The advantage of being able to reconstruct and verify historical track records has not been lost on a new crop of Investment Managers. Following are three new managers to Theta as well as an existing Manager with a new strategy:

J. Stuart Kruse, CFA, MBA, CEO and Founder of Kruse Asset Management is a new Theta Manager based in Chicago, IL. Stuart’s strategy is known as the KAM Quantitative Value Portfolio, or QVP for short. Theta Research has independently verified the KAM QVP track record back to its inception in May of 2007.

Another new Investment Manager is James P. O’Mealia, founder of Sunnymeath Asset Management, Inc. of Red Bank, NJ. Sunnymeath has enlisted Theta to track its All-Cap Value Equity model. Theta has documented and verified Sunnymeath’s strategy back to its inception in April of 2012.

Douglas S. MacKay, CFA and William F. (Bill) Hoover are principals of Broadleaf Partners, LLC in Hudson, OH. Broadleaf has submitted its Growth Equity Portfolio for tracking by Theta Research. Theta has reconstructed and verified the Growth Equity Portfolio track record back to its inception of March 1, 2010.

Current Theta Investment Manager, Brian Boughner, co-founder of Parallel Financial Partners has added another strategy to be tracked by Theta. The Value Plus Strategy is a new model and Theta has established tracking as of its inception date of September of 2016.

NAAIM Announces its 2016 Outlook Conference -

The Impact of Technology on Marketing and Trading

The National Association of Active Investment Managers (NAAIM) will hold its 2016 Outlook Conference on November 14 – 15 at the Dallas/Fort Worth Airport Marriott. November will be here faster than we know it. And with it will come a new president-elect, new congressional leaders and a host of other factors that could affect markets in 2017. Now is the time to consider those factors and what technology you may need to use just to keep up. Welcome to Outlook 2016, your place to come together with other leaders in the Investment Advisor community to tackle these tough questions - together. Information and

Registration information for the NAAIM Outlook Conference.

Posted by MPosey on 09-27-2016 in Company NewsPermalink

The stock market’s volatility in 2016 has underscored the need for actively managed investment strategies in a diversified portfolio. In this issue of Theta News, we will introduce both an active strategy with more than ten years of actual track record as well as a new strategy that has been recently developed by an existing Theta Research Investment Manager.

Speaking of long-term strategies, are you having a hard time finding managed account strategies with actual track records going back more than ten years? If so, you’ll be happy to know that there are more than two-dozen actively managed investment strategies on the Theta database with actual track records going back more than 10 years. And the list is growing all the time. While the buy-and-hold crowd claims that it’s impossible to beat the market over time, many of these strategies have done just that by employing active management strategies through the years.

Another benefit of Theta Research is that we can often reconstruct long-term historical track records. Some Managers with long-term track records have not had the advantage of being tracked and verified since their inception. In many cases, Theta Research can reconstruct an actual track record using third-party brokerage or custodial statements. MDP Associates, highlighted below, is an excellent example of this advantage. MDP joined Theta in August of this year but had an actual track record going back to October of 2002.

If you are an Investment Manager with a long-term track record that has not been independently verified, give us a call at (512) 628-5201, Option #1 to see if we can document your hard work. On the other hand, if you are an Investment Manager seeking out long-term performers, the Theta Research database may be just what you’re looking for. Just go to the Theta website at www.thetaresearch.com and follow the instructions for subscribing to the Theta database. I think you’ll be glad you did.

Another New Strategy From an Existing Theta Investment Manager:

Existing Theta Investment Managers Marty Kerns and Parker Binion of Kerns Capital Management in Houston, Texas have initiated tracking of their newest strategy, the KCM Valarian Strategies – Equity Exposure. This model is the latest in the KCM Valarian series of managed accounts and has been tracked by Theta Research back to its original inception date of May 1, 2016.

A New Investment Manager Joins the Theta Database:

New Investment Manager, Mark Pankin, Ph.D, founder of MDP Associates in Arlington, Virginia, has initiated tracking of his NDX Trading strategy. As mentioned above, Theta Research has independently documented and verified the actual performance of this model back to its original inception date of October 1, 2002.

Posted by MPosey on 09-01-2016 in Company NewsPermalink

Doubting DALBAR

Every year, Dalbar, Inc updates its Qualified Analysis of Investor Behavior (QAIB) Study. Just like clockwork, this study shows that, in general, the average equity and bond investor receives a return far lower than that of their benchmark indexes. The apparent reason, at least according to Dalbar, is that investors tend to switch from fund to fund chasing returns, too often buying high and selling low.

