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Compass EMP Funds’ Stephen Hammers on how investors can use market volatility to boost their portfolios.
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My next guest is embracing the volatility that we've seen and has a way for you to play -- Stephen hammers -- compass.
PMP funds chief investment officer he's joining me now.
In a Fox Business exclusive and and listen at beating the the S&P 509 times out of ten because of the way you put together these indexes.
Is certainly interesting so let's give a -- first 101.
How you do what you do.
Well first of all there's two ways invest in some equity managers invest based on their opinion research.
If you have indexing most popular indexing their traditional indexing -- all of the positions based on either the highest.
The biggest market caps so like in the S&P.
Most -- return comes from the top fifty or sixty names for example what that creates is.
Is it totally forgets all the other stocks that are in there that you may have a lot of quality stocks so.
We actually require earnings for one which is a novel concept in an index four quarters and around right consisted four quarters in a row positive earnings.
And then once that is screened out -- we weighed all the stocks based on their risk so for example.
If a higher volatility stock.
Is in the index it has a lower weighting -- -- lower volatility stock has a higher weighting so everything has the same contribution.
A -- that this is the commodity volatility weighted index this hasn't gone live yet as I understand it right next -- It goes live next month all over and other indexes are published by Dow Jones and -- weight by grains livestock in particular soaked -- gets this much action -- gets this much.
Yes while the reasons why our -- commodity weighted index has done so well this year compared to UBS index which is flat.
Is because we don't have a lot of energy most indexes are production waited and they have an awful lot of c'mon.
Of of energy and -- why didn't you wait as much an energy.
Well if you look at energy for example which is quite -- to look at oil all over the place well.
Because that's more volatile and actually has a lower -- -- lower waiting so are waiting is about 16%.
The Dow Jones UBS is about thirty in the Goldman Sachs is like 70% energy.
OK let's look at your large cap index that's beaten that's one it's beaten the S&P 509 times out of 109 years out of ten -- -- ten out of eleven just not short you can bet that -- god forbid.
Names and their Kimberly-Clark southern company you've also got Wal-Mart Altria Hershey -- So the waiting in essence the index members receive the weight based upon the current market cap I guess and it would be a percentage of the combined value -- index members.
Well they all qualify that being the 500 large companies -- act actually making money.
Those names you gave just happen to be lower volatility stocks.
They'll have a higher -- stocks like Amazon and Netflix and more volatile companies -- -- lower waiting so if you put Wal-Mart and Amazon together and you equally weighted them it would wealth.
Yeah you lose because this Amazon fall -- for fully gets hurt.
So if you reduce Amazon and bring Wal-Mart up now -- equal weighting that risk which is why it's such a consistent earner.
In terms of indexing compass EMP funds you can buy them.
You can buy them -- get three funds the alternative fund the balance fund -- -- growth fund next month we'll have a fund on every single index we have which we have none.
Watch and see if you can continue the winning streak thank you very much -- Stephen hammers compass EMP fund's chief investment are.
