This Strategy Profile page provides you with an introduction to our Asset Allocation 2-4: Optimal Equity & Fixed-Income (4 ETF) Combo Strategy (aka, "Asset Allocation-2-4" or "AA-2-4" for short) and documentation of its many features and benefits. You'll find sample data and charts showing the strategy's historical and current performance, its profitable performance during the Financial Crisis, documentation of its Risk-Adjusted Return, the makeup of the universe of ETFs from which it chooses, a description of its impressive features, and a listing of the many significant benefits that accrue to an investor using this strategy's guidance. If you have any questions about this – or any of our other strategies, please contact us for prompt assistance.
Paid subscribers additionally receive details on all current positions held, transaction documentation, comprehensive news and statistics for each holding, Closed Position performance and documentation, and a comprehensive set of the strategy's performance data and charts, all updated each weekend. If you would like to see the complete Premium Strategy details that are not provided by this page, you may subscribe with the confidence of knowing you have a 60-day, 100% money-back guarantee if you choose to discontinue the subscription.
You can gain access to the Premium Strategy page by clicking this link or any of the blue links throughout the page below for instant access to the current ETFs being held by the strategy, and a multitude of actionable details. Why not put this strategy's consistently climbing performance – providing positive returns in any economic or market environment – to work for you today?
*Past performance is not necessarily indicative of future returns
Most recent update of all data on this page: Sunday, August 19, 2018
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-2-4: Optimal Equity & Fixed Income (2 Asset, 4 ETF) Combo Strategy provides a steady and consistent upward climb in its equity curve. The AA-2-4 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 a blue line.
PERFORMANCE - SINCE INCEPTION (July 1, 2006 - Present)
KEY: The blue line shown as the benchmark 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 2-4: Optimal S&P 500 / Optimal Fixed Income (2 ETF) Strategy's" performance since inception.
Note about 2018 Drawdown: Because the top window of the chart above is a cumulative, linear-scale graph (not logarithmic), the increase in volatility you see in the top window 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 the percentage 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.
Get This Performance for Yourself
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 second-highest Sharpe Ratio (a measure of
risk-adjusted return) of all our strategies, at 1.59. Its Sortino Ratio (another measure of Risk-Adjusted Return that uses return compared to the investment's downside volatility) is a whopping 2.29.
With a compound annual growth rate of about 29%*, this two-asset 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 years. Since inception in July 2006, this strategy has outperformed its benchmark every year since inception and has never experienced a money-losing year.*
Our "ASSET ALLOCATION: Optimal Equity & Fixed-Income (2 Asset, 4 ETF) Combination Strategy" is a long-only strategy that holds a combination of the two optimum ETFs from each of two uncorrelated asset classes – Equity and Fixed Income - for a total of four positions held simultaneously in a 70%-30% ratio (majority weighting placed on Equity ETFs). The Equity component consists of a universe of 206 ETFs, with10 ETFs being 2x-leveraged versions of widely-used market indices, such as the S&P 500, Dow Industrials, NASDAQ 100 – used during long, robust bull markets when underlying economic and market conditions are exceptionally favorable (there are no 3x-leveraged ETFs or inverse ETFs used in this strategy).
Holding the optimum positions from two uncorrelated asset classes provides more diversification, less volatility, and a smoother equity curve than strategies with fewer holdings and significantly increases the strategy's Risk-Adjusted Return (RAR). This model has the highest RAR of all our strategies, with a Sortino Ratio of 2.29 and a Sharpe Ratio of 1.60 – and achieves impressive, long-term performance that averages more than quadruple (410%) the return of the S&P 500.*
KEY STATISTICS SUMMARY
Asset Allocation: Optimal Equity & Fixed-Income (2 Asset, 4 ETF) Combination Strategy
Inception: July 1, 2006
Rebalance Frequency: Weekly
Average Position Hold Time: 39.4 business days (about 2 months)
Annualized Return (since inception): 28.95%*
Last Year's (2017) Return: 47.80%
Financial Crisis & Recovery Return: 226.13% (see below for details)
Number of Money-Losing Years: ZERO
Strategy's MaxDrawdown (since inception): -17.40% (in 2014)
Benchmark's Max Drawdown (since inception): -40.37% (in 2008-2009)
Strategy's Average Yearly Max Drawdown (since inception): -11.28%
Last Year's (2017) Max Drawdown: -4.55%
Sharpe Ratio: 1.59
Sortino Ratio: 2.29
(Our abbreviated name for this strategy is "Asset Allocation-2-4" or "AA-2-4")
Get This Exceptional Performance
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 an excellent performance when stocks are rising – but loses it all (and perhaps more) when conditions turn negative? Fortunately, both of the components of this strategy provide ample protection from a 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 go into decline, this strategy's Equity-based component will switch to a 'risk-off' mode – selling positions and holding cash. Meanwhile, the Fixed Income component is always rotating to the two Fixed Income ETFs that are optimum for conditions.