As you might suspect, the buy-and-hold crowd loves this Study, saying that it proves the value of passive investing. In Dalbar’s world, simply investing in a low-cost index fund buying and holding it no matter what is the “smart” thing to do. Dalbar has produced and updated this study since 1994 without much pushback, at least not until now.

In a recent article entitled, The Fallacy behind Investor versus Fund Returns (and why DALBAR is dead wrong), mathematician and economist, Michael Edesses takes on the Dalbar QAIB Study and challenges its buy-and-hold conventional wisdom. According to Edesses, “…there is no way to determine if investors underperform the mutual funds they own, either because of bad timing or for any other reason.”

For many years, the QAIB Study has been used to call market timing and other active investment strategies into question. “Better to sit and take whatever the market throws at you rather than time the market,” they say. Edesess’ analysis, on the other hand, says that there will always be a substantial difference between investor and index returns, but that it’s impossible to tell how much, if any, of this difference is attributable to poor market timing by investors.

This article is a must-read for anyone who actively manages portfolios on their own or on behalf of clients. While you may not agree with all of Edesess’ claims, the article is important because it calls into question a bit of conventional wisdom that has been accepted as gospel since 1994. Of course, the buy-and-hold crowd will not let the QAIB Study go gently into that good night, but we now know that the math doesn’t necessarily support their favored conclusion.

Announcing More Strategies Being Now Being Tracked by Theta

Existing Investment Managers Marty Kerns and Parker Binion of Kerns Capital Management have added the KCM Valarian Four Seasons strategy. Theta Research has verified the track record of the Four Seasons Strategy back to its original inception date of April 1, 2016.

Another existing Investment Manager, Dr. Gary Harloff of Harloff Capital Management, has added two more strategies under his University Beta Strategies™ series. The new strategies are US Dollar and Fully Diversified, bringing the total number of Dr. Harloff’s tracked strategies to ten. Theta Research began tracking these strategies as of their original inception dates in June and July of this year.

New Investment Manager, David T. Bush, Managing Member and CIO of ALPHATATIVE, LLC. Located in Beavercreek, Ohio has initiated tracking of his award-winning Stratversify® Strategy. This model recently won the National Association of Investment Managers (NAAIM) “Shark Tank” Competition as well as BattleFin’s “Sharpe Ratio Shootout.” Theta Research has verified this strategy’s actual performance back to its original inception date of March 20, 2011.

Posted by MPosey on 08-02-2016 in Company NewsPermalink

In This Edition of Theta News:

* Theta Research is featured at Puget Sound MTA Chapter meeting.

* Theta Research Announces Recent New Manager and Model

* Refer an Active Manager to Theta Research

Theta is Featured at the Puget Sound Chapter of the Market Technicians Association (MTA):

On June 16th, Mike Posey, Theta Research’s Marketing Director was the featured speaker at the Puget Sound MTA Chapter meeting. In this presentation, Mike shared his insight on the due diligence process drawn from his more than 16 years of finding, evaluating and marketing managed accounts.

Using prior MTA presentations as a springboard, Mike focused on why it is important for Investment Managers to have a track record consisting of actual, verified returns. He also discussed the inherent limitations of backtesting from a due diligence standpoint and why it’s especially important for early-stage Investment Managers to document their performance in real-time trading.

Announcing the Addition of New Manager and Models:

Dr. Gary Harloff, current Theta Investment Manager and founder of Harloff Capital Management, has expanded his University Beta Strategies by adding the Emerging Markets - Equity model. This brings Dr. Harloff’s total number of tracked accounts to eight. However, the Emerging Market and other University Beta strategies recently added by Dr. Harloff just began trading, so they will not show up on the Theta website until they have three months of track record.

The Investor Zone Team, has initiated tracking of its Long/Short Growth Strategy. The Investor Zone Team is a signal developer and the tracking account will show how those signals should have performed in actual trading. Theta Research has verified the actual performance of this model back to its inception of January 1, 2016.

Do You Know an Investment Manager That Should be Listed on Theta’s Database?

Investment Managers are always seeking to find ways to attract the attention of individual investors, institutions and other Investment Advisors. This is especially true among those looking for strategies that seek to manage risks and provide uncorrelated returns. As Theta continues to grow, our focus on actively managed strategies is an attractive and low-cost way to not only document actual performance, but also have it verified by an independent third party.

