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Innealta Capital Tactical ETF Portfolio Series Global All Asset January 2015 Global All Asset Conservative Investment Objective Current income and some capital appreciation Global All Asset Conservative Investment Strategy The Global All Asset Portfolios employ a quantitative framework based on economic, fundamental, risk and technical analyses that evaluate the risk/reward potential of investing in equity asset classes relative to fixed income. Bullish or bearish signals generated by the quantitative model are used to tactically adjust equity exposure within each portfolio by +/- 20% relative to the secular tactical asset allocation target in order to try to capture enhanced risk-adjusted returns. During bearish market environments, equity asset class exposures are reduced and the resulting capital is proportionately distributed to the fixed income and other asset class portion of the portfolio. Conversely, during bullish market environments, equity asset class exposures are increased and the allocations towards fixed income and other asset classes are proportionately reduced. The fixed income component is an actively managed portfolio of fixed income ETFs based on a classical constrained optimization approach for fixed income asset classes. The portfolio aims to generate above-average yield with strict risk controls by investing in those fixed income sectors that we believe have favorable risk-adjusted performance potential and eligible ETF representation. The Global All Asset Portfolios may include asset classes other than equity and fixed income (e.g. Real Estate) for alternative sources of diversification and portfolio income, as identified by our secular tactical asset allocation analyses. Global All Asset Conservative Portfolio Performance* Risk/Reward vs. Benchmark* 12.92 12.92 12.77 0.63 0.45 0.19 1.87 2.64 3.45 2.18 5% 3.45 4.04 5.26 5.87 Return 7.43 10% 9.10 9.58 12.77 Portfolio 15% 0% 2010 2011 2012 Global All Asset Conservative (Gross) Global All Asset Conservative (Net) 2013 2014 YTD 1 Year 3 Year 5 Year Inception 0.45 4.63 4.97 7.78 7.41 Conservative (Net of Fee) 0.19 0.19 3.58 4.61 7.19 6.83 40% MSCI ACWI ex U.S. / 60% Barclays Agg 0.63 0.63 6.69 6.48 6.99 6.70 Inception date for the portfolio is December 31, 2009. Global All Asset Conservative Portfolio Current Allocation* Cash (2.0% of total) Commodities (4.9% of total) Equity (26.0% of total) Fixed Income (61.1% of total) REIT (6.0% of total) Global All Asset Conservative Secular Tactical Target Allocation* Fixed Income (58.0% of total) −0.98 0.00 Beta 1.26 1.00 Std Dev 7.76 5.31 R−Squared 0.75 1.00 Tracking Error 0.53 0.00 Upside Capture 1.46 1.00 Downside Capture 1.09 1.00 Sharpe Ratio 0.88 1.19 Sortino Ratio 1.28 1.74 Information Ratio 0.13 NA 84.71 0.45 Equity (29.0% of total) 6.70 Alpha (ann.) Ann. Turnover Ratio (%) Benchmark: 40% MSCI ACWI ex U.S. / 60% Barclays Agg QTR Commodities (5.0% of total) 6.83 Portfolio Statistics* YTD Conservative (Gross of Fee) Cash (2.0% of total) Benchmark Total Return Yield to Maturity Avg. Duration 4.14 3.64 Global All Asset Conservative Portfolio Holdings* Percent Net Assets SPDR Barclays Short Term High Yield Bond (SJNK) 10.50% iShares Barclays MBS Bond (MBB) 8.69% Vanguard Interm−Term Corp Bond (VCIT) 8.62% Market Vectors Emerging Markets High Yield Bond (HYEM) 7.58% iShares Floating Rate Note (FLOT) 6.77% SPDR S&P 500 (SPY) 5.55% Vanguard Short−Term Bond (BSV) 5.50% iShares Barclays TIPS Bond (TIP) 5.07% PowerShares DB Commodity Fund (DBC) 4.91% iShares Emerging Markets High Yield Bond (EMHY) 4.22% PIMCO 0−5 Year High Yield Corporate Bond (HYS) 4.18% Vanguard FTSE Emerging Markets (VWO) 4.02% iShares Russell 2000 (IWM) 3.56% Vanguard FTSE Pacific (VPL) 3.20% Vanguard REIT (VNQ) 3.02% iShares MSCI Frontier 100 (FM) 3.01% Vanguard Global ex−U.S. Real Estate (VNQI) 2.96% iShares Core S&P Mid−Cap (IJH) 2.54% iShares MSCI Pacific ex−Japan (EPP) 2.43% Cash 2.01% Vanguard FTSE Europe (VGK) 1.65% *Data is shown as supplemental information to the Composite. Fund holdings are subject to change. Risk/reward statistics calculated using daily data. SOURCE: Innealta Capital using data from Bloomberg and Morningstar