July MRI Score is 24 percent, down from the Q2 average score of 36 percent
BOSTON, Mass., July 12, 2018 (GLOBE NEWSWIRE) — 55ip, an investment strategy engine that enables advisors to build custom portfolio strategies using industry-leading investment science, today released its Q2 2018 commentary and July 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 percent, with 0 percent 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 clients’ portfolio should be allocated to cash or an equivalent shelter basket to hedge against risk.
“We established the MRI particularly for clients who cannot afford to face extreme losses or do not have time to recover from losses,” said Dr. Vinay Nair, founder and chairman of 55ip. “Higher MRI readings are typically accompanied by fewer down moves in the market than up moves; however, the down moves are significantly larger. So, in times of high MRI scores, it can be prudent to increase cash positions and decrease overall risk exposure.”
Q2 2018: MRI
Averaging the scores from April, May and June, the Q2 MRI score is 36 percent. This is higher than Q1 2018 which was 29 percent and Q4 2017 which was 20 percent. In terms of financing indicators (e.g. trend indicators), April 2018 saw some indicators of financing costs rising, credit spread trends reversing and the spread between high yield and investment grade bonds falling below a critical trend line. This risk jump was mitigated by a normalization of some financial indicators in May and June.
In terms of statistical measures of return distributions, April and May 2018 saw significant increases in perceived risk. The intraday return patterns suggested rising instability and ambiguity, while linkages between asset classes showed increased co-movements and higher levels of implied volatility across asset classes. In June 2018, many of these indicators stabilized, except for the option markets indicator that suggested a higher ratio of downside to upside risk. The normalization of financing indicators, combined with stabilization of statistical measures of return distributions led to June’s 20 percent MRI, matching Q4 2017 levels. This drop merited a modest allocation to cash or an equivalent shelter basket to hedge the risk of uncertain correlations and ineffective diversification.
July 2018: MRI
The July MRI is at 24 percent, reflecting conditions that are relatively unchanged from June.
“While there is a lot of discussion around the potential impact of global developments such as ‘trade wars’, 55ip’s MRI continues at relatively lower levels across June and July, suggesting a less reactionary response by markets than one might expect,” said Leonid Kogan, 55ip’s chief investment scientist. “The reality is tariffs that are actually implemented may impact certain geographies, industries, and exposures in different timeframes and measures. That’s where a long-term managed risk forecasting philosophy applied through a monthly lens such as 55ip’s MRI score can be essential to intelligently managing such events.”
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 four most common frictions that get in the way of client outcomes – taxes, high fees, extreme losses, and time – 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. More information is available at https://www.55-ip.com.
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.
CONTACT: Olivia Gagnon FiComm Partners (917) 636-4809 firstname.lastname@example.org