Important Disclosures on Hypothetical Performance
The portfolio returns set forth herein represent a series of differently weighted portfolios comprised of historical index returns; any such portfolio returns should be considered hypothetical and are for illustrative purposes. You are cautioned that hypothetical performance results have many inherent limitations, some of which are described herein.
Indexes are unmanaged and you cannot invest in an index. No representation is being made that any account will or is likely to achieve profits similar to those shown or will not be able to avoid substantial losses. In fact, frequently there are sharp differences between hypothetical performance results and actual performance an investor’s portfolio achieves.
The hypothetical portfolio in this presentation assumes full investment, whereas an actual investor’s portfolio would most likely have a positive cash position. Had the hypothetical portfolio included a cash position, the information would have been different and generally may have been lower.
An additional limitation of hypothetical performance results is that they are generally prepared with the benefit of hindsight.
Furthermore, the construction of a hypothetical portfolio of investments does not involve financial risk, and no hypothetical portfolio of investments can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or the implementation of a portfolio of investments which cannot be fully accounted for in the preparation of hypothetical performance results, all of which can adversely affect actual trading results.
Methodology
The Stock/Bond portfolio allocates 60% to Stocks and 40% to Bonds. The portfolio is rebalanced monthly: each month’s return is computed as the weighted average of the individual asset returns, and the portfolio value is compounded forward.
The Stacked portfolio begins with the same 60/40 Stock/Bond base and layers on additional Managed Futures exposure. This alternative exposure is scaled by the user-specified stack size. The stacked exposure is financed by selling an equivalent notional amount of T-Bills short. The Managed Futures contribution is reduced by two costs: (1) a Fee, representing the cost of accessing the strategy, and (2) a Financing Cost, representing the spread above T-Bills required to carry the leveraged position. In formula terms, the monthly Stacked return is:
RStacked = R60/40 + Stack Size × (RManaged Futures − Fee/12 − (RT-Bills + Financing/12))
At a Stack Size of 100%, the portfolio holds $1 of the 60/40 allocation plus $1 of notional Managed Futures exposure—resulting in $2 of total notional exposure on $1 of capital. The cost of financing the leveraged exposure is modeled as T-Bills plus a 50 bp annual financing spread. At 0%, the Stacked portfolio is identical to the Stock/Bond portfolio.
The Managed Futures fee is set to zero because the PivotalPath Managed Futures Index is reported net of fees. The financing cost is assumed to be 50 bp annually, representing the estimated spread above T-Bills required to carry the leveraged position. All portfolios assume monthly rebalancing back to target weights with no transaction costs.
Index Definitions
Bloomberg Short Treasury US Total Return Index tracks the market for treasury bills issued by the US government with time to maturity between 1 and 3 months.
Bloomberg US Aggregate Bond Index is an index that covers the broad U.S. investment grade, US dollar-denominated, fixed-rate taxable bond market.
PivotalPath Managed Futures Index is an equal weighted index of funds that typically forecast market trends and determine whether to invest long or short in futures contracts across metals, grains, equity indices and soft commodities, as well as foreign currency and U.S. government bond futures. The Index tracks the monthly performance, net of fees in USD, of its constituents and is representative of funds with a minimum fund track record of 18 months and a minimum fund AUM of $50mm. The constituents are fixed at the end of each calendar year for the following calendar year.
S&P 500 Index is an abbreviation for the Standard & Poor’s 500, a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.
Term Definitions
Annualized Return is the geometric average return per year over a specified period, reflecting the compounding of returns.
Basis Point (bps) is a unit of measure equal to one one-hundredth of one percent (0.01%). It is commonly used to express changes in interest rates, fees, and investment returns.
Drawdown is the peak-to-trough decline in the value of a portfolio or investment, expressed as a percentage from the peak. It measures the largest loss an investor would have experienced if they bought at the highest point and sold at the lowest point before a new peak was reached.
Financing Cost is the cost of borrowing or carrying a leveraged position, expressed as a spread above the T-Bill rate.
Hypothetical/Backtested Performance refers to performance results generated by retroactively applying an investment strategy to historical data. Backtested results are not actual trading results and have inherent limitations, including the benefit of hindsight.
