15 developers of active investing strategies faced erce competition at the NAAIM 2014 Outlook Conference.

Since the formation of the first financial markets, investors have sought to find the edge—the strategy or insight that blunts the pain of market declines and focuses on profitable investments. Over hundreds of years of market analysis, calculations, observations, and theories, the single right approach has yet to be found. But the ongoing challenge of balancing the market’s promise with its periodic wealth-destroying tendencies has created a wide range of innovative investment strategies, reflecting the diversity of how individuals approach the risk and return aspects of investing.

This variety of thought processes was very much in evidence at the “Shark Tank Auditions” at the National Association of Active Investment Managers (NAAIM) Outlook Conference on November 11, 2014. Fifteen investment managers brought 15 different strategies to the podium in rapid-fire progression, with seven minutes of presentation time followed by five minutes of questions and answers. A brief overview of some of the top-ranked, dramatically different approaches is provided below. But first, a little background.

Innovative investment strategies reflect different approaches to risk and return.

Back in May, NAAIM hosted its first Shark Tank—an opportunity for the developers of active investing approaches to pitch their strategies to fellow advisors and active investment managers in pursuit of subadvisor agreements. The success of that endeavor led to these recent auditions for the upcoming 2015 NAAIM Manager Showcase finals. Held in Dallas, Texas, the two-day conference attracted more than 90 active managers. NAAIM anticipates announcing those firms selected to appear at the 2015 Manager Showcase finals later in December.

Actuarial Management Company LLC

Receiving high audience ranking and high scores from the judges/sharks was Jonathan Wallentine of Actuarial Management Company LLC (ämco) with his presentation of the company’s Risk Managed Fund approach. The fund invests the majority of its assets in a diversified basket of fixed-income investments from investment-grade corporate bonds, to floating rate instruments, preferred shares, mortgages, and REITs. But then, this seemingly standard income approach takes on high-octane potential by investing income generated from the fixed-income allocation in equity alternatives. The goal is upside equity participation while protecting the fund from losses in down markets.

Eagle Mountain Advisors LLC

Also ranking high in the judging was Dudley Lehmer of Eagle Mountain Advisors LLC with a long/short/leveraged S&P 500 strategy using funds from Guggenheim Rydex. Eagle Mountain uses a computer model that identifies and exploits statistically predictive patterns in the daily movement of the broad S&P 500 market. An adaptive algorithm identifies investor sentiment, which the firm maintains manifests in the market as predictable and tradable patterns in the up and down swings of the S&P 500.

Good Life Asset Strategies

DeWayne Hall of Good Life Asset Strategies brought an options-based strategy, the Good Life Theta Program, to the auditions. The Theta Program pursues growth through the accumulation of large numbers of small, profitable trades in deep out of the money (DOTM) put options in select equities. Active management techniques are used to limit the number and severity of losing trade.

Capital Research Advisors LLC

Ken Graves of Capital Research Advisors also presented a long/short/leveraged trading strategy designed to buy representations of the S&P 500, DJIA, Russell 2000, NASDAQ 100, or Mid Cap 400. The model is 100% invested, or not, with extended periods when no trades are made. Results for both the short-term and intermediate-term variations of the strategy were presented, resulting in considerable interest from the audience.

Potomac Advisors Inc.

The auditions saw the return of Rich Paul to NAAIM with his Evolution Market Timing System (EVO). Rich was one of the 1989 founding members of NAAIM and wrote its original performance measurement standards. He also founded Potomac Advisors and Potomac Fund Management. Rich thought he was ready to slow down, but retirement was too tame for someone who can’t stop trying to conquer the market. With EVO he offered 12 years of outstanding performance from a system he clearly identifies as market timing.

ProfitScore Capital Management Inc.

Long/short U.S. Treasurys were the investment of choice for John McClure of ProfitScore Capital Management in his LSGB approach. Advantages of the LSGB strategy include liquid transparent investments, tactical models to minimize systematic risk, and multiple models to mitigate model-specific risk, along with the ability to take long and short positions.

Active management is alive and well among NAAIM members.

Brighton Wealth Management Inc.

Alan Battles of Brighton Wealth Management, Inc., had a completely different take on active management by focusing on utilities (electric, gas, water) with the highest projected dividend growth rates. Five top utilities are held in the portfolio with periodic reallocation based on the availability of better-performing investment alternatives. The strategy offers increasing dividend income, appreciation potential, and low correlation to S&P stock indexes.

MESA Software

John Ehlers of MESA Software introduced the group to the MESA PHASOR, a short-term trading system for S&P 500 stocks. The unique feature of John’s approach is his use of market cycles in the investment decision. MESA stands for Maximum Entropy Spectral Analysis. The MESA algorithm makes a high-resolution estimate of the entire range of potential cycles. Digital signal processing techniques are used to identify tradable cycles in the market on a stock-by-stock basis.

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These presentations were profiled due to their high judging scores and to show the diversity of the thought processes on display at the auditions, but these are not by any means recommendations. As always, investment managers and advisors should perform their own due diligence. Whether any of these eight presentations or their competitors caught the interest of the judging panel and audience members often came down to the listener’s background and expertise. But one fact was loud and clear: active management is alive and well among the inquiring minds of the NAAIM membership.

The opinions expressed in this article are those of the author and do not necessarily represent the views of Proactive Advisor Magazine. These opinions are presented for educational purposes only.