A smooth, steadily climbing performance chart: As you can see from this chart that runs from the strategy's inception on July 1, 2006-to-Present, the Asset Allocation 2-2: Optimal S&P 500 & Fixed Income Strategy provides a steady and consistent upward climb in its equity curve. The AA-2-2 Strategy's performance is shown by the red line while the benchmark, a 70%-30% S&P 500 ETF (SPY) & Total Bond Market ETF (BND) Combo is shown by the blue line. The cumulative percentage performance is shown in the top window while drawdowns (the amount of decline from the previous high) are shown in the lower window.
STRATEGY PERFORMANCE - SINCE INCEPTION (July 1, 2006 - Present)
KEY: The benchmark (blue line) is a buy-and-hold of a 70-30, S&P 500 (large-cap) ETF (SPY)/and Total Bond Market ETF (BND).
The red line shows the "Asset Allocation 2-2: Optimal S&P 500 / Optimal Fixed Income (2 ETF) Strategy's" performance.
The advantage of combining two uncorrelated asset classes is that you benefit from a significant drop in volatility with only a minor loss of performance, and a dramatically improved risk-adjusted return. This strategy provides the best Sharpe Ratio (a measure of risk-adjusted return) of all our strategies, at 1.69. Its Sortino Ratio (another measure of risk-adjusted return that compares the return to the investment's downside volatility only) is an exceptionally high 2.34 - the second-highest of our strategies (just behind our Asset Allocation 2-2 Strategy).
Note about 2018 Drawdown: Because the top window in the chart above is a cumulative, linear-scale graph (not logarithmic), the increase in volatility you see= in early 2018 has an exacerbated appearance. In this chart, recent turbulence and drawdowns in the top (equity-curve) window will appear significantly larger than past volatility – even if it is actually equivalent or less, because of the increase in absolute total return as the portfolio's assets appreciate. Drawdowns and volatility can be accurately viewed and compared in the lower window. Also, to see a recent version of the logarithmic-scale chart of this strategy that shows the relative drawdowns in the equity curve, please click here.
With a compound annual growth rate of about 28%*, this two-asset, two-ETF combination strategy nearly quadruples (387%-times) the average return of the benchmark (a 70-30, buy-and-hold of an S&P 500 /total bond market combo - SPY/BND), and outperforms 100% of mutual funds in the last 3, 5, 10, and 20 year periods. Since inception in July 2006, the Asset Allocation 2-2 Strategy has outperformed its benchmark every year since inception and has never experienced a money-losing year.
Turning Market Losses Into Your Gains
Outperformance is nothing if it isn't accompanied by downside protection when the market begins to slide. After all, who wants a really aggressive investment that produces excellent performance when stocks are rising – but could lose it all (and perhaps more) when conditions turn negative? Fortunately, this strategy providesYour capital with ample protection from loss when the market is declining. Neither the S&P 500 component nor the Fixed Income component has ever lost money during any year when operated separately and they provide an even more robust investment approach when combined into this Asset Allocation 2-Asset, 2-ETF strategy.
When challenging economic or market conditions arise that cause the typical stock portfolio or mutual fund to plummet in value, this strategy's S&P-500-based component first switches to a 'risk-off' asset, in the form of the iShares 1-3 Year Treasury ETF (SHY), then if conditions intensifying and continue downward, to an inverse ETF, i.e., the ProShares -1x Inverse S&P 500 ETF(SH). If underlying conditions continue to deteriorate into the worst levels, your strategy will switch to the ProShares -2x UltraShort S&P 500 ETF (SDS) to profit as the market declines. Meanwhile, the Fixed Income component will always be rotating to the ETF that is optimum for conditions. This combination of optimized positions from two uncorrelated asset classes consistently produces an outstanding performance, even when the bears come out of hibernation and begin to growl.
LEVERAGED ETF CONSIDERATIONS
Investors using this strategy (and others that utilize leveraged ETFs) should be aware that commonplace market turbulence during bull markets – such as occurs during garden-variety -10% corrections – can result in the strategy incurring short-term -20% drawdowns. The ETFOptimize strategies invariably recover quickly after the drawdown because underlying conditions remain consistently bullish (otherwise, the strategy would have rotated to defensive positions). Investors should be aware of these occurrences and always keep in mind they are temporary – and hopefully learn to ignore them. Again, if underlying conditions had changed, the strategy would have rotated to the appropriate defensive position. Also, keep in mind that the AA-2-2 Strategy benefits from the defensive, two-ETF, fixed-income component at all times, including during garden-variety market corrections.
