Aspen Financial Portfolio Management

Our investment philosophy is rooted in the firm’s belief that capitalism is the best possible economic structure in this imperfect world. Individuals acting in their own interest in search of profits are forces that ultimately better all. Markets are a manifestation of this and a means to participate and financially benefit.

• Supply and Demand Determine All Prices Including Stocks and Bonds.
  Like anything traded in a market economy, cryptocurrency, stock, and most assets prices are driven by supply and demand. Demand factors reign in the near term. They can wiggle for any reason—sentiment, political factors, or fundamentals. Longer-term, though, supply factors dominate. Rising supply, in the form of initial public offerings (IPOs), secondary offerings, and stock-for-stock mergers often produce headwinds for markets. But supply can shrink as well! Share buybacks and cash mergers reduce it—typically a bullish factor in our view.
• Market Cycles Can Be Forecast, Their Short-Term Wiggles Cannot
  While we don’t believe consistently timing daily, weekly, or monthly market moves is possible, we do believe cyclical changes are foreseeable. Often, such changes are driven by events the vast majority of investors either overlook or interpret incorrectly: disconnects between fundamental reality and the investing public’s perception of reality. Successful forecasting requires assessing both. Stocks are forward-looking, yet most investors’ feelings are heavily influenced by the recent past. Bull markets tend to begin during recessions—when people feel most bleak—and end during euphoric “booms.”
• No Investment Is Permanently Superior
  Different categories of securities outperform at different times. For example, smaller stocks sometimes outperform larger (and vice versa), foreign and domestic trade-off leadership, and dividend-paying stocks sometimes outperform non-dividend paying. No style or class of security is permanently superior, leadership rotates irregularly. Outperformance trends typically last over a foreseeable timeframe, providing opportunities for investors to capitalize. Our view stands in contrast with other firms who argue the inherent superiority of a certain size, style, or type of security. If that were true, wouldn’t all investors simply flock to the superior stocks, driving prices higher than fundamentals warrant?
• Global Diversification Is Preferable
  Finance theory holds that correctly constructed stock indexes will have very similar returns over long timeframes. But the journey to this destination differs: The narrower the index, the rockier the trip, while a broader approach helps smooth the journey. A global approach is more diversified than a country-specific one. Moreover, a global approach accounts for performance rotation. No nation’s or region’s companies are inherently superior. Leadership rotates—frequently. We believe a global approach increases your opportunities to outperform and can mitigate country-specific risk factors, like political or legislative risks.
• To Beat Equity Indexes, You Must Look Beyond the News
  Have you seen how fast stocks move when earnings reports are released? Or when mergers are announced? It’s near-instantaneous. Markets are incredibly efficient at pricing in widely-known information. Getting an edge over the market requires seeing the world differently and more correctly than the crowd. If major financial media is reporting it, it’s already reflected in market prices by the time it reaches you and everyone else.

Many investment managers and funds specialize in particular areas of the market. They might invest in only US stocks, high-yield bonds, or even more specific areas of the market, like small-cap growth stocks. A snapshot of their performance at any given moment might seem impressive. But what happens when their narrowly focused investment strategy falls out of favor?

Investment strategies can be broken into many different categories, such as:
• Asset class: stocks, cryptocurrency, bonds, cash, and other securities
• Style: growth vs. value
• Size: large, mid, and small-capitalization companies
• Geographic region: the US, foreign developed markets, and emerging markets

Investment categories cycle in and out of favor over time. Take emerging markets, which outperformed all other categories from 2003 to 2007 and then dropped to the worst performer in 2008. Or the years from 2011 to 2015 when the best performers—in succession—were bonds, emerging markets, small caps, US stocks, and growth stocks. A strategy focused on a single asset class, sector, market capitalization range or country would have missed out on other top performers during this period.

“More importantly, there is no predictive pattern in past performance to tell which styles will be the next leaders and laggards”

Research-Driven Agility

In our experience, no single strategy is always superior, and those who adopt such an approach can underperform as leadership styles continually rotate. At Aspen Financial Management, we use an active investment approach, led by our Investment Policy Committee and in-house Research department, that helps us respond to market shifts and their impact on clients’ portfolios.
Aspen employs a large team of investment professionals who analyze regions, countries, sectors, and industries from a top-down perspective, as well as professionals who analyze individual securities from a fundamental perspective.
When managing investments for our clients, we believe this comprehensive research approach allows us to invest across a variety of areas in the market, using a flexible strategy designed to help capture potential opportunities for our clients consistent with their goals and objectives. Our active investment strategy is based upon our forward-looking view of markets. We make tactical adjustments along the way, moving client’s portfolios into the types of stocks and bonds we expect to perform best. This could mean:

• Shifting portfolios investments more to foreign stocks when we believe global economic factors favor them more than US stocks
• Favoring smaller or larger businesses depending on our view of the current stage in the business cycle
• Moving to defensive positions if we identify a bear market early on and believe a change in strategy is in your best interest

No money manager is correct every time, including Aspen Financial Management, but we believe the lessons we have learned from managing investments through many market cycles provide us invaluable insight.

Diversification Means Global Asset Management

Diversify to avoid taking on too much risk. Concentrating your wealth in limited areas of the market can leave you vulnerable to events that impact those areas, but leave others unscathed.
A portfolio that provides zero exposure to almost half of developed world equity markets is the opposite of diversified. But many investor’s portfolios might be doing just that if their investment firm only focuses on US companies and ignores the 40%+ of international developed-world equity markets.1 Such investors lack exposure to foreign markets whose stocks often trade leadership with US stocks, which can help reduce overall portfolio volatility.
At Aspen Financial Management, we set ourselves apart by approaching asset management from a global perspective. We invest globally to help hedge against domestic downturns, expose portfolios to more opportunities, diversify and, over time, reduce volatility.
Spreading Exposure
We believe someone who fails to take a global asset management approach with their portfolio can end up with risks similar to those of an investor who fails to diversify their portfolio domestically. Consider, for instance, an investor who puts most of his or her money into a few domestic sectors such as health care, consumer staple, or utilities. If the US market weakened, that investor might do relatively well through exposure to traditionally “defensive” sectors but may miss out if the market rebounded and boosted more “cyclical” sectors such as information technology and financials.
Many investors understand this intuitively but fail to extend that logic when it comes to exposure to overseas markets. US investment firms often reinforce this misunderstanding by telling clients that through investments in US multinationals—companies that generate large amounts of revenue from overseas—they have all the global exposure they need. This is a common fallacy—multinationals tend to perform like their home country rather than provide the same kind of global diversification effect owning non-US stocks can have.
This is in part because a multinational corporation is generally subject to factors impacting stock prices in its home country—regulatory changes, currency fluctuations, monetary policy, and access to credit.

In Different Years, Different Countries Lead the Pack

Just as certain market sectors sometimes take a leadership role, so can certain geographies. The US can see periods of strength or weakness in different years.
Consider the following list: Canada, Denmark, Israel, Finland, and Belgium.
What do these very different countries have in common?

• 1. Each claimed the top spot in annual equity returns among the 23-nation MSCI World Index between 2012 and 2016.
• 2. As you may notice, the US doesn’t appear on that list. In fact, over the last 20 years, the US only appeared 6 times in the list of top-5 performing developed stock markets.
• 3. Investors who didn’t own at least some foreign stocks in those years might well have missed a chance for better returns.