REIT (6.0% of total) AF88128 084-AFAM-2/11/2015 Innealta Capital Tactical ETF Portfolio Series Global All Asset January 2015 Global All Asset Moderate Investment Objective Capital appreciation and income Global All Asset Moderate Investment Strategy The Global All Asset Portfolios employ a quantitative framework based on economic, fundamental, risk and technical analyses that evaluate the risk/reward potential of investing in equity asset classes relative to fixed income. Bullish or bearish signals generated by the quantitative model are used to tactically adjust equity exposure within each portfolio by +/- 20% relative to the secular tactical asset allocation target in order to try to capture enhanced risk-adjusted returns. During bearish market environments, equity asset class exposures are reduced and the resulting capital is proportionately distributed to the fixed income and other asset class portion of the portfolio. Conversely, during bullish market environments, equity asset class exposures are increased and the allocations towards fixed income and other asset classes are proportionately reduced. The fixed income component is an actively managed portfolio of fixed income ETFs based on a classical constrained optimization approach for fixed income asset classes. The portfolio aims to generate above-average yield with strict risk controls by investing in those fixed income sectors that we believe have favorable risk-adjusted performance potential and eligible ETF representation. The Global All Asset Portfolios may include asset classes other than equity and fixed income (e.g. Real Estate) for alternative sources of diversification and portfolio income, as identified by our secular tactical asset allocation analyses. 12.39 2010 2012 Global All Asset Moderate (Gross) Global All Asset Moderate (Net) 2013 2014 −0.10 −0.03 2011 −0.34 2.26 4.90 6.19 5.35 11.49 −3.5% −0.85 −0.36 1.5% 1.23 14.97 13.99 14.91 6.4% 1.47 Return 11.5% Risk/Reward vs. Benchmark* Portfolio 10.82 16.4% 14.91 Global All Asset Moderate Portfolio Performance* 6.65 7.48 Alpha (ann.) −1.52 0.00 Beta 1.24 1.00 Std Dev 11.51 8.16 R−Squared 0.78 1.00 Tracking Error 0.84 0.00 Upside Capture 1.53 1.00 Downside Capture 1.04 1.00 Sharpe Ratio 0.61 0.87 Sortino Ratio 0.87 1.25 Information Ratio −0.01 NA Portfolio Statistics* YTD Ann. Turnover Ratio (%) Benchmark: 60% MSCI ACWI ex U.S. / 40% Barclays Agg 45.47 QTR YTD 1 Year 3 Year 5 Year Inception Moderate (Gross of Fee) −0.03 −0.03 5.36 5.87 8.34 7.66 Moderate (Net of Fee) −0.34 −0.34 4.19 4.92 7.30 6.65 60% MSCI ACWI ex U.S. / 40% Barclays Agg −0.10 −0.10 6.73 8.14 8.04 7.48 Inception date for the portfolio is December 31, 2009. Global All Asset Moderate Portfolio Current Allocation* Cash (2.0% of total) Commodities (6.9% of total) Equity (39.7% of total) Fixed Income (43.2% of total) REIT (8.2% of total) Global All Asset Moderate Secular Tactical Target Allocation* Cash (2.0% of total) Benchmark Total Return Yield to Maturity Avg. Duration 4.32 3.27 Global All Asset Moderate Portfolio Holdings* Percent Net Assets SPDR Barclays Short Term High Yield Bond (SJNK) 10.89% Market Vectors Emerging Markets High Yield Bond (HYEM) 10.87% SPDR S&P 500 (SPY) 8.61% iShares Floating Rate Note (FLOT) 7.20% PowerShares DB Commodity Fund (DBC) 6.89% iShares Russell 2000 (IWM) 5.98% iShares Barclays MBS Bond (MBB) 5.70% Vanguard FTSE Emerging Markets (VWO) 5.65% Vanguard Interm−Term Corp Bond (VCIT) 5.11% iShares MSCI Pacific ex−Japan (EPP) 4.39% iShares Core S&P Mid−Cap (IJH) 4.20% Vanguard REIT (VNQ) 4.13% Vanguard Global ex−U.S. Real Estate (VNQI) 4.07% Vanguard FTSE Pacific (VPL) 4.04% iShares MSCI Frontier 100 (FM) 4.03% iShares Barclays TIPS Bond (TIP) 3.39% Vanguard FTSE Europe (VGK) 2.85% Cash 2.00% *Data is shown as supplemental information to the Composite. Fund holdings are subject to change. Risk/reward statistics calculated using daily data. SOURCE: Innealta Capital using data from Bloomberg and Morningstar Commodities (7.0% of total) Equity (45.0% of total) Fixed Income (38.0% of total) REIT (8.0% of total) AF88128 084-AFAM-2/11/2015 Innealta Capital Tactical ETF Portfolio Series Global All Asset January 2015 Global All Asset Growth Investment Objective