In a recent conversation between Scott Martin, Managing Editor of the Wealth Advisor, and Leigh Eichel, Cofounder and Chief Executive Officer of Alpha Vee Solutions, an enlightening discussion unfolded about the firm’s offerings and its significance in the world of financial advising. Alpha Vee stands out for its multifaceted approach, encompassing model portfolios, direct indexing components, institutional-grade research, software solutions, and customizable indexing.
Financial advisors recently have faced a challenging landscape characterized by market volatility and economic uncertainty. Navigating these turbulent times and effectively communicating strategies to clients have become crucial aspects of financial advisory services that Alpha Vee takes to heart in its approach to managing risk and achieving consistent performance.
Founded in 2010, Alpha Vee has made a name for itself in the financial industry by offering innovative solutions to advisors and investors. With a focus on risk and risk management, Alpha Vee has two primary divisions: software and proprietary models. The firm provides software licenses to enhance the capabilities of platforms such as FactSet and Bloomberg terminals, alongside offering proprietary models for thousands of advisory accounts, with a strong emphasis on risk management.
When wealth managers seek solutions, they often grapple with specific pain points. Eichel emphasizes that risk management is a top priority for advisors, especially those handling a large number of clients. Alpha Vee’s approach is rooted in fundamentals and a focus on the long term.
Eichel emphasizes that his firm’s services cater to advisors who understand the importance of educating their clients about maintaining a three- to five-year investment horizon. In a world where some advisors chase short-term performance or attempt market timing, Alpha Vee offers a different path—one that relies on discipline and patience.
One distinguishing feature of Alpha Vee’s approach is its commitment to transparency. The firm not only converts its models into indexes but also publishes its methodology and portfolio management processes. Although Alpha Vee doesn’t reveal the “secret sauce” in its solutions, the firm does provide sufficient transparency for investors to understand how their portfolios are managed and tracked.
Eichel highlights the importance of providing detailed documentation and the methodologies behind Alpha Vee’s strategies. This commitment to transparency extends to the firm’s performance audits, which contribute to building trust with advisors and investors.
Alpha Vee also takes pride in its performance track record. Its focus is not just on helping advisor partners grow their businesses and revenue but also on maintaining top-tier screening results. Consistent performance is key, and Alpha Vee has been recognized for delivering top-performing models.
The firm’s model portfolios have consistently performed well, attracting advisors who recognize the need for a more robust and disciplined approach to investing. One of Alpha Vee’s noteworthy offerings is the Mega Cap strategy, which targets the best-performing mega-cap companies with strong balance sheets, robust management teams, and significant international revenue. These companies often exhibit defensive growth characteristics, making them attractive investments, especially during uncertain times.
In an era when the traditional 60–40 portfolio allocation has faced challenges, Alpha Vee’s risk-managed Mega Cap portfolio presents itself as a compelling candidate for the new core allocation. The Mega Cap strategy selects the top 15 companies out of those with a market capitalization of at least $50 billion. These companies must meet specific eligibility criteria, and the portfolio is rebalanced every 90 days to ensure alignment with the strategy’s objectives.
Mega Cap has consistently demonstrated impressive performance over time. Despite experiencing a challenging year in 2022, the strategy’s drawdown period was just over a year, and it recovered within a year. This highlights the importance of adopting a three- to five-year investment horizon when considering risk-managed strategies.
Finally, Alpha Vee’s Mega Cap strategy stands out not only for its performance but also for its cost-effectiveness. When compared to other mega-cap exchange-traded funds (ETFs) in the market, Alpha Vee’s strategy offers competitive returns while maintaining lower expenses, making it an attractive option for investors.
A central tenet of Alpha Vee’s approach is understanding risk as a multifaceted and continuous element of the financial landscape. Eichel believes that risk is not binary, described as “risk on” or “risk off.” Instead, he likens risk tolerance to a dimmer switch, constantly adjustable with various components. These components include market risk, sector risk, inflation risk, geopolitical risk, and currency risk, among others. Managing these major risk components is essential for crafting effective investment strategies.