Fixed Income Component
Our conservative Fixed Income component of the AA-2-2 Strategy provides an uncorrelated (0.23) asset that significantly reduces systematic (market-related) risk. The Fixed Income ETF is always active in this strategy and therefore offers continuous protection for your assets, reducing short-term declines during corrections and producing a significant return during long bear markets.
The Fixed Income Strategy, when operated alone, produces an annualized return of about 14% with a maximum drawdown of just -9.17%. The strategy also has an average dividend of more than 4% per year, which is quite healthy compared to the fixed-income alternatives that have been driven downward by near-zero interest rates. You can see from the chart below how the Fixed Income component if operated alone, would produce a nearly straight-line, upward-sloping equity curve with no significant drawdowns. The only two drawdowns the strategy experienced (lower window) did not cross the -10% threshold – not even briefly.
The Fixed Income component of the AA-2-2 Strategy provides nearly straight-line, climbing performance; smoothing out the more-aggressive S&P 500 component and providing you with substantial protection during market turbulence.
In the next section, you'll see that when the Financial Crisis took place – an 18-month period that wrecked the lives of tens of millions of investors across the world – the AA-2-2 Strategy did not decline at all, and instead transformed the crisis into an impressive, money-making opportunity!
To demonstrate how this strategy minimizes risk and transforms market losses into your portfolio gains, the best example we can provide is during the Financial Crisis, when the S&P 500 plummeted from late 2007, through all of 2008, and into the first quarter of 2009, losing -56% of its value. During this same period, our AA-2-2 Strategy's nearest benchmark, a 70%-30% S&P 500 ETF/Total Bond Market ETF combination (SPY/BND) lost -40% – less than the S&P 500 (-56%) because it is a combination of two uncorrelated asset classes (an advantage our strategy also puts to use). Meanwhile, the ETFOptimize Asset Allocation-2-2 Strategy consistently switched to the two optimum ETFs for all conditions and outperformed its benchmark by huge margins.
These performances are shown in the Left Chart below which presents the developments from the December 10, 2007 high until the Financial Crisis nadir on March 9, 2009. The strategy produces a return of 65% and an outperformance of 105% through the low of the Financial Crisis.
The Right Chart below shows the strategy's performance from the December 2007 high, through the Financial Crisis low in March 2009, and progresses until some three years later when the benchmark finally recovers the -40% loss it suffered during the severe recession. By the time the SPY/BND 70-30 benchmark gets back to breakeven (0%), our Asset Allocation 2-2 Strategy produced a return of 150% for its subscribers!
Eliminating significant market declines – and the recovery time required – is one of several ways this ETFOptimize strategy produces considerable outperformance. However, it is also generating substantial outperformance in all other types of market conditions. During long, bull rallies, which constitute about 70% of the market's time, this strategy is usually holding the 2x-leveraged S&P 500-based ETF (SSO), combined with and the optimal fixed-income ETF, which produces a very steady equity curve and virtually zero stress for users.
As millions of investors and their advisors become concerned about changing economic indicators or the latest threatening headline, not knowing what the future holds, subscribers to the Asset Allocation 2-2 Combo Strategy can sit back and just ignore all that noise. The AA-2-2 strategy assesses as many as 28 different data sets each weekend and determines the optimum ETF to own for any type of economic and market condition that can affect stocks.
Our Asset Allocation 2-2 Combo Strategy& has provided subscribers with profits every single year since inception, regardless of the performance of the economy or the stock market. This may be the most impressive benefit of all for those who lived through the Financial Crisis of 2008-2009 and lost a substantial amount of money (or felt the intense stress of a potential loss): i.e., the AA-2-2 Strategy has never experienced a money-losing year! Furthermore, the strategy has outperformed its benchmark every single year since inception.
