Performance Analysis Of Strategic Balanced Allocation
This is a diversified strategic allocation portfolio. Our strategic portfolios are designed to take advantage of the expected U.S. economic growth in the coming years. All strategic portfolio allocations are U.S.-only, and most include additional exposure to equity sectors that are expected to benefit from this trend. Higher growth is likely to be accompanied by higher inflation and interest rates. Our portfolios underweight long-term bond exposure, and instead focus on income assets that are expected to outperform in a rising-rate environment.
The primary objective of the Strategic Balanced Allocation is total return from participation in equity and fixed-income markets, while heavily emphasizing managing downside risk; with secondary objective of interest income. The assets classes may include Treasury inflation-protected securities (TIPS), short-term and intermediate-term corporate bonds, senior loans (up to 20%), other fixed-income asset classes, U.S. large-cap balanced and growth equities, and U.S. mid-cap equities. Equity allocation Min/Max: 35%/50% Fixed income allocation Min/Max: 50%/65%
|Strategy name||Strategic Balanced Allocation|
|Investment style||Asset allocation|
|Main asset class||All assets|
|Years in track record||15.4|
|Benchmark||Benchmark 60 40|
|Manager fee included||0.5%|
|Securities in portfolio||9 on 2019-05-17|
About Net Returns
Performance statistics are shown net of all fees and estimated trading costs.
|Year to date||8%|
|Last 12 months||5.3%|
|Past 3 years||7%|
|Past 5 years||5.8%|
|Past 10 years||9.8%|
About Rolling 12-Month Returns
Twelve-month rolling portfolio statistics are computed using sequential 12-month rolling time windows. This is important because a strategy with a track record of 15.4 years such as Strategic Balanced Allocation will only have 15 data points for calendar returns, but either 3881 or 184 samples of returns over 252 business days depending on whether data is available on a daily or monthly basis respectively, each of which corresponds to one annual period. Therefore the analysis of rolling 12-month windows gives a sensible aggregate view of the strategy's historical behavior over an average annual period.
The Strategic Balanced Allocation strategy has been profitable in 93 percent of annual periods, and negative over the remaining 100 percent. Its long-term average annual return of 8 percent has been achieved with performance swings ranging from +35.8 percent in the best year to -13 percent in the worst period. Further discussion of these results is provided with the bar chart showing the strategy's net annual returns.
|Number of positive periods||93%|
|Average when positive||9.6%|
|Average when negative||-6.1%|
|Best 12 months||35.8%|
|Worst 12 months||-13%|
About Rolling Monthly Returns
Monthly rolling portfolio statistics are computed using sequential monthly rolling time windows, each of which corresponds to the 21 open business days for which data is available each calendar month.
The Strategic Balanced Allocation strategy has been profitable in 69 percent of monthly periods since inception on 12/31/2003, and negative over the remaining 100 percent. When a monthly period is profitable, it returns and average of +1.6 percent. When it loses money, the average loss is -1.39 percent. In its 15.4 years since inception, the strategy's long-term average monthly return of 0.66 percent has been achieved with performance swings ranging from +6.2 percent in the best monthly period to -6.8 percent in the worst period.
|Number of positive months||69%|
|Average when positive||1.6%|
|Average when negative||-1.39%|
|Average monthly return||0.66%|
|Risk score (0 to 100):||45.2|
|Trough to recovery||6 months|
Since inception on 12/31/2003, your strategy Strategic Balanced Allocation has been 96 percent correlated to the broad stock represented by the market index with ticker symbol VTSMX. Its correlation to the bond market, represented by ticker symbol FBIDX, is 95 percent.
