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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Stonehearth Capital Management 2024 Q3 Investor Letter | Buyside Digest

Back to Fund Profile (Stonehearth Capital Management)

Primary Source Intelligence • Q3 2024 Letter Analysis

Stonehearth Capital Management Quarterly Analysis

Buyside Digest is not affiliated with, and does not endorse, Stonehearth Capital Management. This analysis is provided for institutional research purposes only and is not investment advice.

Fund Returns

Digest Analysis

Quick Take

"Stonehearth delivered strong Q3 returns using systematic risk management and Fed policy analysis. With rate cuts beginning and recession probability at only 13.8%, technical indicators support their overweight equity positioning."

Executive Summary

Stonehearth Capital Management delivered strong third quarter performance across global markets, with emerging markets up 14.87% and US stocks gaining 10.57%. The firm's systematic approach centers on two golden rules: don't fight the Fed and don't fight the tape. With the Federal Reserve cutting rates by 0.50% in September and more cuts expected, historical data suggests positive market conditions ahead, averaging 18.5% returns when rate cuts occur without recession. Their recession probability model shows only 13.8% likelihood, well below the 50% threshold. Technical indicators remain bullish, with the 50-day moving average above the 200-day, confirming their overweight equity positioning. The firm's comprehensive risk management system, utilizing 49 indicators including 34 from Ned Davis Research, moved from neutral to bullish during the quarter. Their hedging protocol continues to support current positioning across different risk profiles. With election year dynamics historically favorable and strong market momentum, the firm maintains constructive positioning while monitoring for any signs of economic deterioration that could trigger defensive adjustments.

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Institutional Meta Strategy

Meta Strategy Gauges

Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.

Signal Matrix

Market Conviction

35%

CautiousHigh

Cautious (35%)

This is a diversified portfolio management approach using systematic indicators rather than high-conviction individual positions. The manager discusses broad asset class allocation (VWO, SPY, AOR, VEA, BND) and risk management protocols but provides no specific position sizing or concentrated holdings. The systematic, rules-based approach with multiple hedging indicators suggests moderate conviction in the process rather than specific investments.

Growth Outlook

65%

BearishBullish

Bullish (65%)

The manager expresses constructive optimism about market conditions, citing historical data showing 18.5% average returns when Fed cuts rates without recession, positive election year dynamics, and low 13.8% recession probability. However, they acknowledge risks and maintain systematic monitoring rather than expressing unqualified bullishness.

Risk Appetite

45%

DefensiveAggressive

Balanced (45%)

The firm maintains overweight stock exposure confirmed by their risk models, but this appears to be systematic positioning based on indicators rather than aggressive risk-taking. They operate within defined risk parameters using their hedging protocol across different client risk profiles.

Capital Deployment

10%

De-riskingDeploying

De-risking (10%)

The letter describes maintaining current positioning with overweight equity exposure but provides no evidence of active capital deployment or cash level changes. The manager states they are 'happy with how we have your portfolio positioned' suggesting stability rather than active deployment. This represents portfolio maintenance rather than new capital deployment.

Forward Guidance

25%

CautiousExpansionary

Cautious (25%)

The manager takes a monitoring stance rather than expressing clear deployment intentions. They state they are 'happy with how we have your portfolio positioned' and will 'be sure to let you know if/when we make changes' but provide no specific forward deployment guidance.

Language Signal

40%

BearishBullish

Balanced (40%)

Language is moderately positive with terms like 'strong performance,' 'positive trending market,' and 'bullish zone,' but balanced with risk awareness and systematic monitoring language. The tone is professional and measured rather than enthusiastic.

Perceived Risk

45%

Low RiskElevated

Moderate Risk (45%)

The manager acknowledges specific risks including recession potential and the need to monitor economic indicators closely, stating 'recessions surface rather quickly, so we will be watching this model closely.' However, current risk assessment is relatively low with 13.8% recession probability and positive technical indicators, representing moderate risk awareness rather than high concern.

Opportunity Density

60%

ScarceAbundant

Selective (60%)

The manager sees selective opportunities supported by Fed policy and technical indicators, with historical data suggesting favorable conditions when rate cuts occur without recession. However, the approach is systematic rather than suggesting abundant individual opportunities, focusing on broad asset class positioning rather than specific investment ideas.

Time Horizon

55%

Short-TermLong-Term

Multi-Year (55%)

The letter focuses on quarterly performance and systematic monitoring without explicit time horizon discussion. The approach appears to be medium-term tactical allocation based on indicators and Fed policy cycles, with regular quarterly reviews and adjustments as needed. No specific long-term or short-term catalyst dependency is mentioned.