Maycrest Capital – Outperforming The Market With Discipline And PatienceAdvisor Perspectives
Richard Davis is the CEO and chief investment officer at Maycrest Capital, a Florida-based asset manager. Richard holds a bachelor’s degree in mathematics and physics from the University of North Carolina. His unique strength comes from combining his expertise in the development of financial instruments software with his experience in managing complex financial instruments at global European banks.
Richard is the portfolio manager of the Maycrest Balanced Fund Strategy. Since its in inception on January 1, 2007 to August 31, 2018, the Maycrest Balanced Fund Strategy had an annualized return of 11.46% versus 8.36% for its benchmark, the S&P 500 Total Return Index, for an outperformance of 310 basis points. The Maycrest Balanced Fund Strategy is available to investors through separately managed accounts.
I interviewed Richard last week.
Please give us the firm’s history in a nutshell
Maycrest Capital is a boutique money manager. The firm was founded in 2002, so we are currently celebrating our 16th year in business. Over the first five years, we focused on developing an investment strategy for U.S. equities. Since 2007, we have implemented our strategy, the Maycrest Balanced Fund Strategy, while continuing to refine our model. Our sole focus is investing in the U.S. stock market using our strategy.
Describe Maycrest Capital’s investment approach. What makes it unique?
We employ an active risk management approach. Our tactical strategy aims to capture the broad swings in the market that come with the business cycle. The market tends to overshoot at the end of an expansion. Then, when the economy turns south, fear sets in and the market underprices equities. Stocks get cheap. Our strategy pares back the stock market exposure before an impending recession and reinvests funds after the market has declined. Over a business cycle our strategy is designed to generate alpha, to outperform the market by escaping some of the losses of a stock market downturn.
We invest in broad-based, liquid ETFs, rather than individual stocks.
What makes us unique? We have developed a mathematical model, the “BearCasting Model,” to help us determine points in the business cycle when the risk of investing in stocks outweighs the returns. The BearCasting Model is a mathematical model, implemented in software, which uses indicators and trading rules to generate signals. It takes into consideration market, technical and sentiment indicators.
We use our BearCasting model to guide our investment decisions. The strategy and model have worked well over the last business cycle. We have booked a handsome return, exceeding the return of a buy-and-hold investor in an S&P 500 ETF by more than 3% per year, after fees. That adds up when you look at the ending equity of an investor.
What are your thoughts on the U.S equity market right now? Are we overdue for a major correction?
The S&P 500 Index trades at approximately 17-times forward earnings. While that is somewhat high as compared to historical P/E levels, we are still in a low interest rate environment. If we compare the current valuation with fixed income investments, the valuation of stocks seems acceptable.
Also, let’s think about the business cycle. The U.S. economy has had a good run in recent quarters, as far as GDP numbers are concerned. Unemployment is at historical lows and inflation is not out of control yet. That should bode well for a continued stable economy, at least in the next one to three months, which is the time frame we are focused on.
There are a few clouds on the horizon. Take, for example, the effect of trade negotiations with different countries or the Fed’s commitment to tighten monetary policy. But we don’t see these clouds triggering a downturn in the immediate future.
Read the full article here by Robert Huebscher, Advisor Perspectives