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 Adaptive Equity Rotation (2 ETF) Strategy provides a steady and consistent upward assent in its equity curve. The Adaptive Equity Rotation (2 ETF) Strategy's performance is shown by the red line while its benchmark, the SPDR S&P 500 ETF (SPY), is indicated by the blue line.
STRATEGY PERFORMANCE - SINCE INCEPTION (July 1, 2006 - Present)
The Adaptive Equity Rotation (2 ETF) Strategy (aka, "Equity-2") is our highest-performing strategy, with an annual return of 36%. In 2017, the strategy produced a return of 65.98% with a maximum drawdown (MDD) of just -8.84%. The Equity-2 Strategy has an Average Annual Maximum Drawdown (AAMD) of just -14.74%, which situates it just slightly above the AAMD average for all of our strategies at -11.84%. The Equity-2 Strategy has been profitable every year and has outperformed its S&P 500 benchmark in all but one of its years since inception (92%), with a shortfall of just -1.09% in 2009 (when it still produced a return of 22.37%). The average performance of the Equity-2 strategy is 29.92% per year – the highest average outperformance in our strategy lineup.
With a compound annual growth rate in the mid-30% range, this Equity-only, two-ETF strategy nearly quintuples (487%-times) the average return of its benchmark (the S&P 500 index), and according to Morningstar, outperforms 100% of mutual funds in the last 3, 5, 10, and 20 years. Since inception in July 2006, it has outperformed its benchmark every year since inception and has never experienced a money-losing year.
This strategy's equity curve may appear more volatile than that shown by our other strategy charts, but that's because this strategy is attaining the highest performance of all our strategies, with the most aggressive selection of ETF assets, including 2x leveraged versions when it is safe and appropriate. While the occasional pullback may be sharp, the recovery is also more rapid and aggressive. This strategy does not have a fixed income component to smooth its performance (as is the case with our Asset Allocation 2-4 strategy, which uses this strategy as one of its two components), so its performance is aggressive. Strategy subscribers should be prepared for the fast action that comes from this strategy's aggressiveness and high-performance profile.
Protecting You from Systemic Market Losses
Outperformance is nothing if it isn't accompanied by downside protection when the market begins to slide. After all, who wants an aggressive investment approach that produces an excellent performance when stocks are rising – but loses it all (and perhaps more) when conditions turn negative? (There are already far too many investment approaches that match that description.)
However, your quantitative investment strategy provides you with protection from loss whenever there is risk of a significant market decline. The Equity-2 Strategy has never lost money during any year since inception, providing subscribers with a robust investment method that consistently produces a substantial return, year after year.* This consistency is perhaps one of the most powerful benefits that any investment approach could have. It provides steady compounding of your money and reduces the extreme stress that can result from portfolio losses.
Then, when economic and marketing conditions begin to recover coming out of a recession, the Equity-2 strategy rotates to the two equity ETFs that are optimum for those conditions, which can often consist of 2x-leveraged equity ETFs. The combination of the optimal ETF selections at any given time – for all types of conditions – produces a phenomenal overall performance with very little risk of losing money in any given year.*
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 position.
In the next section, you'll see how this strategy switched to cash before the Financial Crisis downturn – losing no principal at all – while many investors lost more than half of their life's savings. When the recovery got underway, the Eq-2 Strategy entered an incredibly profitable stretch in which it appreciated 324% while investors in the S&P 500, mutual funds, and other investments were struggling to get back to even for a full 5-1/2 years, gaining 0% in all that time – virtually dead money for 66 long months.
To demonstrate how this strategy protects you from severe market losses and achieves strong performance, the best example we can provide is the Financial Crisis, when the S&P 500 benchmark plummeted throughout all of 2008 and into the first quarter of 2009, losing -57% of its value. Meanwhile, the ETFOptimize Equity-2 Strategy first switched to a cash proxy ETF during the downturn, then consistently rotated to the two optimum ETFs for conditions and outperformed its benchmark by a huge margin.
These performances are shown in the Left Chart below which presents the developments from the December 3, 2007 market high just before the downturn until the Financial Crisis Trough on March 9, 2009.
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 5 years later when the benchmark finally recovered the -55% loss it suffered during the Crisis. By the time the S&P 500 benchmark returned to breakeven (0% return), our Adaptive Equity Rotation (2 ETF) Strategy had produced an impressive performance of 324% for strategy subscribers.
Eliminating significant market declines – and the recovery time required – is one of several ways that 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 2x-leveraged equity-based ETFs. Owning two ETFs from different market segments produces a very steady equity curve and eliminates unnecessary drama, offering an investment plan that creates virtually zero stress for subscribers.
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 Adaptive Equity Rotation (2 ETF) Strategy can sit back and ignore all that noise. The Equity-2 Strategy assesses as many as 28 different data sets each weekend and determines the optimum ETF to own for any economic or market condition that can affect stocks, bonds, and alternatives.
Our Adaptive Equity Rotation (2 ETF) Strategy has provided subscribers with profits every single year since inception, regardless of the performance of the economy or the stock market. This benefit may be the most impressive 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 Equity-2 Strategy has never experienced a money-losing year! Furthermore, the strategy outperformed its benchmark every single year since inception except 2009 – when it missed outperforming by just -1%.
The tables and chart below provide both a numeric and a graphic presentation of the annual performance of the Equity-2 Strategy since its inception in July 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 EQ-2 Strategy over its Benchmark on the bottom line.