The firm focuses on communicating the importance of maintaining a long-term perspective when managing risk, encouraging clients to resist the temptation to chase short-term performance or attempt to time the market. By keeping a three- to five-year time horizon for risk-managed strategy allocations, investors can align their expectations with a more comprehensive view of the market.
Concerns raised by geopolitical tensions and their potential impact on the markets are front of mind these days. Charting the S&P 500 index in relation to various wars serves as a reminder that market performance is influenced by a multitude of factors, and adopting a longer-term perspective can help investors weather the storms of geopolitical uncertainty.
Moving on to the present economic landscape, many advisors and their clients are tracking the Federal Reserve’s stance on interest rates. Alpha Vee advises that the Fed’s flexibility and balanced tone indicate a plateauing point for interest rates, which are likely to remain higher for a longer duration. Weak jobs data and soft ISM (manufacturing) data contribute to this cautious approach.
However, CEO Eichel believes that the economy is unlikely to enter a deep recession, as earnings remain robust and factory construction is on the rise. He anticipates that interest rates may start to decline soon, possibly in the first or second quarter of the upcoming year. This outlook aligns with his overall bullish stance on equities, expecting them to continue to perform well through 2024.
Overall, Alpha Vee views risk management through four lenses: market risk, inflation risk, sector risk, and individual stock risk. The firm uses these lenses to construct and manage portfolios systematically. Market risk analysis involves evaluating the fundamentals of 1,200 companies to determine trends and allocate assets between equities and Treasuries.
Inflation risk assessment is straightforward, distinguishing between elevated and unelevated states to adjust Treasury holdings accordingly. Sector risk analysis identifies the top-performing sectors to allocate investments based on acceleration or deceleration. Lastly, individual stock risk selection involves building a portfolio of 50 to 100 names, primarily focusing on large-cap companies with strong fundamentals.
Eichel emphasizes the importance of technology and innovation in today’s advisory landscape. His firm has invested more than $15 million in developing in-house software and technology solutions to enhance its offerings. Many advisors may be hesitant to invest in such technology, given the associated risks, Eichel explains. However, Alpha Vee’s commitment to delivering reliable and effective technology solutions has set it apart in the industry.
One of the advantages Alpha Vee offers is customization. Advisors often require tailored solutions to meet their clients’ unique needs. Alpha Vee accommodates this need by providing advisors with the flexibility to customize portfolios based on their preferences and client requirements. The process is streamlined through a straightforward one-page agreement, enabling advisors to white-label models and execute their strategies seamlessly.
Alpha Vee has expanded its solutions in the separately managed account (SMA) space. As Eichel notes, SMAs are experiencing significant growth, with technology-driven solutions playing a pivotal role. Alpha Vee intends to continue focusing on SMAs and technology-driven solutions while avoiding competition with other advisor partners.
Alpha Vee’s curated list of Mega Cap companies is distinct from passive index funds such as SPY or QQQ. The firm’s approach involves selecting the best-performing companies across sectors, offering a more focused and dynamic investment strategy. This dichotomy between passive and actively managed approaches underscores the unique value Alpha Vee brings to advisors and investors.
Looking ahead, Eichel says that Alpha Vee is exploring the possibility of ETF issuance for its Mega Cap strategy. Although the firm continues to expand its offerings, it remains focused on delivering the best possible research in formats that work for advisors and clients.
Alpha Vee’s approach to risk management and investment strategies offers valuable insights for financial advisors and broker-dealer professionals navigating the complex world of financial markets. By emphasizing transparency, long-term perspectives, and systematic risk assessment, Alpha Vee provides a comprehensive tool kit for managing risk and achieving consistent performance in today’s volatile landscape. As the financial industry continues to evolve, staying informed about innovative approaches like Alpha Vee’s can be a key factor in delivering value to clients and growing an advisory business.
