V.11:2 (80-83): Asset Allocation: Stocks, Bonds, Futures by K.D. Angle

Asset Allocation: Stocks, Bonds, Futures by K.D. Angle

Investment survival depends on an investor's ability to adapt to the market. Is it possible to develop a strategy that performs under all conditions, whether inflation or deflation, recession or prosperity? K.D. Angle, futures portfolio manager and publisher of "The Timing Device" newsletter, says yes in this, his first STOCKS & COMMODITIES appearance. Take a look.

Is it possible to develop an investment strategy that would perform under all economic conditions? After all, I reasoned, there are times when major investment vehicles would outperform others. I decided to find out if I could formulate such a strategy in a hypothetical portfolio.

But first, I had to clarify the parameters involved by setting down the investment vehicles to use in the portfolio. When I refer to major investment vehicles, I specifically refer to: stocks; interest income such as Treasury bonds or Treasury bills; and a third investment class known as a trading vehicle, which includes markets that do not correlate either negatively or positively with stock or interest income vehicles. Markets such as currencies, financials or even basic commodities can add diversity to the overall portfolio.

Under current conditions, most of the markets in the trading vehicle investment class can best be traded on margin in futures exchanges. By and large, the markets utilized in the trading vehicle are futures markets traded on margin, which if properly employed do not necessarily add volatility to overall portfolio performance, as most investors assume. On the contrary; using noncorrelative markets in thisallocation approach actually reduces the downside volatility in the performance curve of the portfolio to minimum and can increase overall profitability as well.