The tables below provide both a numeric and a graphic presentation of the annual performance of the AA-2-2 Strategy since its inception in 2006.
The 'Performance by Calendar Year' table below shows the following data...
• This Model's annual performance on the top line,
• The Benchmark's performance on the middle line, and the
• The 'Excess' performance or outperformance of the AA-2-2 Strategy over its Benchmark on the bottom line.
From the top line, you can see that the AA-2-2 strategy provided healthy, positive annual returns in each calendar year since its inception in mid-2006 with an average return of about 27%. From the bottom line, you can see that the AA-2-2 strategy also outperformed its benchmark every year since its inception (with an average outperformance of more than 20% per year).
The 'Yearly Returns' bar chart below shows a graphical interpretation of the data above. Notice from the strategy's performance bars (red) that it has been profitable every year (indicated by all red bars being above 0%), and in every year, the strategy (red bars) outperformed its benchmark (indicated by red bars being above the blue bars), most years significantly. 2018 is turning out to be a difficult year for stocks, and especially for the S&P 500, since large- cap stocks had outperformed for several years prior. Yet, 2018 is still underway, and we're confident that, by the end of the year, this strategy will show the same profitability and outperformance characteristics as all the prior years.
The Asset Allocation 2-2 Strategy's annual performance is shown by red bars and its benchmark return is shown by blue bars.
The outperformance was small in 2006 and 2007, but very significant in 2008 (outperformance of 52.16%), 2009 (29.34%), and in 2013 when the strategy produced a gain that was 34.89% more than its benchmark. This chart shows that 2018, so far, has anemic performance. However, animal spirits are building and with corporate profits skyrocketing, we expect this strategy to take off as the second half of the year progresses. Reversion-to-the-mean is the most powerful force in investing, and this strategy is set for a strong upward reversion to its long-term average in the 2nd half of 2018.
One of the most important criteria for selecting any investment approach is its 'Risk-Adjusted Return,' which is usually assessed by the Sharpe Ratio and the Sortino Ratio measures. These two metrics show the ratio of an investment's performance compared to to its volatility (which is called its 'risk' in the investment world). Notice in the table below the dramatic outperformance of this strategy when those two ratios are compared to the strategy's benchmark - a buy-and-hold approach with the widely used 70-30% weighted S&P 500 /Total Bond (SPY/BND) ETF combo.
Since the inception of this strategy in 2006, the Sharpe Ratio (or "risk-adjusted return") of the SPY/BND benchmark is 0.71 (bottom section, right side) – compared to a Sharpe ratio for this strategy that is more than double that amount. For perspective, most “good” investments produce long-term annualized Sharpe ratios that fall between 0.5 and 1.0, and the S&P 500's long-term Sharpe ratio is about 0.40. Even more impressive is this strategy's Sortino ratio (i.e., return divided by downside volatility only), which is more than 2.00 since inception, compared to the benchmark's Sortino ratio of just 0.92. For reference, the S&P 500's long-term Sortino Ratio is 0.76.
You can also see from the last entry at the bottom of the table showing Alpha % that this strategy outperforms its market benchmark by an average of about 20% per year. Compare this to Warren Buffett (with a net worth of more than $80 billion and one of the wealthiest men on the planet, is considered to be the world's most successful investor of all time), who has attained a long-term Alpha of 9.86%. So you'll legitimately be able to say you are outperforming Warren Buffett for as long as you stick with this strategy!
This two-component Asset Allocation strategy uses our S&P 500-based Bull/Bear (1 ETF) Strategy and our Adaptive Fixed Income (1 ETF) Strategy, combined with a weighting of 70%-30%, respectively. Each of the two asset-class components has a separate universe consisting of five ETFs in the S&P 500 universe and 53 ETFs in the Fixed-Income universe.
Some investors who are fairly new to ETF investing wonder if the ETFs in these universes have enough trading volume to accommodate their investment dollars. When they see low daily average volume figures for some ETFs, they become greatly concerned that it will mean they cannot sell the position when it comes time (as can occur with low-volume stocks). However, you cannot compare the daily avg. volume of an ETF to the daily avg. volume of individual stocks. They are entirely different animals. Please read this resource article for inside information on ETF trading volume and liquidity considerations.
