Download Report

Alpha Mid-Cap Power Index MA
March 31, 2015
I
Strategy Description
The Alpha Mid-Cap Power Index Managed Account is an asset allocation strategy which exploits two seasonal influences on the stock market.
These seasonal forces have historically “skewed” returns into certain months of the year and specific sub-periods in the final three months of the
year.
In general, the long-term returns of the market tend to be skewed into a six to seven month period beginning in late-October, which we
refer to as the “power zone”. The bulk of bear markets and other market corrections tend to occur in the five to six month period from May
to November, which we refer to as the “dead zone”. We believe that this skewing of returns is the result of the “annual forecasting cycle” which
is caused by calendar-driven practices in the investment community. For long-term investors seeking to control risk, the prudent course of action
is to avoid equity market exposure during the “dead zone” and sit it out in conservative bonds. This policy has paid off in spades over the
past 60 years, especially during multi-year bear markets. Since the annual forecasting cycle is a reflection of human nature, there is every
reason to believe that it will continue to exert an influence on the distribution of stock market returns, tilting the playing field in favor of longterm investors who exploit it.
Strategy Methodology
Each year, the Alpha Mid-Cap Power Index Managed Account holds an S&P MidCap 400 Index fund from late-October to the end of May and then
invests in an Intermediate Treasury Index fund for the remaining months of the year. As a result, equity exposure is constrained to 60% of the available
trading days each year.
During the fourth quarter of each year, the strategy raises the beta of the mid-cap index fund by 50% during three “power period” trades
totaling 20 days. These three sub-periods are influenced by end-of-month and holiday seasonal forces which are particularly robust in small and
mid-cap stocks.
PERFORMANCE FOR PERIODS ENDING MARCH 31, 2015
Annual Returns for Calendar Years 15 1/4 Years Ended March 31, 2015
1 Qtr.
2015
Alpha Mid-Cap Power Index MA 4.35
S&P:400 Mid Cap 5.31
S&P:500 0.95
2014
5.98
9.77
13.69
2013
17.18
33.50
32.39
2012
12.79
17.88
16.00
2011
-1.37
-1.73
2.11
2010
20.40
26.64
15.06
2009
17.07
37.38
26.47
2008
17.15
-36.23
-37.00
2007
13.62
7.98
5.49
2006
6.79
10.31
15.79
2005
9.71
12.56
4.91
2004
16.62
16.48
10.88
2003
15.72
35.62
28.68
2002
13.11
-14.51
-22.10
2001
21.19
-0.60
-11.89
2000
18.39
17.50
-9.11
Compound Annual Returns for Periods Ended March 31, 2015
Last
Quarter 1 Year
8.52
Alpha Mid-Cap Power Index MA 4.35
12.19
S&P:400 Mid Cap 5.31
12.73
S&P:500 0.95
Last 2
Years
7.54
16.63
17.21
Last 3
Years
9.05
17.03
16.11
Last 4
Years
7.62
13.07
14.17
Last 5
Years
9.97
15.72
14.47
Last 6
Years
14.41
22.65
19.71
Total Return on $100,000 Investment for 12 Years Ending 3/31/15
Last 7
Years
14.84
11.75
8.95
Last 8
Years
12.55
9.21
7.09
Last 9 Last 10
Years Years
11.68 12.36
9.13 10.32
7.61
8.01
Last 11 Last 12 Last 13
Years Years Years
12.19 13.38 12.39
10.33 13.13
9.78
7.89
9.93
6.77
Last 15
Last 14 1/4
Years Years
14.46 13.55
10.41
9.86
6.29
4.24
Risk Statistics for Periods Ended 3/31/15
$500,000
1 Year
$450,000
3 Years
5 Years
Alpha MidAlpha MidAlpha MidCap Pwr
Cap Pwr
Cap Pwr
Index MA S&P 500 Index MA S&P 500 Index MA S&P 500
$400,000
$350,000
$300,000
BETA
0.03
1.00
0.74
1.00
0.45
1.00
STANDARD
DEVIATION
6.24
4.68
9.13
8.17
10.97
14.45
$150,000
$100,000
CORRELATION
0.02
1.00
0.66
1.00
0.59
1.00
$250,000
$200,000
$50,000
2003
2004
2005
2006
2007
2008
2009
2010
Alpha Mid-Cap Power Index MA
2011
2012
2013
2014 2015
S&P 500
Disclosure: Past performance is not a guarantee of future performance. Returns presented above include both actual client performance and hypothetical (backtested)
performance. Please see next page for complete disclosures.
