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SMArtX Virtual Awards Spotlight – NASDAQ Dorsey Wright Relative Strength Portfolios

NASDAQ Dorsey Wright featuring John Lewis, Portfolio Manager at NASDAQ Dorsey Wright

Link to this WEBINAR

In this episode of the SMArtX 2021 Virtual Awards Webinar Series, SMArtX CEO Evan Rapoport sat down with John Lewis, Portfolio Manager at NASDAQ Dorsey Wright.

Evan and John discuss how NASDAQ Dorsey Wright is able to so effectively implement their relative strength methodology to allocate to where strength is in the markets and the role it plays in client portfolios.

About the Firm

NASDAQ Dorsey Wright relies on relative strength to manage portfolios because of its adaptive nature and its long-term track record. Relative strength is simple in concept, yet powerful in application. Relative strength is simply the comparison of price performance within a universe of securities. Analyzing securities by their relative strength provides a way to identify the current leaders. It is those market leaders that they want to own. Relative strength also allows them to identify the laggards. Successful investing also requires avoiding big losers. They believe relative strength is equally good at identifying long-term winners and losers.

What Sets Them Apart

NDW implements a risk-on/risk-off, trend following strategy that follows price movement and then uses a very disciplined and systematic approach to making investments. They look to remove all investment bias from the portfolio and really focus on putting the portfolio to wherever the strength is at a given point in time. At no time do they intervene to override the system as it is all priced based on a relative basis, which enables them to implement their strategy year after year.

They look to 6 different sleeves, broken down into a 60/40 split, and decide if they are risk-on or risk-off. 

The 60% part includes credit while the 40% is an allocation to a Treasury of some kind. They establish a ratio line to determine if they are putting it on or off.  All 6 are done individually so they can operate independently.

Last year, some of the riskier areas of the market high yield and convertibles did very well, and they were able to capitalize to get the best fixed income performance on the SMArtX platform in 2020.  They use ETFs to get all the exposure, which allows them to quickly and efficiently move in and out of the various bond areas, instead of individual bonds positions.

NASDAQ Dorsey Wright is not the type of manager that finds all of these bargains no one has found and hopes they revert to the mean.  They are buying stuff that has demonstrated the ability to outperform and hold them until they become weak. This is the basis of their process and they have a tremendous amount of confidence that the adaptive, priced-based nature of what they do is going to get them on the right side of that trade more often than not.

How is This Applicable to Advisors?

In a client portfolio, these strategies are designed to be more bond-like than most other tactical income products.  Out of the 6 sleeves, 60% are credit risk on/risk off, the other 40% is an allocation to US treasury security so the portfolio acts more bond like over time.  The strategy is typically looked at as a core fixed income piece and can easily complement an existing fixed income allocation such as a muni-ladder.  The benefit of using ETFs is you get a lot of the coverage without the heavy lifting and wide exposure without having to purchase individual bonds.  

In 2021, they are expecting higher rates and a more inflationary environment, coupled with strong economic performance. As a result, they like short term treasuries over long term treasuries and TIPS over long term treasuries to hedge against inflation.  Both high yield and convertibles tend to do better in a stronger equity environment or economic environment, while they are expecting weakness in emerging markets and corporates.

About NASDAQ Dorsey Wright

Nasdaq Dorsey Wright is a registered investment advisory firm with offices in Richmond, Virginia and Pasadena, California. Since 1987, Dorsey Wright has been an advisor to financial professionals globally. In 2015, Dorsey Wright was acquired by Nasdaq, Inc.

Dorsey Wright’s expertise, and the cornerstone of our firm’s investment approach, is technical analysis. We use Point & Figure Charting, Relative Strength Analysis, and numerous other tools to analyze market data and deliver actionable insights. These tools cut through the clutter of day-to-day market action, identifying meaningful patterns in daily share price movements.

Dorsey Wright offers comprehensive investment research and analysis through our Global Technical Research Platform and various models and indexes, which apply our expertise in Relative Strength to separately managed accounts, mutual funds, exchange traded funds and other financial products.