Stack Optimizer

Important Disclosures on Hypothetical Performance

This optimizer determines portfolio weights by evaluating simulated return histories constructed by resampling historical index data. The statistics displayed — including median excess return, mean drawdown improvement, mean tracking error, and mean percentage of positive 12-month periods — are computed across these simulated histories and represent hypothetical, backtested results. No actual portfolio has been managed using these weights, and no actual trading has taken place.

You are cautioned that hypothetical performance results have many inherent limitations. Indexes are unmanaged and it is not possible to invest directly in an index. No representation is being made that any account will or is likely to achieve results similar to those shown or will be able to avoid substantial losses. There are frequently sharp differences between hypothetical results and the actual performance an investor’s portfolio achieves.

Hypothetical results are generally prepared with the benefit of hindsight. The construction of a hypothetical portfolio does not involve financial risk, and no hypothetical analysis 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 investment program in spite of trading losses are material points which can adversely affect actual results. There are numerous other factors related to the markets in general or the implementation of any specific investment program which cannot be fully accounted for in the preparation of hypothetical results, all of which can adversely affect actual results.

Methodology

This optimizer uses bootstrap simulation to evaluate diversifier blends for return-stacked portfolios. The underlying data consists of 312 months of historical returns for U.S. stocks, U.S. bonds, gold, managed futures, futures yield, and merger arbitrage, along with T-bill-based financing costs.

Bootstrap approach: 2,000 simulated 26-year return histories are constructed by resampling monthly returns with replacement from the historical dataset. This preserves the cross-asset return structure within each month while generating a wide range of possible return sequences.

Return assumptions: Before bootstrapping, asset returns are adjusted so that each asset’s long-term Sharpe ratio (annualized excess return over financing divided by annualized volatility of excess returns) matches a forward-looking assumption. Historical Sharpe ratios over the sample period often overstate what investors should expect going forward, due to a combination of survivorship bias, favorable macro tailwinds (e.g. secular declines in interest rates benefiting bonds), sample-specific mean reversion (e.g. gold’s recovery from multi-decade lows), and the general tendency for realized returns to exceed ex-ante risk premia over any finite sample. The adjustments shift each asset’s mean return while preserving its historical volatility, correlations, and month-to-month return dynamics.

Asset	Historical Sharpe	Assumed Sharpe
U.S. Stocks	0.43	0.30
U.S. Bonds	0.40	0.30
Gold	0.56	0.20
Managed Futures	0.52	0.30
Futures Yield	0.81	0.30
Merger Arbitrage	1.02	0.50

Historical Sharpe ratios are computed from the full sample period (January 2000 through December 2025) using monthly excess returns over financing. The assumed Sharpe ratios reflect the authors’ judgment about reasonable long-term expectations and are applied uniformly across all simulations. These assumptions materially affect the optimizer’s output; different assumptions would produce different optimal allocations.

Portfolio construction: For each simulation, the stacked portfolio return in month t is: R_stacked(t) = R_base(t) + StackSize × Σ w_j × (R_div,j(t) − Fee_j/12 − Financing(t)), where Financing = T-bill return + 50bp/12 annual spread. Gold is assessed a 40 basis point annual access fee (Fee = 0.40%); all other diversifier fees are set to zero because the PivotalPath indices are reported net of management fees, performance fees, and underlying transaction costs. The ReSolve Futures Yield Liquid Universe Index is calculated net of modeled transaction costs and a 0.95% annual management fee. The base portfolio is a stock/bond blend at the selected allocation.

Optimization: A grid search evaluates all weight combinations (5% increments) across selected diversifiers. For each candidate, statistics are computed across all 2,000 simulations. Candidates exceeding the tracking error constraint are filtered out. The remaining candidates are scored using a weighted combination of two objectives, with weights determined by the objective slider. The “Consistent Return” objective scores each blend using a 50/50 mix of normalized median excess geometric return and normalized percentage of positive rolling 12-month periods, rewarding blends that deliver both the level and reliability of excess return. The “Crisis Protection” objective scores by normalized mean max-drawdown improvement.