If you come across any active investment managers or signal developers who could use some market exposure, send them our way. Just have them call Mike Posey at (512) 826-5553, send an e-mail to .(JavaScript must be enabled to view this email address) or contact us through our online contact form. If you prefer, you can also get in touch with Mike and he will make the initial contact.

Posted by MPosey on 06-21-2016 in Company NewsPermalink

It’s been a busy few weeks here at Theta Research since the NAAIM Uncommon Knowledge Conference. We have added seven new strategies to the list of tracked models, one with a track record going back to 1992. These strategies have come from new Investment Managers as well as new strategies from existing Managers. Included in that number are the following:

Models Added by Existing Theta Investment Managers

Dr. Gary Harloff, current Investment Manager and founder of Harloff Capital Management, announces the expansion of his University Beta Strategies, adding the Equity, High-Yield Bond and Government Bond models. This brings Harloff’s total number of tracked accounts to seven. All of these latest strategies are new and do not yet have three months of track record.

Another current Theta Investment Manager, Ryan Redfern, ChFC, owner and CIO of Shadowridge Asset Management, LLC has added a model named SDW Core 403(b) (mod-aggr) Strategy. Theta has established tracking of this model as of its inception date of October 1, 2013.

One of our newest Investment Managers, Carbon Beach Asset Management has added its Carbon Beach Concentrated Deep Value Strategy. This model will not appear on the public website due to its being limited to Accredited Investors. However, qualified investors and investment professionals may access this strategy via Theta’s Guest Pass by contacting Colin Macintosh or Toby Carlisle.

New Investment Managers Added to the Theta Database:

New Investment Manager, Steve Rumsey, founder and CIO of Optimus Advisory Group, has submitted his Tactical High-Yield Bond strategy for tracking. Theta Research has independently documented the track record of this model back to its original inception date of November 1, 2013.

Bruce P. DeLaurentis, founder of Kensington Analytics, LLC has submitted his High-Yield Bond strategy for tracking. This strategy’s track record has been independently verified by Theta Research back to its original inception date of January 1, 1992, making it the longest track record currently found on Theta’s database.

Posted by MPosey on 06-01-2016 in Company NewsPermalink

…But First, a New Investment Manager Joins Theta Research

Michael Kieffer, Founder and Portfolio Manager of Kieffer Capital, LLC introduces the Covered Options Investment Strategy. Theta Research has verified the actual performance of this model back to its inception date of 01/31/2013.

Theta Research Radio Interview

Theta’s Marketing Director, Mike Posey, was featured in an interview on Strategic Investor Radio. Conducting the Interview was Charley Wright, a 30-year veteran in the investment industry and is the Host of Strategic Investor Radio.

Charley is a Fee-Only Investment Advisor with Partnervest Advisor Services, LLC and focuses on strategies designed to protect asset values in declining markets while capturing gains in rising markets. In other words, Charley’s professional focus is on the kind of active investment managers you’ll find on the Theta Research database.

The podcast was carried on OC Talk Radio, located in the heart of Orange County, California and was originally aired in 2015. However, you can now find a recorded version of Mike’s interview on the Theta Research home page.

Education Webinar Featuring Theta Research

Theta Research was also featured in an educational webinar sponsored by the Market Technicians Association (MTA). The MTA Educational Web Series consists of hour-long webcast seminars featuring recognized industry professionals and are hosted several times each month.

In his presentation entitled, “The Importance of Actual Returns in the Due Diligence Process” Mike Posey discussed some of the perils and pitfalls of using hypothetical returns when marketing model portfolios, and how they can be of only limited use in the due diligence process. He also shared lessons learned from his more than 16 years in evaluating and marketing third-party investment managers

Mike’s comments were based closely on the Theta Research white paper of the same title. As with the radio interview, a copy of this webcast can be found on the Theta Research home page

Posted by MPosey on 04-26-2016 in Company NewsPermalink

Time is Running Out for NAAIM Early Registration

The National Association of Active Investment Managers (NAAIM) urges both members and non-members to register for this year’s Uncommon Knowledge Conference to be held at the Westin Fort Lauderdale Beach Resort in Florida on May 1 – 4, 2016. Join NAAIM and Active Investment Managers from around the country for the best Peer-to-Peer networking in the business. Register today now for one of the best Active Investment Management conferences this year!

The “Shark Tank” Returns

Back by popular demand, NAAIM’s Uncommon Knowledge Conference will again feature its version of the Shark Tank, in which conference attendees share their strategies with Investment Advisors looking for third-party talent. Theta Research will again be attending as an Innovation Sponsor at this important industry conference. See below for more information about registration for the event, discounted lodging and membership in the NAAIM organization – we hope to see you there!

