"The incentives, the business model and the intent of the industry has shifted further and further away from the real needs of investors," he says. "It is one of the few industries where clients just sort of accept the metric of success that is provided to them, as opposed to service providers really focusing in on what succeeds for them."
F-Squared, which has $550 million in funds under management, positions its portfolios defensively. But being defensive doesn't necessarily translate into smaller returns. In the three years through 2009, the company's AlphaSector Premium Index returned 14.3%, compared with a loss of 5.6% for the S&P 500, the U.S. benchmark. For the 12 months ending March 31, the stock market rallied 50% while F-Squared's portfolios gained 38%.
"Managers get fired for lagging their benchmark by 12 percentage points in a one-year period," Present says. "But we never had a single client complain."
Present's core strategy is investing in the nine sectors of the S&P 500 exclusively using exchange traded funds.
Among the ETFs that correspond directly to sectors are: Consumer Discretionary Select Sector SPDR Fund (XLY) , Consumer Staples Select Sector SPDR Fund (XLP) , Energy Select Sector SPDR Fund (XLE) , Financial Select Sector SPDR Fund (XLF) , Health Care Select Sector SPDR Fund (XLV) , Industrial Select Sector SPDR Fund (XLI) , Materials Select Sector SPDR Fund (XLB) , Technology Select Sector SPDR Fund (XLK) and Utilities Select Sector SPDR Fund (XLU) .
Each week, every sector is scrutinized. Among the factors considered are historical prices and volatility.