behaviors move markets: how this proven behavioral ......phantastic objects. creating...

Behaviors Move Markets: How this Proven Behavioral Tactical Strategy Capitalizes on Opportunities

February 12, 2020

TOM HOWARD, PhD CEO and Chief Investment Officer

STEVE BOGOSIANDirector of Sales

Behavioral Investing 2

✓ Why Behavioral Finance?

✓ What is Behavioral Investing?

✓ Athena Global Tactical ETFs Overview and Results

✓ Athena Global Tactical ETFs Investment Process

Today’s Discussion

WHY BEHAVIORAL FINANCE?


Old

Has not evolved in 150,000 years

Hungry

Consumes 20% of our daily energy but is only 3% of body weight

Impatient

Optimized to survive the threats faced 150,000 years ago

The Human Brain


The Behavioral Investor by Daniel Crosby (2018)

Our 150,000-Year-Old Brain


THREAT RESPONSE

Cognitive Reaction

• Higher-level functions

decrease

Physical Reaction

• Breathing accelerates

• Blood pressure rises

• Primed for action

FAST AND AUTOMATIC

PLEASURE

Cognitive Reaction

• All brain areas

contribute

SLOW AND COMPLEX

• Threat detection

• Process positive stimuli

• Emotional memories


Investor Cognitive Errors

The Undoing Project by Michael Lewis (2016)

Myopic Loss Aversion

Social Validation

Availability Bias

Availability Cascade

Representativeness

Framing

WYSIATI

Anchoring

Fallacy of Information

Fallacy of Control

Peak-end Memories

Fooled by Randomness

Phantastic Objects

Creating High-Confidence Outcomes


Portfolio Planning Framework – Separation of Concerns

Stable PrincipalGOAL

Loss of ValueBIGGEST RISK

Accumulate WealthGOAL

UnderperformanceBIGGEST RISK

Fund Ongoing NeedsGOAL

Decrease in PayoutBIGGEST RISK

LIQUIDITY INCOME GROWTH

WHAT IS BEHAVIORAL INVESTING?


KEY CONCLUSIONS

PEOPLE ARE NOT RATIONAL

MARKETS ARE NOT EFFICIENT

THESE BUILT THE FOUNDATION FOR

BEHAVIORAL

INVESTMENT MANAGEMENT

Nobel Prize Recognizes Behavioral Researchers


Robert

ShillerMarket Volatility

2013

Daniel

KahnemanProspect Theory

2002

Richard

ThalerBehavioral Nudging

2017

AthenaInvest Foundation and Research


C. Thomas

HowardProfessor Emeritus

University of Denver

CEO and Chief Investment Officer

Patented

Behavioral Research

Six US and International Patents

STRATEGY

CATEGORIES

MARKET

BAROMETERS

FUND AND

STOCK RATINGS

1. Market prices are dominated by emotional crowds.

2. Behavioral research reveals unique market opportunities.

3. In large part, emotions determine investment outcomes.

4. Behavioral management can dramatically improve success.

Behavioral Foundational Concepts


Risk in Growth Portfolios


Sources: AthenaInvest, Thomson-Reuters Financial, Center For Research In Securities Prices, St Louis Federal Reserve FRED data base.

$10,409,326 (10.8%)

$414,625 (5.6%)

$162,628 (4.2%)

$78,381 (3.1%)$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Asset Class Returns: $10,000 Invested (1950 – 2018)

S&P 500

T-Bond

T-Bill

CPI

T-Bills are the riskiest investment

Risk is leaving money on the table

13Behavioral Investing

Market Peaks: What Happens Next?


ATHENA GLOBAL TACTICAL ETFs

Objective: Maximize long-term growth with superior market selection and leverage.

Investment approach: Market rotation is driven by our patented research measuring deep macro-level crowd behaviors.

Market Exposure: The portfolio invests in positions within US small, US large or international equities when market indicators are strong.

Inception: September 2010

Athena Global Tactical ETFs



Global Tactical Performance as of December 31, 2019

Morningstar Category: Tactical Allocation Funds

Peer Group Comparison (as of 12/31/19)


Inception-to-Date vs. Peer Group

Athena GT 17.8%

High 10.2%

Average 5.3%

Low 0.9%

Ratings & Rankings vs. All Mutual Funds

#173 out of 12,261 Mutual Funds

0

2

4

6

8

10

12

14

16

18

20

An

nu

aliz

ed R

etu

rn %

98TH

P e r c e n t i l e


Expected Market Returns

Patented Mutual Fund Categorization Methodology


Competitive Position Profitability

Economic Conditions Quantitative

Future Growth Risk

Market Conditions Social Considerations

Opportunity Valuation

Strategy Peer Groups

Strategy Ranking (1988-2007)

