offers this strategy in two flavors, straight 25 stock portfolio or a hedged version
adding 20% weighting of DWSH, an inverse ETF, to help mitigate downside risk.
The minimum account size to run both the pure or hedged strategy is $100,000.
Because the major custodians do not charge stock commissions, the strategy can be implemented very effectively. The high turnover of this strategy is best suited for retirement or non-taxable accounts.
Chris Englebert, Founding Partner and Chief Investment Officer
Chris began his career in 1984 with E.F. Hutton, utilizing their institutional managed
accounts program through the Consulting Group to place institutional and high net worth clients with professional money managers. He began working with Pennsylvania Municipal Defined Benefit Plans to help increase their investment returns and meet their actuarial assumptions with professional money managers.
In 1986, he became a founding member of APIC, the Association of Professional Investment Consultants, an organization made of E.F. Hutton consultants that wanted to bring the highest level of professional money manager consulting to their high net worth and institutional clients. Many cutting-edge investment reporting and due diligence protocols were established during the early days of money manager consulting. During the 2008-2009 global financial crisis, Chris made numerous trips to Harrisburg to educate state legislature on the intricacies of defined benefit pension funds and beneficial changes that could be made
to them. While maintaining and growing his high net worth client relationships, his
experience evolved his business into focusing on Pennsylvania municipal finance. He advises
on various facets of asset allocation, manager selection and index utilization. He has also introduced a new defined contribution format, utilizing active investment models for
Chris graduated from the University of Minnesota with a major in Agricultural Business and minor in Agricultural Economics.
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