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FOLIO constructs Ready-to-Go portfolios to help investors meet a variety of goals. Today, president and CEO Greg Vigrass discusses how the company researched the target-date category and developed its own unique approaches.

Kate Stalter: Today I’m speaking with Greg Vigrass of FOLIO.

Greg, as you know, I spoke with Steve Wallman previously, and I thought we could start out today with you describing some of the investment products that you offer and how these benefit individual investors.

Greg Vigrass: I’d be happy to, and thank you very much for taking the time to speak with me today. FOLIOfn is a company that launched about a dozen years ago, and is really focused on—and quite frankly was the pioneer—in portfolio-style investment management and investing solutions for both individuals and professionals.

Along with that, what FOLIO has done has essentially developed a series of what we call Ready-to-Go folios. Now, a folio is a customizable basket of securities, and a basket of securities can contain individual equities, mutual funds, ETFs, any number of exchange traded vehicles.

It is simply a customizable basket of securities designed around a particular investment strategy, such as a market sector, an investment style, a geographic region or country focus, or even a retirement focus along the lines of our target date folios.

Kate Stalter: Looking at the Web site, at the top performing Ready-to-Go portfolio right now—and anybody who’s been watching the market conditions maybe wouldn’t be terribly surprised, it’s the Bear Market 2X. Tell us a little bit about that one, for example—what that consists of, and how that works.

Greg Vigrass: Sure, it is obviously designed to provide performance in a down market, and takes advantage of several of the inverse and leveraged inverse ETFs that are available in the marketplace today to provide some additional downside exposure.

As you mentioned, in current times when we are seeing the market volatility the way it is, these have provided a good investment election or alternative to people who are looking to get some downside exposure in to a portfolio to even out the bumps, if you will.

Kate Stalter: I’m seeing the ProShares UltraShort Dow 30 (DXD), the ProShares UltraShort MidCap 400 (MZZ), and ProShares UltraShort QQQ (QID) as some of the top holdings here. Even the companies that run these ETFs will tell you these are designed as trading vehicles, not as long-term buy-and-hold plays, by any means. Talk a little bit about how you view the use of these types of folios for individual investors.

Greg Vigrass: Sure. We view them as a complement to a portfolio, and most folks that are using them are, in fact, using them to get some exposure and some protection in to a portfolio, but not using them as their entire investment strategy.

Very frequently, you will have highly engaged investors that are in fact moving in and out of these particular folios on a fairly frequent basis, based on what their read is on the market. For more of a strategy- or outcome-oriented investor, again, they will likely have some exposure in a portfolio, but they’re unlikely to be the entire portfolio holding.

Kate Stalter: You have a number of other strategies that are available—for example, target date folios and even some that are designed around bonds or other ways of getting income. Let’s talk a little bit about some of those. Maybe we could start with target date.

Greg Vigrass: Sure, the target date folios are something that, quite frankly, we’re very, very proud of. Target dates are an increasingly important segment of the investing market, and certainly a growing segment of it.

A number of years ago, we were looking at—this is going back four to five years—we were looking at the target date space, and in our opinion, in the research that we conducted, our belief was that target date funds had some pretty substantial flaws.

Essentially we found that the funds were not well diversified. We found the risk levels of the funds were not well specified. The risk management procedures were often unclear. The funds often had fairly expensive expense ratios.

We believed it was possible to add significant return with an improved design around the target dates, and particularly focusing on the portfolio construction process. Essentially the things that we were seeing were that the poor diversification meant that the funds were too exposed to major drops in equity indexes, and were certainly exposed to an increase in market volatility.

In essence, what was happening was that the funds were simply not generating as much return as they could for the risk level that was in the portfolios. At that time, we set out to design an alternative to target dates, and then what we call our target date folios.

Continued…

Tickers Mentioned: Tickers: MZZ, DXD, QID