Statistics:

• Median Excess Return: Median across simulations of (annualized geometric return of stacked portfolio minus annualized geometric return of base portfolio).
• Mean Max DD Improvement: Mean across simulations of (max drawdown of stacked portfolio minus max drawdown of base portfolio). Positive values indicate shallower drawdowns.
• Mean Tracking Error: Mean across simulations of the annualized standard deviation of the monthly active return (stacked minus base).
• Mean % Positive 12-Month Periods: Mean across simulations of the percentage of rolling 12-month windows where the stacked portfolio outperformed the base.

Data Sources

U.S. Stocks is the S&P 500 Total Return Index. U.S. Bonds is the Bloomberg US Aggregate Bond Index. Gold is Spot gold (XAU/USD). Managed Futures is the PivotalPath Managed Futures Index. Futures Yield is the ReSolve Futures Yield Liquid Universe Index (ReSolve Asset Management SEZC). Merger Arbitrage is the PivotalPath Event Driven: Merger Arb Index. Financing is the Bloomberg Short Treasury US TR Index + 50bp annual spread.

Data Period: 12/31/1999 through 12/31/2025. The starting date is chosen based upon the earliest date data is available for the underlying indexes.

Index Definitions

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.

Bloomberg US Aggregate Bond Index is an index that covers the broad U.S. investment grade, US dollar-denominated, fixed-rate taxable bond market.

Gold (“XAU”) represents one troy ounce of gold, functioning as an ISO 4217 currency code for trading gold against the US dollar (XAU/USD) in forex markets.

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.

ReSolve Futures Yield Liquid Universe Index seeks to harness carry returns from a diversified set of global futures markets spanning equity indices, government bonds, currencies, and commodities. The strategy maximizes long positions in assets with positive carry and short exposure to markets with negative carry, while managing overall portfolio risk through an advanced optimization method designed to maximize portfolio diversity and minimize unproductive trading. The index is calculated net of modeled transaction costs and a 0.95% annual management fee. The index inception date is 5/30/2024; all data prior to that date is backtested.

PivotalPath Event Driven: Merger Arbitrage Index is an equal weighted index which comprises funds that typically purchase shares in one company and short sell the assets in another. The strategy is generally used in the expectation of a pending announcement of a company takeover, where the fund will take a long position in the target firm and a short position in the acquiring firm. The Index tracks the monthly performance, net of fees in USD, of its constituents 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.

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.

Term Definitions

Alternative Investments are investment strategies or asset classes outside of traditional stocks and bonds, such as managed futures, merger arbitrage, and gold.

Annualized Return is the geometric average return per year over a specified period, reflecting the compounding of 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.

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.

Futures Yield (Carry) refers to the return embedded in the shape of a futures curve. When a futures contract is priced below the expected future spot price (backwardation), a long position earns positive carry as the contract converges toward spot; when priced above (contango), a long position incurs negative carry. Futures Yield strategies seek to maximize long exposure to assets with positive carry and maximize short exposure to assets with negative carry across a diversified set of global futures markets.

Managed Futures refers to an alternative investment consisting of a portfolio of futures contracts that is actively managed by professionals.

Merger Arbitrage is a strategy that invests in companies involved in already announced merger & acquisition deals. It involves capturing the spread between the current trading price and the expected deal price.

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.

Tracking Error is the annualized standard deviation of the difference in returns between two portfolios. It measures how consistently one portfolio deviates from another over time.

Disclosures

U.S. Stocks, U.S. Bonds, and T-Bills returns are gross of management fees, performance fees, and transaction costs and assume the reinvestment of all distributions. Gold returns reflect spot price changes only and are reduced by an estimated 40 basis point annual access fee. Managed Futures and Merger Arbitrage returns are reported net of management fees, performance fees, and underlying transaction costs. Futures Yield returns are calculated net of modeled transaction costs and a 0.95% annual management fee; the ReSolve Futures Yield Liquid Universe Index inception date is 5/30/2024 and all data prior to that date is backtested. All returns are gross of taxes.

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. Index returns do not reflect transaction costs, management fees, or other expenses.

Past performance is not indicative of future results. This tool is for educational and illustrative purposes only and does not constitute investment advice. The results shown are based on backtested, hypothetical performance and do not represent actual trading. Backtested results have inherent limitations including hindsight bias. Actual results may differ materially. Return stacking involves leverage, which amplifies both gains and losses. Alternative investments carry unique risks and may not be suitable for all investors.

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.

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