Disclosures to the Alpha Mid-Cap Power Index Managed Account Data and Illustrations
The Alpha Mid-Cap Power Index Managed Account is an attempt to enhance the S&P MidCap 400 Index using well-defined objective rules
which are mechanically applied over time. The investment components of the model are:
late-October to May 31: 100% S&P 400
MidCap Index Fund + three power period trades in the fourth quarter using an S&P 400 MidCap Index fund leveraged by 50%; June 1 to
late-October: 100% Intermediate Treasury Bond Index Fund. Investors should be aware that the use of leveraged funds totaling 20 days
during three sub-periods in the fourth quarter of each year increases the volatility and risk of the investment.
Actual client performance: Performance presented since January 2010 represent actual net returns of the Alpha client composite. The
Alpha client composite returns are weighted by account size and assets included in the composite are net of all fees and trading expenses
and reflect reinvestment of dividends, interest and capital gains. Taxes have not been considered. The net client composite returns include
all accounts at various custodians that pay Alpha advisory fees ranging from 0.8% to 2.0% annually, and as such, individual results may
vary.
A model portfolio of the same name as this strategy may be managed by Alpha and offered by investment advisors on various trading
platforms and/or custodians outside the parameters of the Alpha client composite returns. Assets invested in such model portfolios may
experience significant dispersion in returns from those of the Alpha client composite. The causes of dispersion may be from higher or lower
advisory fees, custodial fees, trading expenses, and the preference/availability of funds used to implement the strategies (i.e. ETFs vs.
mutual funds) at the custodial level.
Hypothetical (backtested) performance: Returns presented prior to January 2010 are hypothetical (backtested) and represent a
reduction in gross returns of 3% annually for fees and expenses, applied quarterly, which would be expected in a real-time managed
account. (Alpha’s maximum advisory fee is 2% per annum. The additional reduction of 1% is for fund expenses not incorporated in the
hypothetical returns.) Returns assume reinvestment of dividends, interest and capital gains. Taxes have not been considered. The
backtested data does not account for any additional fees and/or trading expenses that may have been incurred at the custodial level.
Backtested performance does not represent actual account performance. The backtested computer model applies the rules of the strategy
to indexes rather than actual investment vehicles which cannot be used in actual investing. The actual strategy invests in index funds and
bond funds, which may have results slightly different from the indexes themselves. The hypothetical data does include interest and
dividends attributed to each index.
Cautions: The SEC mandates that we state: The investment strategy that the backtested results were based upon can (theoretically) be
changed at any time with the benefit of hindsight in order to show better backtested results, and (theoretically) the strategy can continue to
be tested and adjusted until the desired results are achieved. Please note that Alpha has not made any data-fitting adjustments to its
managed account model. Backtested or hypothetical data must be approached with caution because it is constructed with hindsight and
may not reflect material conditions that could affect a manager’s decision process, thus altering the application of the discipline. There is
no assurance that these backtested results could, or would have been achieved by Alpha during the periods presented.
The data used to construct the hypothetical backtested performance were obtained from a database provided by Callan Associates, one of
the oldest and largest institutional investment consultants in the U.S. While Alpha believes that the data is accurate, we cannot guarantee
it to be so.
Past performance does not guarantee future performance. While Alpha believes that the factors which have historically “skewed” market
returns into the “power zone” (consisting of the time period from late-October to late-May) will continue to affect the market statistically over
time, there can be no guarantee that this effect will persist or that it will have the same intensity as past time periods.
For more detailed information about this strategy, please refer to the Alpha Mid-Cap Power Index Managed Account brochure.
2245 Gilbert Avenue, Suite 100 - Cincinnati, Ohio 45206 - t 513.621.9400 - f 513.632.7981 - toll free 877.229.9400 - www.alphaim.net
Q1-2015