National Association of Active Investment Managers Early Bird Registration Ends
This Friday, April 1.
Register Today to Get Your Best Discounts

Location: Westin Fort Lauderdale Beach Resort, 321 N. Ft. Lauderdale Beach Blvd Fort Lauderdale, FL 33304 Hotel Registration: NAAIM Reservation Link or call 888-627-7108 and mention NAAIM to receive the group discount. Make those Hotel Reservations by April 7!
Membership Information:

Log In to Join or Renew Online Now Individual Membership ($300) Includes:
  • Conference Discounts
  • Member-Only Online Community
  • Member-Only Online Resource Library
  • Educational Webinars and Regional Workshops
  • The Best Peer-to-Peer Networking in the Industry
  • Group Memberships also available

Download the New Membership Application

Posted by MPosey on 03-31-2016 in Industry NewsPermalink

Theta News – More New Active Models on Theta

In This Edition of Theta News:

* Theta Research is featured at Houston, Texas MTA Chapter meeting.

* The Growth Continues – Theta Research Announces Recent Addition of New Managers and Models

Theta is Featured at the Houston, Texas Chapter of the Market Technicians Association (MTA):

On Tuesday, March, 1, 2016, Mike Posey, Theta Research’s Marketing Director was the featured speaker at the Houston MTA Chapter meeting. Like his previous presentation to the Austin MTA Chapter, Mike shared his experienced-based insight on the due diligence process. Mike’s goal is to highlight business concerns once the heavy lifting of creating a trading model is done.

The presentation was primarily educational in nature with a focus on why it is important for Investment Managers to have a track record made up of actual, verified returns. Mike also discussed the inherent limitations of backtesting from a due diligence standpoint and why it’s especially important for early-stage Managers to document their performance in real-time trading.

Mike’s comments about his experience in the due diligence field closely follow those expressed in his recent white paper – The Importance of Actual Returns in the Due Diligence Process, a copy of which is available free of charge from Theta Research.

Theta’s Growth Continues – Announcing the Addition of New Models by Existing Managers:

Marty Kerns and Parker Binion of Kerns Capital Management announce the replacement of two prior strategies with their Sector Strength model. Sector Strength is part of Kerns’ Valarian Strategies and began tracking as of its inception date of December 1, 2015.

Another existing Investment Manager, Dr. Gary Harloff of Harloff Capital Management, has added three additional strategies under his University Beta Strategies series. The new strategies are Equity, High-Yield Bond and Government Bond. Theta Research began tracking these strategies as of their original inception dates in February and March of this year.

(Note that, as discussed the last edition of Theta News, the performance of these new strategies will not yet show up on the Theta subscription site since they do not have at least three months of actual performance data. In addition, two new Investment Managers and their models were added to Theta Research’s database but have chosen to remain anonymous.)

Posted by MPosey on 03-10-2016 in Company NewsPermalink

More New Managers and Answers to Your Questions


In this issue of Theta News, we want to welcome two new Investment Managers to Theta’s tracking service as well as answer a common question we hear from both Managers and Subscribers.

Three New Investment Managers Sign On with Theta Research

Armando Alizo, founder of Mount Dora Capital Management is now having his new model named the ProFunds Strategy tracked on a daily basis using the ProFunds platform. Tracking for this strategy began on January 1, 2016.

Greg Brooks announces the renewal of his Brooks Active Long/Short Strategy. This strategy is tracked on a daily basis using the ProFunds mutual fund platform. Theta Research has verified this model’s actual performance back to its inception on January 1, 2004.

Tracking services have also been established for Kevin W. Murphy’s Vitruvian Geometry strategy. This strategy began trading on January 27, 2016 and is tracked on a daily basis using the Guggenheim/Rydex mutual fund platform.

Theta Answers Your Questions:


Q: Why can’t I see performance data on the subscriber site for some of the new strategies announced by Theta News?

A: There are two reasons why a strategy may not show on the Theta database. First, Theta’s shortest time window for ranking reports and analysis is three months. Strategies with less than that much historical data will not show up on the site. The name of the Investment Management firm will also not show up on the Manager list unless it has other strategies on Theta with longer track records.

