IGSignals Launches Risk Management Tool for Mutual Fund Investing

IGSignals, a quantitative tool designed to help mutual fund investors actively manage risk rather than stick with their traditional buy-and-hold strategies, was launched last week in an effort to protect investors from portfolio volatility, according to startup company Investment Guidance Solutions.

The new tool reduces downside risk by providing financial advisors and asset managers with buy or sell signals based on whether it is better to be invested in a specific fund or in cash, said Phil Lussier (left), co-founder and CEO of Investment Guidance Solutions, in an interview with AdvisorOne on Jan. 27.

“Thematically, as we look at the market and what we can do with our quantitative process, some things resonate," Lussier said. "One of the fundamental points is that since the turn of the century, the buy-and-hold strategy has been challenged. In the retirement business, you typically see a buy-and-hold strategy, but it’s clear that risk avoidance in the markets is difficult now because of volatility. Building portfolios that avoid risk will over time deliver superior results.”

Wellesley, Mass.-based Investment Guidance Solutions, formed in 2011, is a financial technology firm that provides solutions for mutual fund investors. The company uses proprietary technology and processes to protect against downside risk associated with mutual funds.

In a daily, weekly or monthly email to individual clients, IGSignals’ quantitative process sends a buy signal that a fund will outperform cash or a sell signal that an equity fund will underperform cash. IGSignals uses a proprietary model to generate signals using ticker symbols licensed through Newfound Research.

Lussier said IGSignals is being marketed to registered investment advisors and broker-dealers who construct funds of funds to help them develop diversified portfolio construction. The company is also exploring strategic partnerships with firms in the mutual fund content space, including Standard & Poor’s, Bloomberg, Google and Yahoo.

“I think we have a very compelling story in the marketplace that is timely,” Lussier said. “Investors are looking for portfolios that apply a disciplined risk management process.”

Investment Guidance Solutions is a self-funded startup with four co-founder partners.

As CEO, Lussier is drawing on his prior experience as head of sales and marketing in the Retirement Investment Services Division of State Street Global Advisors. The financial services veteran also was the former chairman and CEO of CitiStreet, a retirement and benefits joint venture between State Street and Citigroup that was sold to ING in mid-2008.

In a test of the IGSignals on the Morningstar Top 100 equity mutual funds for January 2008 through December 2011, IGS delivered “superior performance” as compared to buy and hold on 93 of these 100 funds with less volatility, according to an Investment Guidance release. The alpha derived from applying IGSignals to the 93 funds ranged from a low of 1.1% to a high of 77.1% on a gross basis with no additional fees applied and with less risk as measured by the standard deviations. The median alpha for the 93 funds was 26.4%.