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Investment methodology

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ISA portfolios are designed to help investors navigate significant and
unstable movements in financial markets to obtain potentially increased
returns. Portfolio results are achieved through disciplined risk management,
situational awareness, global diversification and dynamic asset allocation.

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Investment methodology

  1. 1. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM ISA is leading investors toward new avenues of risk management and portfolio growth. ISA portfolios are designed to help investors navigate significant and unstable movements in financial markets to obtain potentially increased returns. Portfolio results are achieved through disciplined risk management, situational awareness, global diversification and dynamic asset allocation.Slide 1 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  2. 2. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 1. Capital Preservation Diversification through asset allocation works, but It needs to be more dynamic. As witnessed during the Credit Crisis of 2008- ISA Portfolios apply dynamic asset 2009, the benefits of diversification may allocation strategies through overlay risk not always perform to expectations. One management to minimize fees, maximize way to maintain an equity allocation favorable the capture of a rising market, and for growth while introducing a level of facilitate an efficient flight to safety downside risk management is dynamic asset when markets turn for the worse. allocation.Slide 2 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  3. 3. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 1. Capital Preservation Diversification through asset allocation works, but It needs to be more dynamic.Slide 3 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  4. 4. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 1. Capital Preservation For periods of one to five years since 1926, most portfolio blends delivered positive real or after-inflation returns. For periods of one-to-five years since 1926*, most portfolio blends delivered positive real or after-inflation returns. In longer holding periods, larger equity exposures generally raised the frequency of positive real returns. *Average portfolio performance between December 30, 1926 through December 30, 2010. Source: Standard & PoorsSlide 4 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  5. 5. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 1. Capital Preservation Volatility limits performance. ANNUAL MARKET RETURNS 1927-2008 Because volatility is time varying, “annualizing” performance cannot provide a complete or transparent measure of a risk management approach. Through dynamic asset allocation, and overlay risk management, risk adjusted performance can be more readily achieved and measured. This experience emphasizes the need to incorporate shorter-term emphasis into risk management practices that typically are built with historic long-term returns in mind.Slide 5 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  6. 6. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 1. Capital Preservation On a long term basis and throughout all U.S. EQUITY MARKET TOTAL RETURNS, BY STYLE* of history, stock returns are more highly correlated during volatile market downturns than during market upturns, exacerbating the risk consideration for equity investors. *From market peak to bottom (October 2007 through end March 2009)Slide 6 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  7. 7. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 1. Capital Preservation Normally, investors can count on bonds or alternative investments to help cushion the impact of volatile equity market downturns. However, this was not true in 2008 for corporate bonds, which sold off alongside equities. While the Lehman (now Barclays) Aggregate Index generated a positive return, this mainly reflected a rally in treasuries. Nonetheless, because fixed income managers typically do not have large treasury holdings, returns for the vast majority of bond managers were considerably below their benchmark. Finally, alternative investments failed to offer any downside protection. Thus, 2008 returns were negative for every category. Consequently, with the exception of cash and treasuries, portfolio construction made little difference to investment returns.Slide 7 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  8. 8. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 1. Capital Preservation Making matters worse, unprecedented correlation levels have been steadily rising in the U.S. since 1995 and world-wide since 2003.Slide 8 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  9. 9. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 1. Capital Preservation In equities, the case for dynamic asset allocation vs. traditional diversification is perhaps best punctuated by the new reality that growth stocks are priced the same as value stocks.Slide 9 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  10. 10. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 2. ISAs Multifactor Risk Management By managing the exposure of the portfolio to well understood risk factors, capital can be protected from downward trending markets before it is too late. Simple Classification Rigorous Analysis Timely Execution Risk is assessed from the The causes of declining markets are Risk factor data are used to interactions between three multi-faceted; they are not determine the optimal portfolio groupings of factors: influenced by a singular factor. composition for the prevailing Behavioral, Catalyst, and ISA algorithms analyze dimensions market environment, while also Technical. of 33 sub factors, their interactions monitoring the current portfolio’s and the extent of their susceptibility to market risk. determination on market returns.Slide 10 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  11. 11. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 2. ISAs Multifactor Risk Management For greater clarity within immensely complex inter-market dynamics, we manage risk factors within three categories: Behavioral Risk Factors of market participants express whether Technical Risk Factors depict in quantifiable investors are bullish (paying more for stocks) or bearish (paying detail, the trends forming between traders less for stocks), which establishes the direction of a trend and across global stock exchanges. helps to formulate estimations of the duration of that trend. Catalyst Risk Factors are tracked as event overlays to technical and behavioral factor price data and can be evidenced either by news and/or price trend anomaly, whichever emerges first.Slide 11 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  12. 12. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 2. Multifactor Risk Management When markets turn negative, the shift in sentiment is reflected not only in the prices of stocks, but it is often preceded by shifts in the attitudes of market participants, transaction data, and world events.Slide 12 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  13. 13. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 2. Multifactor Risk Management Behavioral risk factors extract the details of live transactions, revealing how changes in investor sentiment impact stock prices. Behavioral risk factors reflect the subjective buying and selling decisions of market participants. These data include the rolling advance/decline ratio and its rate of change. For example, if a stock market index is rallying, but there are more issues declining than advancing, then the rally is narrow and much of the stock market is not participating. This data set also incorporates bid & ask volume ratios, bid direction and size, the moving average of the put/call open interest level, momentum, and institution accumulation/distribution. These data provide ISA algorithm engineers with objective, emotionless insight into changing market dynamics.Slide 13 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  14. 14. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 2. Multifactor Risk Management Technical risk factors monitor the key price and time relationships of money flow between global institutional money managers and the investing public. Investors respond to each others actions while being influenced by specific expectations and predictions of market prices. The historical transactions help to form perceptions of overbought or oversold levels. When live transactions approach previous levels, common technical indicators such as moving averages, mean reversion, and support or resistance become prominent influencers.Slide 14 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  15. 15. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 2. Multifactor Risk Management Catalyst risk factors fuel the momentum of buying or selling, leading to a majority sentiment, response, and subsequent trend. Timeline example of a catalyst risk factor impact: April 16, 2010. SEC charges Goldman Sachs with fraud in structuring and marketing of CDOs tied to subprime mortgages.Slide 15 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  16. 16. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 2. Multifactor Risk Management Catalyst risk factors can be impactful beyond their original time and space. Stock market returns April 15-May 10, 2010 following catalyst risk factor on April 16, 2010 when the SEC charged Goldman Sachs with fraud in structuring and marketing of CDOs tied to subprime mortgages.Slide 16 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  17. 17. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 2. Multifactor Risk Management Understanding risk factor interactions is as important to decoding the conditions that lead to market turbulence as understanding the factors themselves.Slide 17 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  18. 18. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 3. Situational Logic Risk must be understood in the context of probability. This understanding can only be achieved with a firm grasp of the factors relevant to the present reality. Situational logic guides the algorithmic calculations Situational logic helps by selecting the most of how changes between risk factor interactions are relevant factors and allows for a more transmitted to and from financial markets. thorough understanding of the portfolios Situational logic improves upon a "black box" only exposure to different variables, which impact approach by seeking contextual answers to the risk factors at different times and in different questions most relevant to effectively managing an ways, allowing for analyses that are more investment portfolio based on what is happening precise and lead to better-informed in the market right now versus what happened in investment decisions. the past.Slide 18 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  19. 19. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 3. Situational Logic Our risk model is not purely dependent on historical relationships, but incorporates real time facts that influence causal interactions. Causal risk factors and symptomatic risk cycle time variation is important to asset returns. Even within short time frames, catalyst risk factors with clear historical relationships shift in scope and complexity as the situation worsens, preventative measures are taken, and the risk of contagion spreads. The graphic illustrates the sovereign debt contagion’s impact and increasing pace of varying Euro zone credit crisis risk factors through the summer of 2010.Slide 19 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  20. 20. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 3. Situational Logic Selecting the maximum risk factor levels a portfolio is exposed to requires a thorough understanding of each variables time varying relevance.Slide 20 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  21. 21. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 3. Situational Logic Risk factors are tightly linked when systemic risk is high and indicate a fragile market with increased potential for a collapse of prices.Slide 21 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  22. 22. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 3. Situational Logic Accurate assessment of portfolio risk requires asking the right contextual questions about the present situation.Slide 22 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  23. 23. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 3. Situational Logic Question 2: What are the longstanding impactful changes within factor interactions?Slide 23 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  24. 24. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 3. Situational Logic Question 2: What are the longstanding impactful changes within factor interactions?Slide 24 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  25. 25. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 4. Enhanced Return ...and a quarterly rebalance can provide preemptive protection from most corrections. In the S&P 500, from January 1926 to December 2010, declines of 5% or more occurred an average of 3.7 times per year. Declines of 10% or more occurred 1.3 times per year, while declines of 20% or more occurred only 0.5 times per year.Slide 25 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  26. 26. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM 4. Enhanced Return For the past 25 years, one or more pre-identifiable ISA risk factors have preceded market corrections over 86% of the time.Slide 26 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  27. 27. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM Investment advice and portfolio management for the new era Index Strategy Advisors develops objective, thoughtful solutions to the strategic and tactical investment challenges faced by individual investors. Our research is the foundation for our thought leadership and advisory services for investment management clients in the areas of dynamic asset allocation and risk management. Our expertise is supported by algorithms built in-house for conducting strategy back-testing, scenario planning, risk reduction, optimal asset allocation analysis, and precise trade execution in line with client-specific investment guidelines, risk tolerance, and return requirements. In response to the rapidly expanding supply of highly focused exchange traded funds (ETFs), our library of algorithms has been expanded to include ETF screening analytics for assessing and proactively identifying the optimal ETF securities for portfolio construction. Our goal with research is to challenge ourselves to think beyond yesterdays assumptions and to seek insights and innovative thinking that breaks new ground and newly define - or redefine - areas of opportunity for investors.Slide 27 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  28. 28. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM See how we put our methodology into action A retired entrepreneur in his mid 60s requested that ISA develop a hedging strategy that could reduce the impact of equity market volatility on his $10M fixed income holdings, which represented approximately 65% of the overall portfolio. Included in this example is the analysis we performed and the recommendations that were made. http://www.indexstrategyadvisors.com/second-opinionSlide 28 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED
  29. 29. Expert investing advice. World-class investment research. FOR MORE INFORMATION PLEASE VISIT - WWW.INDEXSTRATEGYADVISORS.COM To learn more about how our investment capabilities can help you, please make an appointment by selecting: TALK AN ADVISOR at www.indexstrategyadvisors.comSlide 29 of 29CALL 1-800-984-0268 TO SPEAK WITH AN INVESTMENT ADVISOR © COPYRIGHT 2011 INDEX STRATEGY ADVISORS, INC. ALL RIGHTS RESERVED

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