Charlie White thinks portfolio management is a full-time job, and he’s right. I find it tough to do portfolio work and visit with customers and manage the office.

If I had it all to do over again — if 20 or 30 years could be magically carved away — I’d try to find a CIO position somewhere, or start my own investment partnership. Or maybe I would just have put 10 or 20 percent of every dollar I earned into Berkshire Hathaway. I might have let Charlie White’s algorithm do the heavy lifting instead, but his Boolean formula didn’t exist before 2008. (If you have a way to slice away two or three decades, write and let me know, okay? If you can do the time thing, I’ll give you half of the billions we’ll create.)

So, Charlie figured out something important during his time in the retail investment business, years spent at Paine Webber and Smith Barney. From his ideas, a company evolved, Dynamic Portfolio Strategies. The theory behind his company is that the buy-and-hold strategy of the ’80s and ’90s is a poor foundation for allocating client assets in today’s volatile, slow-growth investing environment. In other words, active markets need active management.

Now, every market morning, advisors receive signals from Charlie’s firm that say whether or not to change (buy, sell or hold) the investments in a selected portfolio. All portfolios are custom-built for individual advisors and registered representatives to use to manage a variety of products including mutual funds, ETFs, variable annuities and 401(k)s.

Charlie thinks the financial services industry has done a good job of teaching advisors how to gather assets, but it has not been very good at teaching us how to manage those assets. “Drops in the market are killers; people are still recovering from the 2000-2002 mess and the 2008 debacle,” Charlie says. “I wanted to find a way to minimize losses and to help people keep their investments on track.”

Charlie and Dave

You may have guessed already: there’s a math whiz behind the curtain. When Charlie got the idea of analyzing the price movements of individual funds and ETFs, he approached longtime buddy Dave Pollack, a Ph.D. who teaches mathematics at Youngstown State University in Ohio. He and Dave created the algorithm, based on Charlie’s idea, and Dave is an integral member of the firm.

Dynamic Portfolio Strategies is all about math — and family. Charlie’s daughter Kate runs the algorithms every market-day from the firm’s NYC headquarters and sends subscribers a Dynamic dose of daily wisdom. She also handles the books and the investment modeling. Son Ben works with Charlie in the subsidiary Youngstown office, working primarily on spreadsheets for new subscribers. These are the ones that Kate ultimately updates each market-day.

Portfolios

There are growth portfolios, conservative portfolios, income portfolios, hedging portfolios … really too many to name, and of course, you may have one custom built. Regardless of the portfolio, the Dynamic program is constantly watching for market changes and reallocates assets to where money is being made.

Every market-day, each fund and ETF monitored by Dynamic receives a score. If the current funds in the portfolio continue to score the highest, they stay in the portfolio. If they score lower, the investments could go elsewhere — to cash, bonds or to an inverse fund. Growth portfolios can go to 100 percent bonds if the computer program determines that’s the best performing asset class. With their traditional portfolios, Dynamic watches six months of returns for each fund or ETF and constantly compares to the baseline. Volatility portfolios have a narrower window of 30 days.

A better SMA?

Dynamic Portfolio Strategies is for advisors looking for an alternative to separately managed accounts. “Why,” Charlie wonders, “should any advisor give up so much control and income, when Dynamic can offer the potential for better results for much less?”

Yes, the advisor must do the trading. However, good results are likely, even with client advisory fees set at 1.5 percent yearly. “If you’re an advisor who doesn’t like to execute trades,” Charlie says, “consider hiring an assistant to do it, even a half-time person.”

The truth is that with the Dynamic system there is not all that much trading. On average, one may be trading roughly once monthly, and the trades can be placed at the end of a market-day or the next morning. Because it is not a market-timing program, there’s nothing that requires immediate or emergency action, and a 24-hour or weekend wait won’t have much of an effect.

Bottom line

For Dynamic’s work, the fees are 20 bps of the first $10 million of assets under management, with breakpoints at $10 million and $20 million. As discussed earlier, the returns historically are such that a 1.2 percent fee seems to make sense, with 1 percent gross to the advisor and 20 bps to Dynamic. The alternative is farming money out to a third party that typically receives 50 bps or more for management. You could think of Dynamic as better third-party management at a discount.

Why wait until the wheels come off your investment wagon at the next big downturn? Consider working with Dynamic Portfolio Strategies and allowing Charlie & Company to be your research department.

You may reach Charlie, Kate or Ben at (877) 377-7872. The website address is www.dpstrategies.net, and Charlie’s e-mail is cwhite@dpstrategies.net.

 

For more from Richard Hoe, see:

Lose

Worry

Scribble