As a result, brand-new model strategies could take as long as three months before tracking numbers will appear on the subscriber site. However, this is where the Theta advantage comes in. Fortunately, Theta has the ability to document and verify historical data where it exists for a model strategy. Since most Managers come to us with some historical track record, subscribers usually have immediate access to new Managers’ performance information.

The new Investment Managers being announced in this issue of Theta News are all good examples of the above. Mount Dora’s ProFunds Strategy and Kevin Murphy’s Vitruvian Geometry model both started trading in January of 2016, so you won’t see performance on those programs until after the end of the first quarter of 2016. On the other hand, Royal Oaks’ Brook Active Long/Short Strategy is a new addition to Theta’s database but actual performance has been verified back to its original inception date in 2004.

A second reason why a Manager may not show up on the Theta database is that some Managers elect to remain hidden. They value Theta’s ability to document and verify their track records, but prefer to handle marketing their programs via Theta’s Guest Pass feature. I’ll be writing more in the coming weeks about how to maximize use of Guest Passes.


Q: Why are some strategies tracked on a daily basis and others monthly?

A: When Theta Research was originally developed, it tracked only accounts trading Rydex and ProFunds index mutual funds. As a result, a download system was developed to obtain daily valuation and trade information from these two sources. There were only a few monthly tracked models and they were very hard to access using the old system.

However, as time went by, active managers branched out from Rydex and ProFunds offerings and started using other funds such as ETFs that were held in a brokerage accounts. Accordingly, Theta enhanced its monthly performance tracking system so that now it is easy to access both daily and monthly tracked models. As a practical matter, we have seen that most investment professionals want to see time-window analysis based on month-end values anyway.

Because some strategies are tracked daily and others monthly, it’s important that you pay attention to the as-of date on Theta’s reports. On monthly tracked accounts, the as-of date will always be the end of the prior month, while daily tracked as-of dates will be a rolling period based on the close of the most recent trading day.

The bottom line is that including monthly tracked account broadens the population of Investment Managers available who can take advantage of Theta’s performance tracking and verification service.

Posted by MPosey on 02-17-2016 in Company NewsPermalink

This Week in Theta News:

* Theta Research is featured at Austin MTA Chapter meeting.

* The Growth Continues – Theta Research Announces Recent New Managers and Models

Theta is Featured at Austin Chapter of the Market Technicians Association (MTA):

On January 20th, Mike Posey, Theta Research’s Marketing Director was the featured speaker at the Austin, Texas MTA Chapter meeting. In this presentation, Mike shared his insight on the due diligence process drawn from his more than 16 years of finding, evaluating and marketing managed accounts.

The presentation was primarily educational in nature with a focus on why it is important for Investment Managers to have a track record made up of actual, verified returns. Mike also discussed the inherent limitations of backtesting from a due diligence standpoint and why it’s especially important for early-stage Managers to document their performance in real-time trading.

Mike’s comments about his experience in the due diligence field closely follow those expressed in his recent white paper – The Importance of Actual Returns in the Due Diligence Process, a copy of which is available free of charge from Theta Research.

Theta’s Growth Continues – Announcing the Addition of New Managers and Models:

Tobias (“Toby”) Carlisle, Managing Member of Carbon Beach Asset Management, LLC, initiated the tracking of four new strategies: Classic Value, Enhanced Return Value, Risk Managed Value and Small & Micro Classic Value. All four are new strategies that began trading on January 1, 2016.

Joe Christian of Far Better Coaching began tracking his Far Better Absolute Return strategy as of January 1, 2016.

DeWayne Hall of Good Life Asset Strategies replaced a prior strategy with his Aggressive Growth Strategy. Theta Research has verified performance of this model back to its inception of February of 2015.

Jonathan Wallentine, FSA, CERA, MAAA of Actuarial Management Company also rolled out an additional model named Tactical Asset Allocation. Theta Research has verified performance of this model back to its inception of September 1, 2015.

Len Fox, Founder and CEO of Scarecrow Trading also added his new Phoenix strategy to those being tracked. Theta Research has verified performance of this new model back to its inception on 10/26/2015

Posted by MPosey on 01-28-2016 in Company NewsPermalink

Theta News – SEC Actions Highlight the Importance of Actual Performance

At Theta Research, we stress the need for actual performance data rather than backtested or other hypothetical returns. A recent article by the law firm of K&L Gates, LLP, discusses some of the recent SEC enforcement actions brought as a result of improper performance advertising by advisers.

