Dave Klein Shares His Secrets For Achieving Consistent Outperformance While Mitigating Risk

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April 19, 2013 11:54am ETF BASIC NEWS

strategyThe National Association of Active Investment Managers (NAAIM) announced today that Dave Klein is the 2013 first-place winner of the NAAIM Wagner Award for Advances in Active Investment Management for his paper “Equity Sector Rotation

via Credit Relative Value”.

In its fifth year, the NAAIM Wagner Award is designed to expand awareness of active investment management techniques and the results of active strategies.

Of Klein’s paper, Greg Morris , the Chairman of the Award Committee, writes, “Mr. Klein provides a rotation strategy that selects sector ETFs based upon their relative performance to option adjusted spreads for BoA/ML US High Yield B index.  He provides various levels of analysis in that the basket of ETFs is varied to assess the risk statistics.  The process is rebalanced once a week and if an ETF does not have a fair value greater than market value, then the allocation goes into cash equivalents.”

Morris is Chairman of the Investment Committee and Chief Technical Analyst at Stadion Money Management, LLC.

Dave Klein is partner and co-founder of Capital Context LLC, a market strategy consultancy. Prior to founding Capital Context, Dave was a Senior Research Analyst at Credit Derivatives Research (CDR). Hired as CDR’s first employee, Dave focused on the interplay between the credit and equity markets leading CDR’s capital structure arbitrage and equity-focused research efforts. In his role as Manager of CDR’s credit indices, Dave designed the first exchange-traded credit derivative futures contract for the CBOT (now part of CME Group).  Prior to completing an MFE at UC Berkeley’s Haas School of Business, Dave spent fourteen years in software development in roles including developer, project leader, and founder/Chief Technology Officer.

In 2012, Dave was also the only Honorable Mention recipient since the award’s inception.

In his award-winning white paper, Klein outlines a long-only sector rotation strategy using highly liquid ETFs that achieves admirable results in back-test. At its heart, the strategy makes use of relative value across the corporate capital structure to rank sectors and judge when entry and exit are recommended.

As a general rule, equity values drop as credit risk rises and vice versa. With good proxies for credit risk, one can use this relationship to judge relative value between the credit and equity markets. Dave Klein ‘s strategy utilizes this relationship at the index level. The intuition is that if credit risk rises (falls) among a suitably-chosen basket of companies, then equity values will drop (rise) in an equity index.

A panel of investment professionals selected by the Wagner Award committee reviewed entries and award the prizes. The criteria used in judging the papers are: practical significance to practitioners of active investing; quality of exposition; analytical rigor; and novelty of results. In addition to Morris, the panel included Jerry Wagner of Flexible Plan Investments, Ltd. ; John Ehlers of Mesa Software;  John McClure of ProfitScore Capital Management; and Bill Barack of Lindisfarne Investments LLC.  To find out more about the judges panel, follow this link: https://naaimwagneraward.wordpress.com/judging-team/

With 20 entries this year, the 2013 Wagner Awards attracted an international response with authors from Italy, the United Kingdom, New Zealand, Austria, Australia, and Sweden and from nine states across the United States. Receiving second place in the competition was Tony Cooper from Double Digit Numerics of New Zealand for his paper “Easy Volatility Investing + Abstract “.  Z. George Yang of Flexible Plan Investments (2012’s third place winner) was awarded the third place prize again for his paper “Filtered Market Statistics and Technical Trading Rules”.  Second and third place winners will receive $3,000 and$1,000, respectively.

Top papers are published on the NAAIM website at http://www.naaim.org/resources/wagner-award/ . First Place winner Dave Klein will be presenting his winning paper at the association’s April 29-May 1, 2013 annual conference in Denver, CO at the Westin Denver Downtown.   For more information or to register for the annual conference, visit the NAAIM website http://www.naaim.org/events/annual-conference/.

About the Wagner Awards

In honor of the vision and work of NAAIM founding member and president and CEO of Flexible Plan Investments, Ltd., Jerry Wagner , the Wagner Award for Advances in Active Investment Management annually awards $10,000 to a first-placed paper providing evidence of the validity of an active investing approach using a trading system that outperforms the market by some well accepted metric such as risk-adjusted return, annual return or drawdowns. Second-place and third-place winners are awarded $3,000 and $1,000, respectively. Previous winning papers and entries can be found at: NAAIM Wagner Award (www.naaim.org/resources/wagner-award)

The top prize in 2012 went to Gary Antonacci , Principal, Portfolio Management Associates of Sarasota, Florida for a thought-provoking methodology outlined in his white paper entitled, “Momentum Success Factors”.


The National Association of Active Investment Managers (NAAIM) is a non-profit trade group of nearly 200 registered investment advisor firms that collectively manage over $31 billion in assets. NAAIM member firms provide active money management services to their clients to produce favorable risk-adjusted returns as an alternative to more passive, buy-and-hold investment strategies. NAAIM publishes the weekly Survey of Manager Sentiment, the NAAIM Active Mutual Fund (AMF) Index, and sponsors the annual Uncommon Knowledge conference along with smaller conferences on managing portfolios, trading techniques for various instruments and markets, regulation and compliance, and other topics of interest to its membership. For more information, visit www.NAAIM.org.

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