RANK STRATEGY

1 Future Growth

2 Competitive Position

3 Opportunity

4 Profitability

5 Quantitative

6 Valuation

7 Market Conditions

8 Economic Conditions

9 Social Considerations

10 Risk

Relative Strategy Ranking Methodology

Current Strategy Ranking

Aligned

Mixed

Inverted

Expected Returns

High

Medium

Low


Behavioral Market Barometers


Expected Returns and Market Exposure

50%

39%

11%


Market Barometer Research Model SignalsTactical Positions (1/1/2008 – 12/31/2017)

Historical Positions of the Portfolio

The Global Tactical Experience


AverageDays

PortfolioReturn

BenchmarkReturn

AlphaPortfolio

DrawdownBenchmarkDrawdown

DrawdownVariance

208 10.05% 5.27% 4.78% -10.17% -8.28% -1.90%

Benchmark = ACWI Benchmark

Evaluation Criteria Traditional Tactical Managers Athena Global Tactical

Objective Manage Volatility/Drawdown Capital Appreciation

Investment Horizon Short-Term Long-Term (5-10 years)

Investment Drivers Price/Momentum/Valuation Behavioral

Signal Frequency Daily/Weekly Monthly

Holding Period Days/Weeks/Months Months/Years

Number of Holdings 5-100+ 1 ETF

Key Portfolio Differentiators


Core and Tactical Approach

Popular Configurations for Use in Portfolios


Liquid Alternative Multi-Strategy Approach

Can be used as a 10% – 30% tactical allocation in a traditional equity portfolio to systematically over or under-weight attractive market segments.

Can be used as a distinct behavioral alpha-seeking strategy to pair with other types of managers in a “Stable of Managers” approach.

Can be used as a liquid global macro strategy. With the use of leverage and cash, the portfolio tends to have a low R-Squared to equity markets (< 0.50).

GT

CORE

GT

GT

M1M2

M3

M4

✓ Learn to insulate your investments from your emotions.

✓ Separate long and short-term needs to minimize emotional impact of volatility.

✓ Structure a high-performance growth portfolio to build long-term wealth.

✓ Earn excess returns through truly active management.

Successful Investing: Avoiding the Cost of Emotions


Behavioral Viewpoints – Athena’s Unique Perspective

27

Focused on Behaviors

❑ We take a behavioral view of the markets and financial advice.

❑ The AthenaInvest investment process is based entirely on behavioral factors.

❑ The Viewpoints section of our website is a valuable resource for unique behavioral perspectives.

Get behavioral insights straight to your inbox :Register at www.athenainvest.com/register

Behavioral Investing

http://www.athenainvest.com/register

The AthenaInvest Market View


29

“In large part, emotions determine investor success.”

Tom Howard, PhD, CEO and Director of Research, AthenaInvest

Questions ?

Contact Us

Tom Howard [email protected]

Steve Bogosian [email protected]

www.AthenaInvest.com

Behavioral Investing

mailto:[email protected]

mailto:[email protected]

http://www.athenainvest.com/

RISKS: An investment utilizing our investment methodology involves risks, including the risk of loss of a substantial portion (or all) of the amount invested. There is

no assurance that the investment process outlined in this document will consistently lead to successful results.

You should consider the investment objectives, risks, charges, and expenses carefully before investing.Athena fact sheets contain this and other

information, and may be obtained from AthenaInvest by calling (877) 430-5675 or visiting us online at www.athenainvest.com. Please read the fact

sheets or prospectuses carefully before investing.

• Some figures shown are pre-inception research results. Hypothetical or simulated performance results have inherent limits. Unlike an actual performance

record, simulated investments do not represent actual investments.

• Some figures shown are past results. Past performance does not guarantee or indicate future results.

• There are risks involved with stock investing, including the risk of loss of principal. There is no assurance that the investment process will consistently lead to

successful results.

• Opinions and forecasts regarding industries, companies, countries and/or themes, and portfolio composition and holdings, are all subject to change at any time,

based on market and other conditions, and should not be construed as a recommendation of any specific security.

INDEX DEFINITIONS

Indices used in this presentation are for comparative purposes only. Index performance does not reflect fees, expenses, or taxes and it is not possible to invest

directly in an index.

For more information please call (877) 430-5675 or visit us online at www.atheninvest.com.

Copyright © 2019 AthenaInvest, Inc. All Rights Reserved. US Patents 7734526, 8352347, 8694406 | Singapore Patents 150371, 184692 | Taiwan Patent 200828170

Important Information


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