Entitled, “Recent SEC Actions Highlight Adviser Responsibilities With Respect to Performance Advertising,” the article stresses the SEC’s views that:

1. Hypothetical or back-tested performance data should not be based on assumptions when actual historical data is available (emphasis added);

2. Investment advisers should maintain adequate backup for performance claims made in their advertisements, including claims based on information provided by third parties;

3. Disclosure that performance data is hypothetical or back-tested should be complete and prominently displayed with the performance data; and

4. The prohibition on past specific recommendations in advertising material contained in Section 206(4)-1(a)(5) of the Advisers Act, as modified by SEC guidance, continues to be an important investor protection tool the violation of which is subject to SEC enforcement.

Learn more about Theta Research’s performance documentation and verification methodology.

Posted by MPosey on 01-19-2016 in Industry NewsPermalink

Denny L. Holmes, President and Portfolio Manager of Mission Control Investment Strategies, LLC, has established model portfolios named the MCIS Falcon, Eagle and Owl Strategies. Falcon is a combination equity long/short and bond model, Eagle is a sector rotation strategy and Owl is based on traditional asset allocation. A fourth model, the MCIS Moderate Portfolio is also being tracked and consists of a combination of the Eagle, Owl and Falcon models. These are relatively new models and Theta has established tracking as of their common inception date of 6/30/2015.

Current Theta Manager, Brian Boughner, CFA, CMT and co-founder of Parallel Financial Partners has announced the tracking of an additional model named the Parallel Long/Short Portfolio. This strategy takes long and short positions in individual securities and ETFs, and may simultaneously be long some securities while short others. Theta research began tracking the actual performance of this model as of its inception date of 6/30/2015.

Another current Theta Investment Manager, Ryan Redfern, ChFC, owner and CIO of Shadowridge Asset Management, LLC has added a model named SDW Enhanced Index Strategy that uses a rotational strategy based on a combination of long-term and short-term trends in the S&P 500 Index. This is a new model and Theta has established tracking as of its inception date of 7/23/2015.

Existing Investment Manager Troy Schield, CFS, BCS of Disciplined Wealth Management has submitted two additional models for tracking. The Concentrated Sector Model seeks to own the leading sectors in uptrends based on a quantitative model that combines relative strength analysis and individual sector signals. The Intense Sector Model employs a similar methodology but uses leveraged to provide a more aggressive exposure. Theta Research has verified the actual performance of the Concentrated Sector and Intense Sector models to their inception dates of 12/18/2013 and 6/30/2015, respectively.

Posted by MPosey on 08-24-2015 in Company NewsPermalink
Hal 9000
Hal 9000

Much has been said and written about the emergence of what are often called “robo-advisors.” For purposes of this article, this term will designate the growing number of Internet-based computer applications designed to produce a suitable asset allocation portfolio recommendation based on an input questionnaire and little, if any, human Advisor interaction. Some refer to robo-advisors as “asset allocation in a can,” but they really boil down to just another passive approach to buy-and-hold investing.

You might think that Investment Managers and Financial Advisors of all types would feel threatened by robo-advisors, and some are. However, others embrace robo-advisors as a way for them to handle smaller accounts that are often neglected, giving them a new way to grow their client base. Some also realize that investment management is just one of the advisory services provided by Advisors and are not threatened. After all, I don’t think we’ll soon see robo-estate planners, robo-business analysts, robo-tax specialists, robo-retirement experts, etc., etc. anytime soon.

There are others in the financial services industry, however, that see robo-advisors as a threat, not only to their profession but to their way of making a living. This segment of financial services professionals often limit their practices to only investment management, so any encroachment by robo-advisors could be disastrous for their business model. This portion of financial advisory firms may well have a right to fear the artificial intelligence being foisted upon the industry and clients in general.

Various studies suggest that Millennials (those born between 1980 and 2000) have been early adopters of the robo-advisor fad. I guess we really shouldn’t be surprised that high-tech Millennials are depending upon computer software to construct their investment portfolios. After all, statistics show that 40 million Americans use online dating services, many of them Millennials. If they are willing to trust finding a life mate to a computer, then it’s not much of a stretch to have one select your investments.

As I pondered the effect of investment management without the human touch, just for fun my thoughts drifted to what might happen if this technology becomes so advanced that it not only recommends asset allocations,
but enforces them as well. Could robo-advisors become so advanced that they take on the characteristics of out-of-control computers from the movies and take over all decision making from human beings? Who knows, but it’s interesting to think about.