Long-term capital appreciation Global All Asset Growth Investment Strategy The Global All Asset Portfolios employ a quantitative framework based on economic, fundamental, risk and technical analyses that evaluate the risk/reward potential of investing in equity asset classes relative to fixed income. Bullish or bearish signals generated by the quantitative model are used to tactically adjust equity exposure within each portfolio by +/- 20% relative to the secular tactical asset allocation target in order to try to capture enhanced risk-adjusted returns. During bearish market environments, equity asset class exposures are reduced and the resulting capital is proportionately distributed to the fixed income and other asset class portion of the portfolio. Conversely, during bullish market environments, equity asset class exposures are increased and the allocations towards fixed income and other asset classes are proportionately reduced. The fixed income component is an actively managed portfolio of fixed income ETFs based on a classical constrained optimization approach for fixed income asset classes. The portfolio aims to generate above-average yield with strict risk controls by investing in those fixed income sectors that we believe have favorable risk-adjusted performance potential and eligible ETF representation. The Global All Asset Portfolios may include asset classes other than equity and fixed income (e.g. Real Estate) for alternative sources of diversification and portfolio income, as identified by our secular tactical asset allocation analyses. 16.29 17.51 Portfolio 8.58 −7.6% 2010 −0.83 −4.03 −1.81 −3.87 −2.5% −0.37 2.5% −0.73 1.41 4.53 7.5% 0.71 Return 8.58 12.5% Risk/Reward vs. Benchmark* 13.83 16.29 15.43 11.85 17.4% 15.43 Global All Asset Growth Portfolio Performance* 2011 2012 Global All Asset Growth (Gross) Global All Asset Growth (Net) 2013 2014 Benchmark Total Return 6.86 8.14 Alpha (ann.) −1.29 0.00 Beta 1.13 1.00 Std Dev 14.20 11.21 R−Squared 0.80 1.00 Tracking Error 1.54 0.00 Upside Capture 1.24 1.00 Downside Capture 1.01 1.00 Sharpe Ratio 0.53 0.71 Sortino Ratio 0.76 1.00 Information Ratio −0.06 NA Portfolio Statistics* YTD Ann. Turnover Ratio (%) Benchmark: 80% MSCI ACWI ex U.S. / 20% Barclays Agg Yield to Maturity 123.42 QTR YTD 1 Year 3 Year 5 Year Inception Growth (Gross of Fee) −0.37 −0.37 5.83 6.45 8.41 7.53 Growth (Net of Fee) −0.73 −0.73 4.88 6.07 7.73 6.86 80% MSCI ACWI ex U.S. / 20% Barclays Agg −0.83 −0.83 6.77 9.78 8.98 8.14 Inception date for the portfolio is December 31, 2009. Global All Asset Growth Portfolio Current Allocation* Cash (1.6% of total) Commodities (8.9% of total) Equity (54.2% of total) Fixed Income (25.2% of total) REIT (10.1% of total) Global All Asset Growth Secular Tactical Target Allocation* Avg. Duration 5.89 2.60 Global All Asset Growth Portfolio Holdings* Percent Net Assets SPDR Barclays Short Term High Yield Bond (SJNK) 10.49% Market Vectors Emerging Markets High Yield Bond (HYEM) 9.91% Vanguard FTSE Emerging Markets (VWO) 9.69% SPDR S&P 500 (SPY) 9.53% PowerShares DB Commodity Fund (DBC) 8.85% iShares Russell 2000 (IWM) 7.15% iShares Core S&P Mid−Cap (IJH) 6.02% iShares MSCI Pacific ex−Japan (EPP) 5.73% Vanguard FTSE Pacific (VPL) 5.65% Vanguard FTSE Europe (VGK) 5.42% Vanguard Global ex−U.S. Real Estate (VNQI) 5.10% Vanguard REIT (VNQ) 5.03% iShares MSCI Frontier 100 (FM) 5.03% iShares Floating Rate Note (FLOT) 4.80% Cash 1.60% *Data is shown as supplemental information to the Composite. Fund holdings are subject to change. Risk/reward statistics calculated using daily data. SOURCE: Innealta Capital using data from Bloomberg and Morningstar Cash (2.0% of total) Commodities (9.0% of total) Equity (61.0% of total) Fixed Income (18.0% of total) REIT (10.0% of total) AF88128 084-AFAM-2/11/2015 Innealta Capital Tactical ETF Portfolio Series Global All Asset January 2015 About Innealta Capital Contact Information Innealta Capital is a quantitative asset management firm specializing in the active management of Exchange Traded Fund (ETF) portfolios. Innealta Capital Innealta is a division of AFAM Capital, a privately held company founded in 1977, and has over $3 billion in Assets Under Management 12117 FM 2244 | Building 