This table also lists the strategy's capture ratios that describe how much of its benchmark's upside Strategic Balanced Allocation captures when the benchmark is profitable (81 percent since inception), and how much of the benchmark's loss it experiences when that benchmark is down (48 percent). Click the words highlighted in blue to check their definition.
|Beta to benchmark||0.5|
|Alpha versus benchmark||3.8%|
About Expected Returns
This chart gives an indication of the potential growth of this strategy based on the statistical analysis of its performance from inception on 12/31/2003 through 2019-05-17. The analysis calculates the historical distribution of the strategy's returns over time windows of varying lengths ranging from a few months to several years. Each of these distributions is further analyzed to compute average returns and their standard deviation over each time window. These results are then projected forward to create a range for the expected growth of a new investment on 2019-05-17.
Our financial engines have analyzed your portfolio's data over all 6-month time windows, annual periods, three-year periods and so on, that are available since 12/31/2003. The 4 percent average expected growth of your portfolio over the next 6 months that is shown in the chart is equal to the average return of the portfolio over a typical 6-month period between 12/31/2003 and 2019-05-17. Over that same time interval, the top 5 percent of all 6-month periods delivered returns in excess of 13.8 percent. This corresponds to the maximum growth with 95 percent confidence shown on the chart. Similarly the worst 5 percent of all 6-month periods delivered returns below -5.7 percent which corresponds to the value for minimum growth with 95 percent confidence.
The historical results of your portfolio were analyzed in this manner to construct the forward-looking growth curves on this chart. While historical results are no guarantee of future performance, this analysis does offer insights in the behavior you might expect from this investment strategy not because it will necessarily happen in the way the graph shows, but because the graph condenses a very large amount of historical data so as to show what has actually happened before.
Consider what the chart suggests you can expect after investing in this portfolio. Starting with 1000 dollars on 2019-05-17, the portfolio could be worth anywhere between 943 dollars and 1138 dollars after six months. After a year, the portfolio could be worth between 942 dollars and 1227 dollars. These figures are wholly consistent with a long-term net return of 8 percent for this investment strategy. But long-term returns only materialize for investors who appreciate that the natural volatility of an investment strategy means that it is not reasonable to expect to make money over the short term, including when money is first invested. In effect the minimum growth curve in this chart gives an indication of how long it could take for a new investment to start making money since what it shows has happened before, albeit in a small number of cases.
You might wonder how you can maximize your chances of being on the maximum growth path instead of the minimum path as you invest in this or any other strategy. To some extent this is the luck of the draw, driven by market conditions at the time an investment is made. The impact of market conditions when you make an investment can be somewhat attenuated by investing money over time instead of in a lump-sum, an approach known as dollar-cost averaging.
About Risk Versus Return
This chart compares your portfolio net returns and volatility (the standard deviation) since inception to two broad U.S. bond and stock market indices with ticker symbols FBIDX and VTSMX respectively. Higher returns with smaller standard deviations are better, so that portfolios in the upper left quadrant of this chart are more desirable than those in the bottom right quadrant.
Note that the size of each bubble is proportional to the Sharpe ratio, a standard financial measure of the quality of your portfolio's returns. Larger bubbles are more desirable. They indicate that the portfolio has historically generated higher returns per 'unit' of investment risk.
About Net Annual Returns
Annual returns are displayed below for each calendar year where data is available. All figures are net of all fees and trading costs, and the 8 percent year-to-date return of your portfolio was computed through 2019-05-17.
Keep in mind that calendar year returns are best viewed as only quick and dirty reference points because they are to a large extent accidents of the calendar. The best way to assess annual returns is through an analysis of returns across all available twelve-month time periods, of which calendar years are only a limited subset.
Our financial engines have calculated that your portfolio has historically generated positive returns in 93 percent of annual periods. When annual returns are positive, they average +9.6 percent. In the 7 percent of annual periods when returns were negative, the average loss has been -6.1 percent. It is important to keep in mind that investment strategies make money over time by sometimes losing money and other times making money. Your portfolio has generated annual returns of 8 percent since inception on 12/31/2003 with performance swings ranging from -13 percent for the worst twelve months to +35.8 percent during the best annual period.
This analysis of annual returns should give you a sense of the difference between winning and losing annual periods, and some comfort around the idea that there will be losing years. Losing years are part and parcel of making money over time, and assuming one has confidence in the investment approach, the long-term returns it can deliver will only materialize if one sticks with the strategy during its losing periods.