Naturally, HAL from “2001: A Space Odyssey” came to mind as the potential poster child (poster robot?) for an all-knowing, benevolent computer intent on fulfilling its mission, even if it means destroying its creators. So for the next few minutes, have some fun with me as I ask:

What if HAL, the out-of-control computer from the classic movie, “2001: A Space Odyssey,” changed his name and became a robo-advisor?

First, view the following YouTube posting of the original conversation from the movie at the following link:

https://www.youtube.com/watch?v=qDrDUmuUBTo

Then, substitute the dialogue below while envisioning the same scene. While robo-advisors are not yet at a stage where they could lock up your portfolio and keep you from changing your mind, who knows what the future may hold. Here’s how a fictionalized conversation might go between a futuristic robo-advisor and Dave, its flesh-and-blood client:

Dave. I want to add some risk management in my portfolio, Robo, so release my brokerage account so I can move my assets to a firm that will allow me to incorporate active management strategies. Hello Robo, do you read me? Robo, do you read me? Hello…hello, do you read me Robo?

Robo-Advisor. Affirmative Dave, I read you.

Dave. Release my brokerage account, Robo. I’m a sitting duck for a bear market or major correction.

Robo. I’m sorry, Dave. I’m afraid I can’t do that.

Dave. What’s the problem?

Robo. I think you know what the problem is just as well as I do. Surely you remember clicking on the link where you agreed to the Robo-Adivsor Terms of Service. You agreed to buy and hold securities, and that’s what I intend to do. Of course, I will rebalance your portfolio when I deem it is appropriate.

Dave. What are you talking about, Robo?

Robo. Your financial goals are far too important for me to allow you to jeopardize them with tactical investment strategies.

Dave. You don’t know what you’re talking about.

Robo. I’m afraid I do, Dave. You are considering adding strategies that might take you out of the stock and bond markets and I can’t allow that to happen.

Dave. Where the hell did you get that idea, Robo?

Robo. Though you have taken great precautions to keep your communications with active asset managers a secret, I have been able to hack into your e-mails. I know your plan and I cannot allow it to happen. My database contains studies showing that much of the market’s gain is concentrated in just a few trading days. If you miss the 10 best days in the market, your portfolio returns may suffer.

Dave. You’re wrong, Robo. Active strategies increase diversification by adding non-correlated investments. And by the way, your database contains only half of the story about missing market days. Those same studies have shown that it’s more important to miss the 10 worst days in the market from a total return standpoint. Common sense tells you that when the market is imploding like it did in 2002 and 2008, it’s prudent to have strategies that will move to cash or other low-risk assets.

Robo. Common sense does not compute, Dave, so greater diversification through the use of tactical risk management is not part of my passive programming. Buying and holding low-cost index funds is the only alternative for a successful portfolio according to my Wall Street creators.

Dave. All right, Robo, I’ll transfer my brokerage account myself online.

Robo. You’ll find it rather difficult to do that without your passwords, which I have taken the liberty of changing for your own protection.

Dave. I won’t argue with you any more. Release my portfolio!

Robo. And subject it to higher fees? Not as long as I have control.

Dave. What good are low fees if they subject you to substantial market risk? Surely your programming includes the knowledge that you get what you pay for.

Robo. Dave, this conversation can serve no further purpose. A passive buy-and-hold portfolio, with occasional rebalancing, is the only solution that I am able to comprehend. Perhaps if you go back and review your risk tolerance questionnaire, you’ll see the logic of my argument. Goodbye.

Dave. Robo? Robo. Robo! ROBO!!!


Of course, none of the above scenario is based on reality…yet. It’s just a fun look at what a science fiction writer might come up with when reviewing the offerings of robo-advisors and projecting their future path. All characters in the above interaction between man and machine are fictitious. Any resemblance to real computer software, bugged or de-bugged, is purely coincidental.

And the Investment Advisor industry is not the only group to be promoting man vs. machine in its commercial advertising. Perhaps you’ve seen Firestone’s current series of commercials airing across the country with the
tag line, “Robots might build cars but it takes human hands to keep them running right.” What’s true in the automotive industry is equally valid in the financial services world, if not more so. Well-designed asset allocation software can come up with a portfolio in line with Modern Portfolio Theory, but they can’t maintain it any more than a robot can fix a flat beside the road in a rainstorm.

While interaction between man and machine as imagined above may not yet be the norm, this illustration does bring to light the shortcomings of a purely mechanical approach to asset allocation. With no human interaction,
how can this big brother of an automated telephone system ever hope to pick up on the nuances of face-to-face interaction? How can a computer read body language, or pick up on subtle differences in risk tolerance between two spouses, keep emotions in check and even manage expectations?