3, Suite 170 and Advisement. Austin, TX 78738 Innealta’s competitive advantage is its quantitative investment strategy driven by a proprietary econometric model, which was created P: 512.354.7041 & 888.994.6837 by the company’s founder and Chief Investment Officer, Dr. Jeff Buetow. The investment management team’s focus is to capitalize on F: 512.402.1014 [email protected] | innealtacapital.com attractive market environments for ETFs, tactical strategies, and low cost portfolio alternatives. Investment Professionals Gerald Buetow, Ph.D., CFA Chief Investment Officer Brian Henderson, Ph.D., CFA Senior Research Analyst Mark Mowrey, CFA SVP, Product Manager Jason Clark, CFA VP, Senior Portfolio Manager Matt Wieand AVP, Senior Trader Composite Performance Strategy Year Total Firm Composite Number of Assets Assets Accounts (Millions) (Millions) Composite Gross Return (Percent) Composite Benchmark Net Return Return (Percent) (Percent) Composite 3−Yr St Dev (Percent) Benchmark 3−Yr St Dev (Percent) Composite Wrap Fee Paying Non−Fee Paying Dispersion Accounts Accounts (Percent) (Percent) (Percent) Conservative 2014 827 169 1 2.64 1.87 5.26 NA 4.67 NA 100.00 0.00 Conservative 2013 788 41 1 3.45 3.45 7.43 7.54 5.63 0.00 0.00 0.00 Conservative 2012 676 40 1 12.92 12.92 9.10 7.99 5.78 0.00 0.00 <1 Conservative 2011 476 354 7 5.87 4.04 2.18 NA NA 0.26 90.05 <1 Conservative 2010 486 33 <5 12.77 12.77 10.07 NA NA NA 0.00 <1 Moderate 2014 827 305 2 2.26 1.23 4.90 7.62 8.57 NA 0.00 0.00 Moderate 2013 788 324 3 6.19 5.35 12.39 10.37 8.34 0.30 0.00 0.00 Moderate 2012 676 178 2 14.97 13.99 11.49 11.80 8.63 0.07 0.00 <1 Moderate 2011 476 1,074 18 1.47 −0.36 −0.85 NA NA 0.35 84.45 <1 Moderate 2010 486 31 <5 14.91 14.91 11.72 NA NA NA 0.00 <1 Growth 2014 827 189 2 1.41 0.71 4.53 9.20 6.55 NA 0.00 0.00 Growth 2013 788 233 3 8.58 8.58 17.51 12.31 11.20 0.00 0.00 0.00 Growth 2012 676 33 1 16.29 16.29 13.83 14.41 11.63 0.00 0.00 <1 Growth 2011 476 962 14 −1.81 −3.87 −4.03 NA NA 0.18 97.09 <1 Growth 2010 486 29 <5 15.43 15.43 13.17 NA NA NA 0.00 <1 NA: Data is not statistically meaningful due to an insufficient number of portfolios in the composite for the entire year. Composite dispersion is presented asset-weighted and gross-of-fees. Disclosures & Important Information AFAM Capital Inc. (AFAM) claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. AFAM has been independently verified for the periods January 1, 1996 through September 30, 2014 by Ashland Partners & Company LLP. A copy of the verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS®standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS®standards. Verification does not ensure the accuracy of any specific composite presentation. The firm maintains a complete list and description of composites, which is available upon request. The firm had total assets under management of $827 million as of December 31, 2014. The composites were created December 31, 2009. Minimum account size for inclusion in the composite is $50,000. Prior to June 30, 2014 the minimum account size for the composite was $20,000. The Global All Asset Conservative, Global All Asset Moderate and Global All Asset Growth Composites include discretionary portfolios using the tactical ETF Global All Asset strategies that are based on a quantitatively driven, tactical asset allocation approach that apportions portfolio assets to five individual equity classes based on the specific risk/reward characteristics of each. Dollars not allocated to equities are invested in a basket of primarily fixed-income ETFs. Composite policy requires the temporary removal of any portfolio incurring an aggregate net cash flow of at least 25% of portfolio assets for any given month. Such a temporary removal of an account occurs at the beginning of the month in which the significant cash flow occurs and the account re-enters the composite at the beginning of the month after a net cash outflow and the beginning of the next quarter after a net cash inflow. Additional information regarding the treatment of significant cash flows is available upon request. As of June 30, 2014 the composite was redefined to include accounts that may utilize margin. This was done to encompass all accounts