About The Comparison Of Best Periods
This chart displays the top 5 months when the strategy performed at its best since inception. The performance of the strategy in percentage points is shown compared to its benchmark over the same time period. This chart should be assessed together with the comparable chart that shows the periods when the strategy performed at its worst. In cases where a benchmark mostly beats an investment strategy during its best periods, one often finds that the strategy experiences smaller losses than the benchmark during its worst periods, and vice and versa. The cumulative effect of successive time periods when markets favor and then are adverse to a particular investment strategy is what creates long term returns. This chart helps understand how aggressive the strategy is relative to its benchmark when market conditions are highly favorable.
About The Comparison Of Worst Periods
This chart displays the top 5 months when the strategy performed the worst since inception. The performance of the strategy in percentage points is shown compared to its benchmark over the same time period. This chart should be assessed together with the comparable chart that shows the periods when the strategy performed at its best. In cases where a benchmark mostly beats an investment strategy during its best periods, one often finds that the strategy experiences smaller losses than the benchmark during its worst periods, and vice and versa. The cumulative effect of successive time periods when markets favor and then are adverse to a particular investment strategy is what creates long term returns. This chart helps understand how well the strategy protects capital relative to its benchmark when market conditions are highly unfavorable.
Drawdowns represent the difference on each date between the current account value and the most recent peak account value. When an investment strategy reaches a new high, the drawdown is zero by definition. As market prices move, a strategy may reach new highs a few days in a row, but eventually prices move down so that the account dips below its most recent peak value. For example if the most recent account peak value was $10,000 and the account is now worth $9,800, the drawdown of 200 dollars is represented on that day as -200 divided by 10,000 or -2 percent.
It is important to realize that investment strategies reach new highs only once in a while, so that investment accounts are in a state of drawdown most of the time as a consequence of natural market volatility.
Our financial engines have calculated a maximum drawdown of -16 percent for your portfolio by analyzing all available data from inception on 12/31/2003 through 2019-05-17, and a current drawdown of -0.4 percent as of 2019-05-17. The average drawdown since inception has been -1.2 percent. The chart below gives a detailed picture of your portfolio's historical drawdowns. It highlights when they happened, how deep they were and how long it took to recover to the previous peak value. Comparing the shape and timing of your portfolio's drawdowns to those of the benchmark helps build the proper expectations for the future likely behavior of the investment strategy.
About Net Monthly Returns
This performance table displays the calendar monthly returns of your investment strategy from inception on 12/31/2003 through 2019-05-17. Results are shown net of all fees and trading costs. Management fees for this strategy were applied using a flat rate of 0.01 percent annually.
An examination of monthly calendar returns is most useful to investors familiar with the historical behavior of capital markets who can develop insights into the strategy's risk exposures implied by the difference between the strategy's performance and markets returns in specific months.
An alternative way to assess monthly returns is through the analysis of the strategy's rolling monthly returns. That analysis shows that your portfolio has historically returned +0.66 percent over a typical month. Since 12/31/2003 it has generated positive returns in 69 percent of monthly periods. When a month was positive, it returned +1.6 percent on average while in the 31 percent of losing months the average loss was -1.39 percent.
Keep in mind that the strategy's long term returns will only materialize for investors who are confident enough to remain invested through periods of negative returns. Although historically monthly returns have averaged +0.66 percent, that average assumes investors remained invested through the worst monthly return of -6.8 percent, and through the best monthly period that returned +6.2 percent.
FOR ADVISOR USE ONLY, NOT FOR USE WITH THE PUBLIC. The performance history of the investment strategy presented in this document is pro-forma simulated performance that has been calculated by Model Capital Management LLC, using a third-party software designed by Emotomy Inc. located in Tiburon, CA (more information at emotomy.com). Performance is net of MCM’s maximum annual management fees of 0.5%, and net of trading costs assuming that a $1 million dollar account was invested at the time of inception of the strategy.