Post by FD1000 on Jul 20, 2021 13:00:31 GMT
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Summary
* The Thermostat fund is an attempt to create a mutual fund that toggles its risk based on the valuation (via P/E) of the market.
* As the S&P rises above certain thresholds, the equity exposure adjusts by 5% lower (and vice versa).
* The goal is to buy the dips and sell overvalued markets - just what this contrarian investor likes to look for.
* The fund is great for defensive money that wants a full asset allocation. It is a set-it-and-forget-it type of fund that over time will likely be close to a 50/50 allocation.
* The fund is available with no transaction fee or load on Fidelity. I'm not sure about other brokerages.
Today, we spotlight a fund that has been around more than two decades and has a unique approach by attempting to reduce "recency bias" and loss aversion. In a recent report titled "When To Sell | Regret Minimization" we highlighted that even with gains, investors can feel regret if they don't top tick the selling of an asset.
The Columbia Thermostat Fund (CTFAX)(CTFDX) is built to do just that. It is meant to make those decisions for you by creating a multi-asset solution (in other words, it's a full asset allocation fund with both stocks and bonds) that adapts to the current market environment.
The Strategy
The fund follows a systematic, rules-based investment process that automatically adjusts to market changes. The quantitative strategy is not overly complex. When the S&P 500 declines below certain thresholds, it sells bonds and buys more equities to add exposure. When the S&P 500 rises above set thresholds, it sells equities and adds to bonds.
Columbia believes that the market's ups and downs lead to emotional ups and downs, especially during larger market moves. This causes investors to either chase returns because they have a fear of missing out "FOMO" or sell low because they are afraid of losing more money.
The fund can allocate as much as 90% to equities and as much as 90% to fixed income - at 5% increments.
The underlying investments to gain that exposure are primarily other Columbia funds that fit their investment style needed. Currently, the asset allocation is as defensive as it can get at 90% fixed income and 10% equities.
Summary
* The Thermostat fund is an attempt to create a mutual fund that toggles its risk based on the valuation (via P/E) of the market.
* As the S&P rises above certain thresholds, the equity exposure adjusts by 5% lower (and vice versa).
* The goal is to buy the dips and sell overvalued markets - just what this contrarian investor likes to look for.
* The fund is great for defensive money that wants a full asset allocation. It is a set-it-and-forget-it type of fund that over time will likely be close to a 50/50 allocation.
* The fund is available with no transaction fee or load on Fidelity. I'm not sure about other brokerages.
Today, we spotlight a fund that has been around more than two decades and has a unique approach by attempting to reduce "recency bias" and loss aversion. In a recent report titled "When To Sell | Regret Minimization" we highlighted that even with gains, investors can feel regret if they don't top tick the selling of an asset.
The Columbia Thermostat Fund (CTFAX)(CTFDX) is built to do just that. It is meant to make those decisions for you by creating a multi-asset solution (in other words, it's a full asset allocation fund with both stocks and bonds) that adapts to the current market environment.
The Strategy
The fund follows a systematic, rules-based investment process that automatically adjusts to market changes. The quantitative strategy is not overly complex. When the S&P 500 declines below certain thresholds, it sells bonds and buys more equities to add exposure. When the S&P 500 rises above set thresholds, it sells equities and adds to bonds.
Columbia believes that the market's ups and downs lead to emotional ups and downs, especially during larger market moves. This causes investors to either chase returns because they have a fear of missing out "FOMO" or sell low because they are afraid of losing more money.
The fund can allocate as much as 90% to equities and as much as 90% to fixed income - at 5% increments.
The underlying investments to gain that exposure are primarily other Columbia funds that fit their investment style needed. Currently, the asset allocation is as defensive as it can get at 90% fixed income and 10% equities.