that follow the advisors strategy. Past performance is not indicative of future results. The U.S. Dollar is the currency used to express performance. The composites include portfolios charged bundled or wrap fees and portfolios charged transaction fees or trading costs. Bundled fee portfolios pay a fee based on a percentage of assets under management in place of a transaction fee. They include the advisor’s fee and, in most cases, also include a fee for investment management and portfolio monitoring. Portfolios eligible for these composites must follow the stated strategy. Live returns are presented net of management fees and include the effects of trading costs and reinvestment of all income. Net of fee performance was calculated using actual management fees charged to the client. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Actual investment management fees will vary, beginning at 1.5% per annum. Our full management fee schedule is described in more detail in Form ADV Part 2A. Any investment is subject to risk. Exchange traded funds (ETFs) are subject to risks similar to those of stocks, such as market risk, and investors who have their funds invested in accordance with the portfolios may experience losses. Additionally, fixed income (bond) ETFs are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. For more information on the risks associated with investment in ETFs, please refer to AFAM Capital’s Form ADV Part 2A. Diversification does not protect against loss in declining markets. Effective Dec. 31, 2014, the composites were renamed Global All Asset Conservative, Global All Asset Moderate and Global All Asset Growth. Formerly, the composites were labeled Risk Based Core ETF-Conservative, Risk Based Core ETF – Moderate, and Risk Based Core ETF – Growth. Effective Dec. 31, 2011, the benchmarks changed to a blend of 40% MSCI ACWI NR and 60% Barclays Capital US Aggregate (Conservative), 60% MSCI ACWI NR and 40% Barclays Capital US Aggregate (Moderate), and 80% MSCI ACWI NR and 20% Barclays Capital US Aggregate (Growth). Prior to that, the benchmarks consisted of 26% Russell 3000, 14% MSCI EAFE, and 60% Barclays Capital US Aggregate (Conservative), 41% Russell 3000, 19% MSCI EAFE, and 40% Barclays Capital US Aggregate (Moderate), and 56% Russell 3000, 24% MSCI EAFE, and 20% Barclays Capital US Aggregate (Growth). The Advisor believes the revised benchmarks more fully reflect the breadth of the investment opportunity set. Blended benchmarks are calculated daily and rebalanced quarterly. The MSCI ACWI Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 45 country indices comprising 24 developed and 21 emerging market country indices. The Barclays Capital Aggregate Bond Index covers the U.S.-dollar-denominated, investment-grade, fixed-rate, taxable bond market of SEC-registered securities. Blended benchmarks are compounded daily and rebalanced quarterly. Alpha is a measure of the difference between a portfolio’s actual returns and its expected performance, given its level of risk as measured by beta. Beta is a measure of volatility, or systematic risk, of a portfolio in comparison to a benchmark. A beta greater than one indicates more volatility, while a beta less than one indicates less volatility than the relevant benchmark. Annualized Standard Deviation is a measure of the dispersion of investment returns from the mean. A higher standard deviation indicates higher volatility. Sharpe Ratio is a measurement of reward per unit of risk as calculated by the average monthly excess return divided by the monthly standard deviation of excess returns. R Squared is a measure of how close the relationship is between a portfolio and its benchmark. Tracking Error is a measure of the volatility of excess returns relative to a benchmark. Information ratio is a measure of risk-adjusted performance. AFAM Capital is a Registered Investment Advisor. Innealta Capital is a division of AFAM Capital. AFAM is editor of The Prudent Speculator newsletter and is the Investment Advisor to certain no-load proprietary mutual funds and individually managed client accounts. Registration of an investment adviser does not imply any certain level of skill or training. AF88128 084-AFAM-2/11/2015