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-2-4 Strategy benefits from the defensive, two-ETF, fixed-income component at all times, including during garden-variety market corrections.
Fixed Income Component
The conservative, 2-ETF Fixed Income component of the AA-2-4 Strategy provides an uncorrelated (0.25) asset that significantly reduces systematic (market-related) risk. The Fixed Income ETFs are always active in this strategy and therefore provide continuous protection for your portfolio, 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 alternatives that have been driven lower 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. There were only two drawdowns since 2009, and they did not cross the -10% threshold – not even briefly.
The Fixed Income component
of the AA-2-4 Strategy provides nearly straight-line performance, smoothing out the more-aggressive performance of the Equity components and providing you with 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-2-4 Strategy did not decline at all, and instead transformed the crisis into a money-making opportunity!
Get Protection from Market Losses
Financial Crisis Performance
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-2-4 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-2-4 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 (trough) on March 9, 2009. The strategy signal for the long equity components to exit just before the downturn began and the fixed income components took over, producing a slight, but steady return of 5.3% and an outperformance of 60.3% through the trough of the Financial Crisis selloff.
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 five years later when the benchmark S&P 500 finally recovers its -55% loss it suffered during the severe recession. By the time the SPY/BND 70-30 benchmark gets back to breakeven (0%) five long years later, our Asset Allocation 2-4 Strategy had produced a return of 215% for subscribers.
2007 High to Financial Crisis Bottom – From the December 2007 high just before the Financial Crisis to its low on March 9, 2009, this strategy's benchmark, a 70/30-weighted S&P 500/Total Bond Market ETF (SPY/BND) Combination lost -39.63%. The benchmark lost less than the S&P 500 (-56%) because of its combination of two uncorrelated asset classes, the same as our strategy. However, just before the crisis began, the equity component of our Asset Allocation 2-4 Strategy moved to a cash position, while the fixed income component moved higher for a return of + 5.31% - which is a 45% outperformance of the benchmark.
Financial Crisis & Recovery – The strategy's benchmark (a 70/30-weighted SPY/BND combination) descended from its December 2007 high (just before the Financial Crisis) through its low on March 9, 2009, it lost -40%. Then, as shown in the chart above, the benchmark began to gain ground and over a total of 36.5 months (until January 2011), when it finally recovered that -40% loss. However, during that same timeframe, our Asset Allocation 2-4 Optimal Equity/ Fixed Income (4 ETF) Strategy produced a total return of 150% and an AR of 35%. Which investment approach do you think will serve you better when the next major market collapse begins?
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.
Turn Crashes Into Money-Makers
Year-by-Year Performance Detail
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 2-4 Combo Strategy can sit back and just ignore all that noise. The AA-2-4 strategy assesses as many as 28 different data sets of factors that drive the performance of stocks each weekend to determine the optimum ETFs to own for any type of economic and market condition.
Our Asset Allocation 2-4 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-2-4 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-2-4 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-2-4 Strategy over its Benchmark on the bottom line.
From the top line, you can see that the AA-2-4 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-2-4 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 2-4 Strategy's annual performance is shown by red bars and its benchmark return is shown by blue bars.
The outperformance was small in 2006, but very significant in 2015 (30.09% outperformance), 2017 (33.86% outperformance), and in 2010, when the strategy produced a gain of 73.63%, which was 60.85% more than the S&P 500/Total Bond Market benchmark. Again, this chart shows that 2018, so far, has provided a fairly anemic performance. Best because stocks have been mostly sideways throughout the first half of the year. However, animal spirits are building and with corporate at record-setting levels, we expect this strategy to continue to gain ground in the year's second half.
Attain This Same Performance
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!
