Systematic RS Global Macro Strategy
Frequently Asked Questions
What is the investment objective of the strategy? The strategy seeks to achieve meaningful risk diversification and investment returns. The historical correlation of this strategy to every major asset class has been relatively low over time. Our global macro strategy is uniquely positioned from an investment opportunity perspective because it is not limited to a specific market.
What asset classes are represented in the strategy? The strategy is designed to invest in the following asset classes: Domestic Equities (long & inverse), International Equities (long & inverse), Fixed Income, Real Estate, Currencies, and Commodities. Exposure to each of these areas is achieved through ETFs.
How are the investments selected? The strategy holds approximately ten ETFs that demonstrate powerful relative strength characteristics. The strategy is constructed pursuant to Dorsey Wright’s proprietary basket ranking and rotation methodology.
How is this different from strategic asset-allocation? We do not approach the asset allocation from a strategic standpoint. Instead, we implement a tactical approach. Our tactical overlay is designed to own the areas of the market exhibiting the greatest relative performance and avoid or use inverse funds for the weakest areas. You can expect the weightings to change over time! When, for example, domestic equities are performing poorly our tactical process will avoid or use inverse funds in these areas or favor an area with better relative performance, like fixed income. We make changes to the investment mix as markets and leadership change. The portfolio is designed to be quite responsive to emerging strength.
How do all these processes come together? The investment strategy is 100% systematic. We have designed our processes to remove the portfolio managers’ emotions and biases, which are detrimental to superior long-term performance.
How is risk managed in the portfolio? Our investment process is designed to systematically rotate the portfolio into the strongest asset classes and individual alternatives within those asset classes. If an asset class is performing poorly the tactical asset allocation overlay will avoid or use inverse funds in that area and buy an asset class with better relative strength. There is a stop, based on the relative strength ranking, on each holding. The asset classes used in the portfolio are not typically highly correlated, so that our investment guidelines provide enough latitude to deliver solid returns in a variety of market conditions.
Will the portfolio ever go to cash? Our investment universe includes ETFs that represent the shorter-term sector of the United States Treasury market. So, yes, we can effectively allocate a portion of the account to cash if that is where the best relative strength is found.
What is the average annual turnover? The portfolio is designed to rapidly adapt to changing market conditions. As a result, there might be more realized gains and losses during periods when asset class leadership is changing, and fewer realized gains and losses when there is stable leadership. The average annual turnover has been approximately 250% over time. With 10 positions in the portfolio, that represents an average of 25 swaps per year.
What is an ETF? An exchange-traded fund is an investment vehicle traded on a stock exchange, much like a stock. ETFs offer public investors an undivided interest in a pool of securities and other assets and thus are similar in many ways to traditional mutual funds. An ETF holds assets such as stocks, bonds, currencies, commodities, or futures contracts on commodities and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. ETFs are attractive investments because of their low costs, tax efficiency, and stock-like features.
Will you be investing in all of the ETFs? We have a rigorous process to determine what ETFs we will evaluate for our portfolios. There are many ETFs that are duplicative or not suitable for the investment strategy we are using in this portfolio, and we do not consider these for purchase in the fund. As new ETFs come to market we are committed to evaluating their investment merits and the effect they might have on our investment strategy. Any new ETFs will need to meet the same stringent criteria as existing ETFs for consideration in the portfolio.
For more information about this strategy, please e-mail firstname.lastname@example.org.
Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances which may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Dorsey, Wright & Associates, LLC (“Dorsey, Wright & Associates”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice.
The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Relative Strength is a measure of price momentum based on historical price activity. Relative Strength is not predictive and there is no assurance that forecasts based on relative strength can be relied upon.
Each investor should carefully consider the investment objectives, risks and expenses of any Exchange-Traded Fund (“ETF”) prior to investing. Before investing in an ETF investors should obtain and carefully read the relevant prospectus and documents the issuer has filed with the SEC. To obtain more complete information about the product the documents are publicly available for free via EDGAR on the SEC website (http://www.sec.gov).