Syfe – Investment strategy

TLDR: Syfe adopted a framework to avoid the “tailrisk” of a down market in period of volatility that is unconventional against the approach of other investors such as Bogle.

Eventhough this framework have backtested well since 2010, I question whether this is still sound in the age of money printing.

Nonetheless I think it is brave for them to take such an approach and it is the most interesting portfolio to watch in a recovery.

As I’ve posted last week, I find that Syfe offered a unique roboadvisory in that they have chosen to not stay invested during this period of high volatility and hold onto a outsized treasury bill position.

Kudos to the Syfe customer service, they have been providing me with information relating to my specific question above and beyond what platform such as Stashaway been transparent with (thus far).

Based on the investment methodology white paper shared by them that can be found here Syfe will actively manage allocation into stock market based on the volatility (risk) of the market.

While conventional legends of investment such as John Bogle and Burton Markiel (and even Buffett) will recommend investor to stay invested through market cycle, Syfe have adopted the “Constant Volatility Framework for managing tailrisk” essentially attempting to “time the market”.

If this can be achieved without missing out on the up-cycle, it will be absolutely great. But I remain skeptical that there is a formula that can forego the downside risk without missing out on the up cycle – especially in light of the April to May recovery of this year after record sized intervention by US government.

I’ve posed the question below to Syfe and I will pose their reply when I receive them:

In period of higher volatility, – there’s unwanted negative fat tail but also “wanted” positive fat tail, conventional rule offered by gurus such as Prof Burt Markiel have been recommending investor to stay invested even in period of high volatility. By not staying invested – the portfolio may missed out on the “critical month” of the market recovery.

Given the new norm of money printing/ MMT / QE upending conventional “rule” and wisdom, is the hypothesis behind the framework (sharp decline and drawn out bull market) still valid especially in light of the sharp recovery we’ve seen in the last 8 weeks?

As a layperson, it is my observation that in the last 10 years with MMT, the world’s government beginning with US (and now spreading to Europe & Australia among others) are printing money in support of the stock market and real economy perhaps changing the rules of how the stock market operate (this time is indeed different!) – cheap money is creating a horde of “zombie companies” not generating real cash but sustained by cheap credit. It is my concern as an individual investor on how to “beat” inflation in the era of currency debasement and hence I find it unusual for the high allocation of T-bill even within the highest risked portfolio of Syfe. 

Does the investment committee still have high conviction of their current approach in adopting the “constant volatility framework for managing tail risk”? – with money printing and the sharp recovery in the past 8 weeks?

(I do share the scepticism of the recovery from a common sense perspective but I believe despite the risk, staying invested (in reasonably valued sectors) is the safer choice given the currency debasement risk. This is by no mean a criticism of the choice, rather I find it “brave” to switch out but I will like to “ask more question” prior to making allocation to Syfe as part of my portfolio.)

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