From the top line, you can see that the Equity-2 Strategy provided healthy, positive annual returns in each calendar year since its inception in mid-2006 with an average annual return of about 36%. From the bottom line, you can see that the Equity-2 Strategy also outperformed its benchmark every year except one (with an average outperformance of more than 26% per year). In 2009, the Equity-2 Strategy gained a very respectable 22.37%, which was 3.99% less than the S&P 500. All other years provided significant outperformance, at a rate that averaged more than 25% per year (see 'Alpha %' below).
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, yet the Equity-2 strategy has provided a return at the half-way mark of more than 10% – which is more than triple the S&P 500's return to this point.
The Adaptive Equity Rotation (2 ETF) Strategy's annual performance is shown by red bars and its benchmark return is shown by blue bars.
The outperformance was small in 2006, 2011, 2014 and 2016, but very significant in 2010 (outperformance of 65.71%), 2012 (24.03%), and in 2017 when the strategy produced a gain of 66.73%, which was 45.03% more than its benchmark. Again, while the chart shows that 2018 has been an anemic year to date, animal spirits are building and with corporate profits at conspicuously high levels, we expect this strategy could take off as the second half of the year progresses. As it stands now, the strategy is on track for a 2018 return of more than 20%.
One of the most important criteria for selecting any investment approach is its 'Risk-Adjusted Return,' which is usually assessed by the Sharpe Ratio or the Sortino Ratio measures. These two metrics show the ratio of an investment's performance 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 benchmark is 0.60 – compared to a ratio of 1.45 for the Equity-2 strategy. 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 the Equity-2 Strategy's Sortino ratio (which measures the return against downside volatility only), which is 2.18 since inception, compared to the SPY benchmark's Sortino ratio of just 0.77. In the last 3 years, the Equity-2 strategy's risk-adjusted return ratios are even higher at 2.00 and 2.77, respectively.
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 26% per year. Compare this to Warren Buffett (who, 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) has attained a long-term Alpha of 9.86%. So you'll legitimately be outperforming Warren Buffett if you stick with your Adaptive Equity Rotation-2 Strategy for the long-term!
The two equity ETFs regularly selected by this strategy are also utilized in our Asset Allocation 2-4 Strategy which adds an uncorrelated, 2-ETF Fixed Income component to this strategy that increases the risk-adjusted return. On the other hand, the advantage of NOT COMBINING the Fixed Income ETFs is that there isn't an uncorrelated component to degrade the overall return. For this reason, this strategy attains the highest annualized return of all our strategies.
If the absolute highest (yet safe) return is your objective, this strategy is for you.
While this equity-only strategy provides the highest annualized return at about 36%, it also has a Sharpe Ratio (a measure of risk-adjusted return) of all our strategies, at 1.59 since inception (but a ratio of 1.87 in the last 3 years).
This strategy's Sortino Ratio in the last three years is an exceptionally high 2.18 - compared to the S&P 500 SPDR ETF (SPY) with a last-3-years Sortino at 2.63. The increased risk-adjusted return is a result of lower volatility with a continuation of the bull market, but some strategies outperform others in this type of environment (this strategy is one of them). So, while having a moderate, long-term risk-adjusted return among the ETFOptimize selection, this strategy still has an uncommonly high risk-adjusted return when compared to the universe of investment vehicles and alternative investment approaches that are available.
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 this universe. 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 Adaptive 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.
Benefits of This Strategy
Consider the Advantages that Accompany This Strategy...
STEADY, EXCEPTIONALLY STRONG PROFITS: By combining two high-performance equity ETFs, this quantitative strategy provides you with consistently exceptional performance regardless of market conditions. With an annual return of nearly 34% and an excellent risk-adjusted return, the Adaptive Equity Rotation (2 ETF) Strategy rewards users with an investment approach that never significantly dips and never incurs a money-losing year. The EQ-2 Strategy's 3-year Sharpe Ratio at 1.93 is the third-highest of all our strategies, indicating that it produces outstanding returns compared to relatively low volatility. This strategy also has a Sortino Ratio (performance relative to downside volatility) of 2.08 since inception and 2.69 in the last three years, which is truly exceptional (considering that the S&P 500 ETF – SPY – has a Sortino Ratio of just 0.77).
PROTECTION DURING DOWNTURNS: When significant market declines take place, this strategy offers a very effective defense: it switches to cash. If a significant economic contraction begins – before stocks start to slide – this strategy will have already sold its positions and rotated to cash. Then, when the combination of up to 38-different financial data series signal that conditions have turned favorable, the Equity-2 Strategy will automatically switch to the two most opportunistic equity-based ETFs – frequently the leveraged versions if market drivers are sufficiently robust – and the strategy's exceptional outperformance of the market will once again be underway.
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 (Adaptive Equity Rotation-2), the average hold time is 64.38 business days or about 3.22 months. 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 Adaptive Equity Rotation 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....
|All this for...|
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.
4) Optimized Market Outlook – Each Sunday your Strategy Update Summary includes a fact-filled "Market Outlook" section, which summarizes the current status of economic data and related investment market developments. You will gain insights into little-known factors affecting the market, so you know what to expect in the days and weeks ahead.
5) Premier 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 that cover us. 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 an opportunity for access.
6) Premier 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.
7) Perhaps Most Importantly – You'll get the potentially life-changing benefit of reliable and exceptional performance with zero chance of long-term loss of your capital.* An average Sharpe ratio of 1.50 and an average Sortino Ratio of 2.21 consistently give our strategies the highest risk-adjusted return of any mutual fund, professionally managed portfolio, or turnkey investment models of which we are aware.
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We are so confident you'll be absolutely thrilled with the performance of your ETFOptimize investment strategy that we back your subscription with a 60-day, 100% Money-Back Guarantee. If you're not entirely delighted for any reason – or no reason at all – in the first two months, just let us know, and we'll promptly refund every penny you've paid.
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