55ip, an investment strategy engine that enables advisors to customize and automate intelligent portfolio strategies using industry-leading investment science, today released its Q3 2018 commentary and October forecast on the Market Risk Indicator (MRI) score. The MRI score is a proprietary metric that seeks to assess the likelihood of extreme market conditions and help investors protect their portfolios from significant losses. This score can range from 0 – 100, with 0 being the lowest possible risk assessment.
The MRI score aggregates indicators across 4 categories:
- Valuation (e.g. price to book ratio)
- Macroeconomic conditions (e.g. manufacturing sentiment index)
- Financing indicators (e.g. trend indicators)
- Statistical measures of return distributions (e.g. multi-asset market volatility)
Together, these categories provide a full picture of the market risk level within a given month, which can be used to determine how much of a client’s portfolio should be allocated to cash or an equivalent shelter basket to hedge against risk.
55ip MRI: Q3 2018 – Overview
Averaging the scores from July, August, and September, the Q3 MRI score is 30. This is lower than the Q2 2018 average which was 36 due to elevated April and May scores. In Q3, only the August 2018 MRI score (45) was notably higher than July (24) and September (20) with trend indicators in August showing rich valuations and high perceived risk as identified by statistical measures of return distributions and option markets activity.
55ip MRI: October 2018 – Looking Ahead
The October 2018 MRI score is at 20, reflecting conditions that are relatively stable and unchanged from September. Financing risk and statistical measures of return distribution that measure uncertainty which were fluctuating in August, have since stabilized. Overall, 55ip’s analysis indicates rich valuations being offset by strong and stable fundamentals across macro indicators, such as employment and inflation.
“The investing pundits are all trying to guess when the current, record-setting bull market may end,” said Leonid Kogan, 55ip’s chief investment scientist. “While forecasting performance is not possible, intelligent forecasting of estimated risk and incorporating that into dynamic portfolio management can help smooth the ride and lessen anxiety for investors, especially those nearing retirement who can’t necessarily absorb and recover from an extreme downturn.”
Founded in 2015 and headquartered in Boston, 55ip is an investment strategy engine that provides partner firms (financial advisors and wealth managers) the capabilities to build intelligent, custom models for their clients on white labeled software. 55ip’s proprietary investment science addresses the three most common frictions that get in the way of client outcomes – taxes, high fees, extreme losses – while automating the entire investment management process so advisors can focus on growing and scaling their practices.
All advisory services provided by 55I, LLC, a SEC-registered investment advisor.
55ip is the marketing name used by 55 Institutional Partners, LLC, an investment technology developer, and for investment advisory services provided by 55I, LLC, an SEC-registered investment adviser. Registration does not imply any certain level of skill of training. These materials are intended for Registered Investment Advisors only and describe a risk management strategy that may not work as intended, in part because the strategy is not modified more frequently than monthly. As a result, the strategy cannot be counted on to provide protection to client portfolios. Even when using the strategy, portfolios remain subject to multiple risks, including the risk of loss of the entire amount invested. 55ip has been calculating the MRI monthly and applying it to managed assets since April 2016. 55ip has calculated a hypothetical monthly MRI back to April 2004 using varying inputs and blends of indicator categories.