SmartALPHA Strategy Indexes

SmartALPHA Strategy Indexes

The SmartALPHA™ Strategy Indexes are a suite of four rules-based, alpha-seeking equity strategies designed to provide active and flexible exposure throughout the economic cycle. These strategies’ ultimate goal is to out-perform the S&P 500 over a market cycle through both stock selection and sector allocation.

Alpha Quant currently offers four SmartALPHA™ strategies:

SmartALPHA Strategies

Why Invest in SmartALPHA Strategy Indexes?

  • Alpha-seeking: SmartALPHA™ Indexes are eminently active strategies with concentrated exposures to fundamental and valuation characteristics known to seek future out-performance.
  • Multi-dimensional: An opportunity to add value by interacting bottom-up stock selection and sector allocation.
  • Transparent: Systematic, rules-based process selects stocks based on clearly defined fundamental factors. Independently calculated by S&P Dow Indices and disseminated daily.
  • Performance Through the Business Cycle: The SmartALPHA™ strategies offer investors the opportunity to dynamically allocate their investments concurrently across sectors and styles throughout the business cycle.

Recession Recovery Expansion Contraction
Growth continuing to decline below potential Resurgence of growth led by inventory accumulation and business investment Economy moves above its sustainable growth path Growth declines from a cyclical peak
Inflationary pressures abating Low to modest inflation Capacity and labor constraints drive inflationary pressure Inflation peaks
Increasingly accommodative Accommodative Tightening Tight
Earnings continue to contract as they eventually trough Corporate margins expand driving rapid earnings growth Corporate earnings deceleration and peaking margins Profit margins peak, earnings contract rapidly
Equities fall initially, but afterwards rebound in anticipation of the upturn The economy rebounds and earnings visibility improves Business momentum and investors' optimism drive stocks up The combination of tight monetary policy and inflation negatively impact equities

Optimal Allocations

Index performance does not represent the returns of any advisory client and are presented without the deduction of advisory fees, trading costs, or other expenses.

The SmartALPHA Strategy Indexes represented in this material do not reflect the actual trading of any client account. No representation is being made that any client will or is likely to achieve results similar to those presented herein. The SmartALPHA Strategy Indexes have a live inception on date of June 29, 2012.

The index returns shown may under or over compensate for the impact of actual market conditions. The results shown do not reflect the deduction of any fees or expenses such as advisory fees, custody fees or trading costs – all of which will decrease the return experienced by a client. The performance is adjusted to reflect the reinvestment of dividends. Concentration, volatility and other risk characteristics of a client’s account also may differ from the indexes shown herein. Index data is provided only for reference purposes and is not intended to suggest that any client will achieve performance similar to, or better than, an index.

All investment strategies have the potential for profit or loss. Changes in investment strategies, client-imposed investment restrictions, contributions or withdrawals, and economic conditions, may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's portfolio.

There are no assurances that a portfolio will match or outperform any particular benchmark.

The S&P 500 Index is a broad-based unmanaged index of 500 stocks, which is widely recognized as a representative of the equity market in general.

Where Are We In The Cycle?

As of November 2013

Business Cycle Model

Business Cycle Model

Based on a number of data points, we think that the economy is more resilient than investors believe. Strength in the housing market, healthy corporate balance sheets, the restoration of individuals’ finances, a stronger banking system and availability of credit form a solid fundamental backdrop for further economic expansion, in our view. Potential risks are decelerating growth in emerging markets and policy risks in major economies. Particularly in the U.S., another partisan battle may unsettle the markets. Luckily, with the deficit picture improving, the short-term fiscal outlook has significantly improved, thus reducing this risk unless another government impasse causes a shutdown or default.

Recommended Allocations

Based on our estimated position in the business cycle, we currently maintain a cyclical bias by overweighting cyclical growth and cyclical value stocks. Specifically, we currently allocate 30% each to the Cyclical Growth and Cyclical Value Indexes. The remaining 40% is equally allocated between the Defensive Value and Defensive Growth Indexes.

SmartALPHA Model Portfolio Allocations

Pie Allocation