For investment (not trading) purposes, investors should have no problem entering and exiting the ETFs in these universes. While you may not be able to get an instantaneous fill on each trade, ETFs used for investment purposes (as opposed to more rapid-fire trading purposes) can accommodate individual investors with a relatively large personal portfolio of up to $20-$30 million. If you are investing more than $5-$10 million or more in any one ETF transaction, or are an investment advisor with cumulative client assets greater than $20-$30 million, please contact us for additional information on an alternative approach.
S&P 500 BULL/BEAR COMPONENT
The S&P 500-based Equity Component selects from a five-ETF universe that consists of the following ETFs (displayed from most bullish to most bearish):
• ProShares Ultra (2x) S&P 500 ETF (SSO) - provides leveraged (2x) tracking of the S&P 500 for robustly bullish conditions
• SPDR S&P 500 ETF (SPY) - the first ETF ever created (1993), it tracks the S&P 500 index during bullish conditions (no leverage)
• iShares 1-3 Year Treasury Bond ETF (SHY) - this ETF is used as a proxy for cash during sideways or unpredictable conditions
• ProShares Short (-1x) S&P 500 ETF (SH) - tracks the inverse of the S&P 500 index for use during lengthy bearish conditions
• ProShares UltraShort (-2x) S&P 500 ETF (SDS) - tracks the -2x leveraged inverse of the S&P 500 during extensive, extremely bearish conditions
Note: Because they are so widely traded, the ETFs in this strategy can accomodate virtually any size of investment with exceptionally quick fills within moments.
FIXED INCOME COMPONENT
The Adaptive Fixed Income algorithms select the optimum position for conditions from a 53-ETF Fixed Income Universe consisting of Corporate Bond ETFs, Treasury Bond ETFs, and other fixed-income-based asset configurations. The 53 fixed-income ETFs in the universe are identified, along with their dividends, in this table.
Some of these ETFs have very low trading volume. Please refer to this resource article for the straightforward facts about ETF trading volume.
Benefits of This Strategy
Consider the Impressive Advantages that Accompany This Strategy...
STEADY PROFITS: By combining two ETFs, one from each of two uncorrelated asset classes, this investment approach features low-volatility, upside performance regardless of market conditions, and consistent, steady profits, regardless of market conditions, year after year. The bond component always moderates the day-to-day volatility, especially when a leveraged S&P 500 component is being used as its partner. With an annual return of more than 28% and an incredibly high risk-adjusted return (our highest Sharpe Ratio at 1.69), the Asset Allocation 2-2 Strategy rewards users with continuously positive returns that never significantly dip and never incurring a money-losing year.* The Risk-Adjusted Return (RAR) shown by the strategy's Sharpe Ratio at 1.54 since inception is the second-highest of all our strategies, just one hundreds of a point behind the top strategy. This strategy also offers the highest Sortino Ratio of any of our strategies for the last three years at an amazing 2.96!
ROBUST GAINS DURING BOTH RALLIES AND DOWNTURNS: The combination of two uncorrelated asset-class ETFs – i.e., the optimum selection from a universe of four S&P 500 ETFs and an always-optimum selection from a 53-ETF Fixed Income universe – provides you with returns that nearly double the performance of the market during bull rallies, produce gains during market downturns, and provide an ever-present protection against corrections and short-term pullbacks.
When significant market declines take place, this strategy offers a powerful defense that doubles as a high-return offense. If a severe, extended decline begins because of an economic contraction, your strategy will automatically switch to the appropriate inverse S&P 500 ETF and combine that aggressive position with the optimal, conservative Fixed Income ETF that moderates out any excessive turbulence. The AA-2-2 Strategy makes money no matter which direction the market is headed – always in a smooth, upward trajectory.
