A New Approach to Aggressive Allocation Objectives
The Aggressive Indexed Risk Control™ strategy has a primary objective of capital appreciation and a level of return consistent with an aggressive risk tolerance. Unlike traditional stock/bond allocation funds, it achieves these objectives using a fixed income core with a long-only call options overlay. Backtested over a 14-year period, highlights include:
- Annualized Total Return: 8.35%
1yr: 21.65%, 3yr: 14.64%, 5yr: 10.93%, 10yr: 10.39%
- Best Year: 25.15%
- Worst Year: -10.65%
Note: The S&P Target Risk Aggressive Index (SPTGAUT) is a 80%/20% stock-to-bond weighted index.
Indexed Risk Control™: A New Asset Class for Retirement Savers
Many investors with aggressive capital appreciation goals are drawn to solutions containing up to 90% direct equity exposure. While this exposure results in upside growth during positive market conditions, it also exposes investors to large downward swings. To solve this problem, we’ve invented a new asset class called Indexed Risk Control™, which brings the sophistication of structured products into a daily-liquid strategy. The Aggressive Indexed Risk Control™ strategy seeks to achieve levels of returns consistent with a moderate risk tolerance with lower volatility and drawdown exposure than a competing “80/20” equity and fixed income-based asset allocation. We achieve this via a structural options-based approach to downside risk management. Strategy features include:
- A structured product approach with daily liquidity
- Seeking downside protection via a fixed income core
- Seeking upside potential via a long-only S&P 500 call option overlay
- Eligible investors include: 401(k), 403(b)(9), 457(b), Defined Benefit, Profit Sharing, Taft-Hartley, State Municipal or Government, Money Purchase Plans, Cash Balance Plans
The fund invests in fixed income securities and call options on the S&P 500™ Index and/or its member constituents. The fixed income assets of the fund may invest in fixed income securities including US Treasury and agency bonds, corporate bonds, mortgage-backed securities, commercial mortgage-backed securities, and asset-backed securities. The fixed income core accounts for the majority of assets in the portfolio, while the fund utilizes an option overlay to provide exposure to positive returns in US Large Cap equities while establishing a known level of maximum downside risk exposure. The Investment Manager applies its proprietary risk management algorithms to achieve the dual objectives of: 1) minimizing the contribution to the Fund’s aggregate level of downside risk from the options overlay portfolio, and 2) maximizing the fund’s participation in future positive returns of the S&P 500™ Index. In order to further manage downside risk, when the SPX Index Options grow beyond a preset portfolio weight, VIX call options are purchased to offset potential losses in the portfolio resulting in a rapid market decline.
Hypothetical Backtest Disclaimers
The performance results shown reflect hypothetical, back-tested results that were achieved by means of the retroactive application of a back-tested portfolio and, as such, the corresponding results have inherent limitations, including: 1) results do not reflect actual trading using investor assets, 2) certain portfolio aspects may have been designed with the benefit of hindsight, 3) back-tested performance may not reflect the impact of any material market or economic factors, and 4) investors may have experienced investment results during the corresponding time periods that were materially different from those portrayed in the hypothetical portfolio. The performance shown is net of a 75 basis point fee. The hypothetical back-tested period ranges from March 1st, 2006 through June 30th, 2020. Results of the backtest through 6/30/2020 have been independently verified by a third-party auditor. Any subsequent results are preliminary and will be independently verified and are subject to change. S&P 500 returns do not include dividend reinvestment.