Terri Spath's funds kept client money safe during the coronavirus rout, financial crisis, and tech bubble. Here's how she's done it, and how she's already prepared to make a killing in the aftermath.

Sierra Mutual Funds

Sierra Mutual Funds Chief Investment Officer and fund manager Terri Spieth

• Terri Spath is the CIO and a fund manager for Sierra Mutual, which can boast strong results during the last three major market meltdowns because of its emphasis on avoiding losses.
• A critical part of their approach is tracking 30-day moving averages for all their investments on a daily basis and never hesitating to sell, or buy, when it's time.
• Spath discussed the stocks she's starting to buy again and what she anticipates adding to her portfolios in the days ahead.
• Visit Business Insider's homepage for more stories.

It sounds like a rule that's almost too simple to take seriously - the kind of thing a new fund manager hears on Day One: "Don't lose the clients' money."

But Terri Spath, chief investment officer and fund manager for Sierra Mutual, takes that concept very seriously, and it's a critical part of the investing approach she regularly employs.

"Sometimes you make money by not losing money," she said. "We're losing a couple of percentage points, but that's not something that's going to take six months, 12 months, several years, to recover from."

Making downside protection a priority has brought some remarkable results for Sierra in the worst moments in recent market history.

Its Tactical All Asset Fund has slipped 3.9% in 2020 while the S&P 500 has dropped 14%. It also fell just 4% in 2008, when the benchmark index plunged 38.5% during the Global Financial Crisis.

As a separately managed account rather than a mutual fund, it suffered a smaller loss than the rest of the market in 2000 after the dot-com bubble burst, then made a respectable gain in 2001 when indexes tumbled.

In an exclusive interview with Business Insider, Spath says her firm has achieved that with an unbending approach: By tracking 30-day moving averages for all their investments, they find the assets that are giving off "sell" signals and act on them immediately.

"We have a 'Sell' level for every single holding and we monitor those every single day," she said. "'What they're designed to do is to identify when a rising trend is no longer rising for that individual holding or asset class."

Spath says that takes emotion out of the process, which is a necessity because it's always tempting to ignore early warning signs and hold on to an investment that's been working. But that can be a disastrous error.

"Nobody wants to sell when it's time to sell," she said. "You can wipe out a lot of hard work and a lot of hard earned gains in a very short amount of time."

The Tactical All Asset Fund is a highly flexible one, and Spath says in late February and early March it made large investments in IEF and TLT, exchange-traded funds holding of intermediate and long-term Treasury bonds. Pleased with the way that bet worked out, she's already sold off half of those holdings.

Also working so far is the firm's Tactical Bond Fund, which is up 7% year to date and beating 98% of its peers. The fund switches back and forth between high-yield corporate bonds and Treasury bonds, and Spath says her move out of high yield and a long position on Treasuries in late February "worked out extremely well."

More recently the All Asset Fund has started snapping up stocks again based on signs of favorable trends over the next six to nine months. That starts with the S&P 500 itself.

"Just plain pure beta based on our rules, it's a buy," she said. "Biotechnology, healthcare, and technology, all those sectors within the equity side are all buys as based on our process."

One market truism is that the investments that work during a downturn tend to get left behind when things start to improve. Along those lines, Spath says she's "getting close to buys" for certain preferred stocks, and only weeks after selling her holdings, she expects to start buying high-yield corporate bonds within a few days.

"Every time high-yield corporate bond spreads are at 800 over their comparable Treasurys, it's been a terrific time to back up the truck, and you will make money in the next six to 12 months," she said.

After a bout of enormous volatility and losses, buying can be challenging because of the old investor fear of catching a falling knife. But Spath says following the rules will work on the way back up, too.

"It's often that time of maximum pessimism that can lead to maximum financial returns, but it doesn't feel like it when it's time to buy," she said. "There can be a lot of negativity, but when things start to bottom and start to move up, our rules will tell us when to get back into things."

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