Exceptional Risk-Adjusted Returns
This two-component Asset Allocation strategy combines our Adaptive Equity Rotation (2 ETF) Strategy and a 2-ETF variation of our Adaptive Fixed Income Strategy, combined with a weighting of 70%-30%, respectively. Each of the two asset-class components has a separate universe with five ETFs in the S&P 500 universe and 53 ETFs in the Fixed-Income universe. Many subscribers wonder if the ETFs in these universes have enough volume to accommodate their investment dollars. However, you cannot compare the daily volume of an ETF to the volume of stocks. They are entirely different animals. (Please read this resource article for information on ETF volume considerations.)
Many readers wonder if the ETFs in the universes we use have enough volume to accommodate their investment dollars. However, you cannot compare the daily volume of an ETF to the volume of stocks. They are entirely different animals. Please read this
resource article for 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 rapid-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.
EQUITY ETF UNIVERSE COMPONENTS
The Equity-Rotation algorithms select the optimum two positions for conditions from a 196-ETF Universe of Long Equity ETFs and a 10-ETF Universe of Leveraged-Long Equity ETFs to comprise a total 206-Asset, Equity-ETF universe. The ETFs in each universe are identified, along with their yield, by clicking the links above to open the individual universe PDF tables.
Are you concerned about potentially low daily trading volume for some of the ETFs listed in this strategy's universe? You shouldn't be – ETFs are completely different animal than stocks and daily trading volume does not have the same relevance as it does for stocks.
Learn more about ETF trading volume and liquidity considerations.
FIXED INCOME COMPONENT
The Fixed Income Rotation 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 ETF asset configurations. The 53 fixed-income ETFs in the universe are identified, along with their dividends, in this table.
Are you concerned about potentially low daily trading volume for some of the ETFs listed in this Fixed-Income strategy's universe? You shouldn't be – ETFs are completely different animal than stocks and daily trading volume does not have the same relevance as it does for stocks. Learn more about ETF trading volume and liquidity considerations.
An Investing Breakthrough
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 Asset Allocation strategy features low-volatility, upside performance regardless of market conditions, and steady profits. The bond component always moderates the day-to-day volatility of the portfolio, especially when leveraged Equity ETFs are being utilized. With an annual return of nearly 30% and an incredibly high Risk-Adjusted Return at 2.29 (Sortino ratio), the Asset Allocation 2-4 Strategy rewards users with continuously positive returns without significant declines and users should never incur a money-losing year. The Risk-Adjusted Return (RAR) shown by the strategy's Sortino Ratio at 2.29 since inception is the highest of all our strategies, leading by just a few points our Asset Allocation-2-2 Strategy (at 2.27). We generally use the Sortino Ratio as an indicator of Risk-Adjusted Return, because it measures the ratio of strategies overall appreciation to its downside volatility – which is the risk factor about which nearly all investors are actually concerned.
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 performance that is double the return of the market during bull rallies, while producing gains during market downturns, and provide an ever-present protection against corrections and short-term pullbacks from the fixed income component.
When significant market declines occur, 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-2-4 Strategy makes money no matter which direction the market is headed – always in a smooth, upward trajectory.
UNEMOTIONAL, EFFICIENT INVESTMENT DECISIONS: using a stoic, mathematically driven trading system enables you to ignore the financial media, with its click-bait pessimistic market outlooks, coffee-fueled TV shysters, and hype-reliant internet shysters who attempt to lure you into their capricious agendas that surreptitiously hijack your wallet. Instead, your weekly ETFOptimize Strategy Update will quietly provide you with the accurate intelligence you need, with detailed documentation of trades when they occur, details of your strategy's performance for the last week, month, and year, and a comprehensive set of statistics so you can quickly check your progress toward achieving your financial goals. 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: The ETFOptimize investment strategies seek to minimize the number of trades needed to attain their high performance, and on average, have 3.83 months between trades. For this strategy (Asset Allocation-2-4), the average hold time is 106 business days or about 5.3 months (Equity ETFs are held 3.22 months and Fixed Income ETFs are 6.54 months, on average). When a transaction occurs, you receive straightforward 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.
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Your Subscription Includes...
Your Asset Allocation 2-4 Strategy provides all the following features:
1) Strategy Updates – Every Sunday evening (by 7PM EST) each Strategy Status 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....
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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 email 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.
5) First Access: Optimized Insights™ market analysis – 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.
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7) Consistent Growth – 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 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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