The Milwaukee Company’s unique, rules-based investment strategies are based on extensive academic research and theory that tactically adapts client portfolios to reflect changes in economic and market conditions in an effort to enhance risk adjusted rates of return and reduce portfolio volatility.
Volatility Adjusted Adaptive Asset Allocation (VA4)
The Milwaukee Company’s Volatility Adjusted Adaptive Asset Allocation (“VA4”) strategy combines principles proposed in acclaimed theories of “Modern Portfolio Theory” and “Adaptive Asset Allocation” to provide a unique rules-based approach to managing a well-diversified portfolio. The strategy begins with a broadly diversified portfolio of low-cost index tracking ETFs and adjusts the amounts invested in each ETF to reflect changes in stock market volatility. When volatility exceeds its historical average the allocation to lower risk sectors is increased. VA4’s algorithm also uses a statistical-based model known as the Hidden Markov Model (“HMM”) that seeks to identify upward or downward trends in the market. (If HMM signals a bear market for stocks, allocations to equites are reduced, and vice versa.)
Classic Asset Allocation Rebalancing (CAAR)
The Milwaukee Company’s Classic Asset Allocation Rebalancing (“CAAR”) strategy systematically invests in ETFs that track indexes that are tied to well-established market risk factors, such as value, momentum, quality, and high dividends. CAAR also utilizes Mean Variance Optimization (“MVO”) to mathematically determine the amount to be invested in each ETF included in the CAAR fund universe for the highest possible return for a specific level of risk, or equivalently offer the lowest possible risk for a given level of return. Each level of risk or return is calculated based on each factor-based ETFs performance over a trailing 12 month period.
Additionally, CAAR utilizes The Milwaukee Company’s Market Trend Indicator (“MTI”). MTI seeks to identify changes in the state of the market by comparing the trailing 12-month performance of the total U.S. stock market to that of the total U.S. bond market. If MTI identifies that the U.S. stock market is in a bull market, neutral market, or bear market it will adjust the Accounts model portfolio to overweight, target weight, or underweight equities.
Economic Cycle Strategy (ECS)
The Milwaukee Company’s Economic Cycle Strategy (“ECS”) is an investment strategy that attempts to generate alpha over a passively managed portfolio using a blend of economic signals. Rather than relying on momentum or trend following to generate alpha, ECS utilizes signals provided by well-known economic indicators to determine prevailing economic conditions and seeks to generate alpha by changing portfolio allocations to better suit the current state of the business cycle.
Market Target Strategy (MTS)
The Milwaukee Company’s Market Target Strategy (“MTS”) is a rules-based investment strategy that periodically adjusts the amount invested in various ETFs representing different asset classes to suit the current set of market conditions as determined by The Milwaukee Company’s Market Trend Index (“MTI”) and the core Consumer Price Index (“CPI”).
MTI determines the condition of the stock market by comparing the relative performance of the U.S. stock market to that of the total U.S. bond market over the prior 12 months. The rate of change in core CPI (a measure of inflation) over the prior 12 months is used to identify bond market conditions, as higher rates of inflation are often precursors to rising interest rates, which in turn is bearish for bonds.
Sector Rotation Strategy (SRS)
The Milwaukee Company’s Sector Rotation Strategy (“SRS”) seeks to generate superior risk-adjusted returns by capitalizing on the well-accepted principles of momentum and mean reversion. The momentum component of SRS’s algorithm increases allocations to sectors that have outperformed over the prior six months. The mean revision or the value component of SRS’s algorithm over-weights the amount invested in sectors that have underperformed over the prior two years.
SRS also utilizes the Milwaukee Company Hedge Index (MCHI) to determine when to rotate its allocation to stocks into bonds. MCHI seeks to measure the expected risk of the S&P 500 in the near term using a probit regression model based on various economic and market indicators. When MCHI forecasts a high degree of market risk, SRS will invest exclusively in funds that hold bonds. When MCHI forecasts a low degree of market risk, SRS will invest entirely in equity sector funds.
Targeted Risk Strategy (TRS)
The Milwaukee Company’s Targeted Risk Strategy (“TRS”) is a trend following strategy that is intended to generate attractive risk adjusted returns by encouraging portfolio stability during bear markets. TRS begins with a diversified fund universe consisting of low-cost “Primary” ETFs that collectively represent significant components of the global securities market. The TRS fund universe also includes “Alternative” ETFs that the strategy will invest in if the Primary ETF is trending lower.
More specifically, TRS uses a “Trend Signal” and “Return Signal” to determine if the portfolio should be invested in the Primary or Alternative ETF. TRS’s Trend Signal uses the current price of the Primary ETF and its 200-day (or 10-month) simple moving average (“SMA”) to identify their individual trends. The Return Signal indicates the outperformance/underperformance of the Primary ETF relative to its corresponding Alternative ETF over the trailing 12-month period.