Differentiating Factors

Traditional portfolio managers attempt to outperform their respective benchmarks through superior stock selection. Over the years there have been only a handful of standout managers such as Warren Buffet and Peter Lynch who consistently outperformed the market. They are the exception, not the rule. Industry statistics show that nearly 80% of all active managers fail to consistently beat their benchmarks. Rather than pay a manager to underperform, investors have been flocking toward passive index funds to save money on management fees.

Cutting out the management fees amounts to little more than a small victory for the average investor. The 2000-2002 bear market and the 2008 financial crisis subjected index fund investors to substantial losses (often exceeding 40% from peak to trough) in portfolio value. Returns like these beg the question, is there a better way to invest?

Those who continue to adopt the buy and hold approach will continue to suffer when markets decline. Conventional wisdom asserts that the prudent course of action in any market is to hold on to your investments and patiently ride out the rough times. The partners at Aeon reject the notion that investors must endure such large declines in account value as the price to pay in order to capture the returns produced by the stock market.

At the root of the problem is the fact that mutual funds and index funds are mandated to be fully (95% or more) invested in stocks, regardless of market conditions. This is a cause for concern because it ignores the fact that not all market environments offer equal rewards for the risks taken. For example, being fully invested in 2007 was much less risky than being fully invested in 2008.

Aeon believes that such differences in the investment climate can be automatically accounted for by employing a more adaptable investment approach. Adaptability is not achieved through stock picking, forecasting or market timing. It is achieved by basing investment decisions on what is currently happening in the markets, not on what is expected to happen. By combining adaptability with a state of the art risk management process, Aeon attempts to offer investors the returns they seek when markets advance and the protection they need when markets decline.

 
Alternative investment products involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail futures and options trading, which involves substantial risk of loss. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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Aeon Funds is a division of Aeon Capital LLC, a Registered Investment Advisor with the State of California and Commodity Pool Operator with the National Futures Association
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