Targeted Risk Strategy (TRS)

Strategy Overview

The Milwaukee Company’s Targeted Risk Strategy (TRS) is a rules-based, trend following strategy that is intended to generate attractive risk-adjusted returns by limiting drawdowns and capitalizing on rebounds.

 

Trend following is based on the premise that over shorter time frames, markets tend to continue to follow their current direction, or trend.  Accordingly, trend following strategies favor selling securities exhibiting a negative trend and owning securities with a positive trend. 

 

Trend following investment strategies have a strong track record of generating superior returns over a full business cycle.  However, over shorter time frames, rebounds can pose a serious threat to trend-following strategies because these recoveries can trigger the repurchase of a security that was recently sold at a lower price during a drawdown.  Therefore, balancing the risks of drawdowns vs. rebounds is key to managing a successful trend following strategy.

 

TRS attempts to achieve this balance by investing in combinations of ETFs categorized as “Primary ETFs” (large, low-cost, broad index ETFs that collectively represent several of the most significant components of the global securities markets) and “Alternate ETFs” (ETFs that track indexes representing different components of the U.S. Treasury bond market).

 

The TRS algorithm uses a rules-based approach to identify drawdowns and rebounds of Primary ETFs, and uses that information to determine whether to invest in a Primary ETF or its Alternate ETF.

 

More specifically, TRS will invest in the Primary ETF whenever the TRS Rebound Indicator suggests the outlook for the Primary ETF is positive.  Otherwise, the strategy will invest in the Alternate ETF if the Drawdown Indicator issues a negative forecast for the Primary ETF.  (See sidebar.)

Components

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  • Drawdown Indicator

The TRS algorithm uses drawdowns to determine when to sell a Primary ETF (or buy its Alternate ETF).

 

For this purpose, a price decline exceeding a calculated threshold signifies a drawdown.

  • Rebound Indicators

TRS uses rebounds in the price of a Primary ETF to determine when to sell the Alternate ETF and reinvest the proceeds in the Primary ETF.

 

For this purpose, a rebound is defined as an increase in a security's price that immediately follows a large drawdown and that exceeds a mathematically deter-mined threshold.

 

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.