Log Scale uses a logarithmic axis so that equal vertical distances represent equal percentage changes. This makes it easier to compare growth rates across different time periods, especially over long horizons where compounding can make early returns appear flat on a linear scale.
Leverage is the use of borrowed capital or financial instruments to increase the potential return (and risk) of an investment. In the context of this tool, stacking creates leveraged exposure by financing alternative positions through a short T-Bill position.
Managed Futures refers to an alternative investment consisting of a portfolio of futures contracts that is actively managed by professionals.
Rebalancing is the process of periodically adjusting portfolio weights back to target allocations, which may involve buying or selling assets.
T-Bills (Treasury Bills) are short-term U.S. government debt securities with maturities of one year or less, generally considered among the lowest-risk investments.
Volatility is a statistical measure of the dispersion of returns for a given security or market index, commonly calculated as the standard deviation of returns. Higher volatility indicates greater price fluctuation and, therefore, greater risk.
PivotalPath Disclosure
The PivotalPath index/indices used in this information is/are produced by the hedge fund research and investment consultancy firm, PivotalPath Inc. The information is representative of the overall composition of the hedge fund universe, as well as specific sub-strategies, including but not limited to the PivotalPath Hedge Fund Composite Index; the PivotalPath Credit Index (and associated sub-indices); the PivotalPath Equity Diversified Index (and associated sub-indices); the PivotalPath Equity Sector Index (and associated sub-indices); the PivotalPath Event Driven Index (and associated sub-indices); the PivotalPath Global Macro Index (and associated sub-indices); the PivotalPath Managed Futures Index; the PivotalPath Multi-Strategy Index; PivotalPath Equity Quant Index; and the PivotalPath Volatility Index.
PivotalPath Indices are the proprietary product of PivotalPath Inc. They represent Hedge Fund Indices based on collected data from individual hedge funds and while PivotalPath considers the sources of such information and data to be reliable, such information and data has been verified but has not been audited by PivotalPath. No representation is made as to, and no responsibility or liability is accepted for, the accuracy or completeness of such information and data. PivotalPath Index constituents may be removed at any time and any PivotalPath index may be restated, adjusted, or corrected at any time without notice.
PivotalPath data is being used under license from PivotalPath, Inc, which does not approve of or endorse any of the products or the contents discussed in these materials.
Important Information
The information set forth in this document has been obtained or derived from sources believed by Newfound Research LLC and ReSolve Asset Management SEZC (jointly “Return Stacked® Portfolio Solutions”) to be reliable. However, Return Stacked® Portfolio Solutions does not make any representation or warranty, express or implied, as to the information’s accuracy or completeness, nor does Return Stacked® Portfolio Solutions recommend that the information serve as the basis of any investment decision.
Certain information contained in this document constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of an investment managed using any of the investment strategies or styles described in this document may differ materially from those reflected in such forward-looking statements. The information in this document is made available on an “as is,” without representation or warranty basis.
There can be no assurance that any investment strategy or style will achieve any level of performance, and investment results may vary substantially from year to year or even from month to month. An investor could lose all or substantially all of his or her investment. Both the use of a single adviser and the focus on a single investment strategy could result in the lack of diversification and consequently, higher risk. The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. Any investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. You should consult your investment adviser, tax, legal, accounting or other advisors about the matters discussed herein. These materials represent an assessment of the market environment at specific points in time and are intended neither to be a guarantee of future events nor as a primary basis for investment decisions. Past performance is not indicative of future performance and investments in equity securities do present risk of loss.
Investors should understand that while performance results may show a general rising trend at times, there is no assurance that any such trends will continue. If such trends are broken, then investors may experience real losses. The information included in this presentation reflects the different assumptions, views and analytical methods of Return Stacked® Portfolio Solutions as of the date of this document. The views expressed reflect the current views as of the date hereof and neither the author nor Return Stacked® Portfolio Solutions undertakes to advise you of any changes in the views expressed herein.
This presentation has been provided solely for informational purposes and does not constitute a current or past recommendation or an offer or solicitation of an offer, or any advice or recommendation, to purchase any securities or other financial instruments, and may not be construed as such. This presentation should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.
No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission from Return Stacked® Portfolio Solutions.
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