David Wright is known for his ability to lead his funds through periods of intense volatility, like 2008, where his fund nearly broke even on the year while the major equity index shed half of their value. His losses during the COVID rout of 2020 were also relatively mild.
But those market ructions will likely be remembered as relatively staid in comparison to the selloff that's just around the corner. According to Wright, who shared his thoughts on the market during an interview with Bloomberg, both of these periods - along with the dotcom crash - both had nothing on the crash that lies ahead.
Much more pain lies ahead, according to the 78-year-old.
"I believe we are in the biggest bear market in my life," said Wright, co-founder of Sierra Investment Management, which oversees about $10 billion. "This is just the second inning. A lot more to come."
Of course, there's market pain pretty much everywhere you look today: The S&P 500 has already lost 12% this year, while the Nasdaq has tumbled into bear market territory after sliding more than 20% from its peak in November. Key bond benchmarks are down more than 10%.
Wright's fund is presently invested mostly in cash, but also a range of other assets including foreign stocks and master-limited partnerships.
The $869 million Sierra Tactical All Asset Fund - a so-called fund of funds that invests in mutual funds and exchange-traded funds, held less than 3% of its assets in US stocks as of the end of April.
More than half of the fund is in cash. Fixed-rated bonds accounted for only 1% of its holdings, while commodities made up more than 9%.
The rest of the portfolio is spread across assets including floating-rate bonds, foreign stocks and MLPs.
So far, the fund has lost just 2.3% in 2022, beating 91% of its peers tracked by BBG.
The problem is that the US and US investors have bet so much of their net worth on stocks: "There’s no other country on earth that has staked so much of their net wealth in stocks," said Wright, who co-founded Sierra Investment with Kenneth Sleeper in 1987. "But we are at a very big peak of complacency."
The Sierra fund uses computer models which Wright manages with two colleagues. The model sets trailing stop losses for its holdings, and once prices fall to those preset levels, the fund liquidates the holdings and moves to cash or other assets that are trending up. It targets retirees and other investors who want to minimize risk.
He credits this conservative approach with helping to limit losses during market downturns.