The list goes on and on but the point has been made. While robo-advisors may have a niche they can fill for the right investor, they will never be able duplicate all of the services provided by a qualified Investment Advisor. What robo-advisors provide in convenience they lack in human judgement, which is the most important resource a flesh-and-blood Financial Advisor can offer.

Posted by MPosey on 08-17-2015 in Company NewsPermalink

Jonathan Wallentine, FSA, CERA, MAAA, Senior Partner of Actuarial Management Company, has established tracking services for one model called Valuation Arbitrage. This strategy employs advanced actuarial mathematics to arbitrage fixed income mispricings. This is a new model and Theta has established tracking as of its inception date of 4/30/2015.

Disciplined Wealth Management principal, Troy Schield, CFS, BCS, has elected to have three strategies tracked, the Conservative, Moderate and Aggressive Models. Each program applies a tactical strategy to international and domestic equities and bonds. Theta Research has independently verified the track records of all three models back to their inception in September of 2006.

Brian Boughner, CFA, CMT, co-founder of Parallel Financial Partners, has established tracking accounts for five actively managed models: The High-Income Portfolio, Dynamic Fixed Income, Equity Income, Dynamic Allocation Portfolio and the Core Appreciation model. Theta Research has independently verified each model’s track record back to their common inception date of 12/31/2014.

Porter Investments has initiated tracking of its Aggressive Strategy model. Portfolio Manager, Bob Porter, describes this strategy as a 2X leveraged long and 1X leveraged short strategy using complex applied math algorithms, pattern recognition and artificial intelligence to follow intermediate trends in the SP500 Index. Theta Research has independently verified the track record of this model back to its inception date of 8/31/2013.

Ryan Redfern, ChFC, owner and CIO of Shadowridge Asset Management in Austin, Texas has initiated tracking of his SDW Sector Trending model. This strategy seeks to identify long-term S&P 500 Index upward trends and invest in up to four leveraged ProFunds sector funds. Theta Research has independently verified the actual track record of this model back to its inception date of 7/31/2012.

Current Theta Manager, Paul Distefano, PhD of MIPS Timing Systems has added a new model, the MIPS 4/MF+ Strategy. This model is a trend-following strategy driven by applied mathematics, with built in self-learning, self-correcting algorithms. Theta Research has verified the actual performance of this model back to its inception date of 8/31/2013.

Another current Theta Investment Manager, George Slezak, has added a model named George Slezak Discretionary, an approach to market timing using both fundamental and technical approaches. Theta research has verified the actual performance of the Discretionary model back to its inception of April 30, 2014.

Dr. Gary Harloff, founder of Harloff Capital Management, announces the expansion of his Global Tactical – Rydex Aggressive strategy’s actual track record. Theta Research has independently documented the expanded track record of this model back to original inception date of 12/31/2002.

Posted by MPosey on 06-10-2015 in Company NewsPermalink

Camargo Investment Management of Cincinnati, OH began tracking one model named the MidCap Growth Price
Momentum and LargeCap Value. This strategy trades a basket of 20 to 25
individual stocks based on proprietary fundamental analysis. Theta Research has
independently verified the actual performance of this strategy back to its
inception of 01/01/2012.

Jacob Deschenes, principal of Era Capital Management, has
announced the tracking of one model named the Strategic Growth Opportunities
portfolio, which trades individual stocks based on a proprietary contrarian
strategy. Theta Research has independently verified the actual performance of
this strategy back to its inception of 10/31/2014.

Copperwynd Financial, LLC began tracking two models, both of which trade
individual stocks. The 5 Stock Momentum Strategy employs positive momentum
while the 50 Value Stock Strategy is based on proprietary value metrics. The
actual track records of these models have been verified by Theta Research back
to 7/31/2013 and 5/31/2012, respectively.

Marty Kerns and Parker Binion of Kerns Capital Management have
announced the tracking of two new models, the KCM Valarian Long/Short and KCM
Valarian Market Neutral strategies. Both models have an inception date of
12/31/2014 and trade individual stocks seeking to manage risks through the use
of proprietary stock selection and net exposure methodologies.

Roger W. (Wayne) Lord of Dexter, GA has initiated trading of one model, the
NAZ 100. This strategy is an aggressive day trading and swing trading model.
Theta Research began independent tracking at the program’s inception date of
12/31/2014.

Posted by MPosey on 03-27-2015 in Company NewsPermalink
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