Smart Market Beta (SMB)

Strategy Overview

The Milwaukee Company’s Smart Market Beta (SMB) strategy is designed to capture market beta under normal conditions and reduce drawdowns when economic and/or market conditions suggest that the risk of stock and/or bond market corrections are elevated.

Measuring Market Risk

SMB utilizes a set of proprietary indicators developed by The Milwaukee Company to identify the degree of risk prevailing in the equity and bond markets.  Equity risk is evaluated using price trends and return volatility. Bond market risk is estimated using trending behavior of several Treasury yields and a fair-value estimate of the 10-year Treasury yield.

Capturing Market Beta

When risk levels are considered “acceptable”, SMB will invest in a “market beta portfolio” (MBP) consisting of passive, broad market-index-tracking ETFs that, in the aggregate, are reflective of the entire stock and bond markets, with an emphasis on U.S. securities.  More specifically, 60% of the market beta portfolio will be allocated to stocks and 40% to bonds.

Risk Management 

If risk appears to be high, the strategy will take a conservative approach by lessening exposure to those funds held by the strategy that are the most vulnerable to the perceived risk at hand, and adding to strategy allocations that have a history of providing relatively stable returns during market corrections.

Components

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  • Market Beta

“Market beta” refers to the returns and accompanying risk generated by the market as a whole, independent of efforts to boost returns or lower risk.

  • Market Risk Indicator

Equity market risk is determined by evaluating several facets of the S&P 500 Index’s price momentum and return volatility.

  • Interest Rate Indicator

Interest-rate risk is profiled using a two-factor model that estimates the probability of interest rates rising or falling in the near-term. The indicator is derived from (i) a fair-value model of the 10-year Treasury yield, and (ii) trending behavior for several Treasury market yields. 

The Milwaukee Company℠ is a tradename of Estate Counselors, LLC. The information provided herein is believed to be correct and has been obtained from sources that we consider reliable, but we do not guarantee that this information is accurate or complete.  All expressions of opinion reflect our judgment at the present time, but are subject to change. Nothing found herein is intended to be a substitute for personal investment advice. The investments discussed herein are risky in nature and involve a substantial risk of loss, and we do not in any way warrant or guarantee the results you will experience.