UNEMOTIONAL, EFFICIENT INVESTMENT DECISIONS: Having a stoic, mathematically driven trading system at your fingertips enables our subscribers to ignore the financial media, with its click-bait pessimistic market outlooks, coffee-fueled TV shysters, and hype-reliant internet hooligans that attempt to lure you into their own capricious agendas that surreptitiously hijack your wallet. Instead, your weekly ETFOptimize Strategy Update will provide you with the accurate intelligence you need about your strategy's performance for the last week, month, and year, detailed documentation of trades when they occur, and a comprehensive set of statistics so you can quickly check your progress toward achieving your financial goals. You also get a weekly review of market conditions that will prepare you for what's coming in the next five sessions and more. Subscribers can sleep soundly know that their strategy is always selecting the optimum positions for conditions and perhaps most advantageous of all – knowing that by design, there is virtually no risk of losing money in any given year.
EASY TO USE: With the ETFOptimize strategies, activity is infrequent, with 3.83 months between trades. For this strategy (Asset Allocation-2-2), the average hold time is 85.58 business days or about 4.27 months (Equity ETFs are held 2.01 months and Fixed Income ETFs are 6.54 months, on average). When a transaction occurs, you get clear recommendations that you can quickly execute with the click of a button at your broker's website. For investors who want to become familiar with each position, we provide a link to complete background data and relevant news for each ETF selected for use by the strategy.
The ETFOptimize strategies are unquestionably a breakthrough in the investment world – providing what legitimately may be the easiest way to attain substantial wealth through consistent compounding – with minimal risk. For investors, they can be the "Holy Grail" – a simple, proven investment approach that significantly gains ground through both bull markets and bear markets alike.
Your Asset Allocation 2-2 Strategy provides all the following features:
1) Strategy Updates – Every Sunday evening (by 7PM EST) each Strategy Detail page will be completely revised with your model's freshly updated documentation, including complete Performance Details and Statistics for both current holdings and the overall strategy. This ensures you have the latest performance information to keep you abreast of the profits you're accumulating toward achieving your financial goals – and much more....
|All this for...
2) Trade Notice Details – When your model schedules a new transaction for the following business day, your weekly Strategy Update Summary will include the complete details of that trade, with everything you need to know about the ETFs that are involved, including links to the ETF's history, statistics, and news – if you wish to review it (optional).
3) Performance Update – Each week's Strategy Update Summary includes an update of your strategy's return for the last week, last month, and last year as well as the same information for your strategy's benchmark (or for the S&P 500, whichever is closer in performance to your strategy). This allows you to assess how much you are outperforming the market at each of these points of measurement. Your Strategy Update page on the website provide you with comprehensive performance data and charts with detailed statistics to satisfy even the most detailed of investment nerds.
4) Optimized Market Outlook – Each Sunday your Strategy Update Summary includes a fact-filled "Market Outlook" section, which analyzes the current status of economic data and investment market developments. You will gain insights into little-known factors affecting the market, so you'll know exactly what to expect in the days and weeks ahead.
5) First Access: Optimized Insights™ – You get first access to our award-winning Optimized Insights™ data-driven market reports as soon as they are released – well ahead of the public and media outlets. Since 1998, thousands of individual investors and advisors have come to depend on the premium quantitative assessment in our Optimized Insights™ market reports, but you'll get that information several days before non-subscribers or media outlets have access.
6) First Access: ETF Investment Strategy Blog – When we post a timely, news-worthy, or educational article to our ETF Investment Strategy Blog, you'll get the first available access to that valuable information before it's posted to the site where the public can view it. Learn the intricacies of the drivers of investment performance, sources and methods to track these drivers on a weekly basis, and how to interpret them so you know what's coming before your fellow investors have the faintest clue about what to expect.
7) Perhaps Most Importantly – You'll get the potentially life-changing benefit of consistent and exceptional growth of your investment dollars with virtually zero chance of the long-term loss of your capital.* With an average Sharpe ratio of 1.50 and an average Sortino Ratio of 2.21, our strategies will consistently provide you with the most substantial risk-adjusted return of any investment approach, including mutual funds, professionally managed portfolios, hedge funds, and all turnkey investment models of which we are aware.
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8) 60-day Money-Back Guarantee – each strategy subscription is backed by a 60-day, 100% No-Risk Guarantee. We guarantee that you'll be thrilled with the results you get, or just let us know within the first 60 days and we'll promptly refund every penny that you paid. No questions asked! (See the next section for further details on this airtight guarantee...) This is your iron-clad assurance that you can try the ETFOptimize investment strategies and discover just how well they perform – without risk!