Systematic Relative Strength

“How do you manage risk?” Not surprisingly, the recent stock market correction has once again brought this question to the forefront of investor’s minds.

How we manage risk depends on the strategy. For some of our portfolios, rotating out of equities and into fixed income, currencies, or even inverse equities is an option. However, for our Systematic RS Growth portfolio, risk management is handled, in part, by employing an exposure overlay that, when activated, causes sales to go to cash and not be reinvested until indicated. This portfolio invests in up to 25 U.S. Mid and Large Cap equities demonstrating, what we believe to be, favorable relative strength characteristics. The strategy will hold up to 50% cash if necessary. Our exposure to cash in this portfolio is shown below:

Source: Dorsey Wright. As of 1/31/16. Estimate based on monthly cash values of a sample Growth portfolio.

Using cash as a way to seek to mitigate market losses has real appeal to investors who want to invest in equities, but also want to know that that there is a plan for risk management. Over time, the results have been very good as shown below. While the portfolio has still had periods where it has lost money, the cash overlay has indeed helped to buffer some of the downside risk.

As of 1/31/16

Since 12/31/2006, this portfolio has been able to outperform the S&P; 500 by 2.03% annually on a net basis.

Contact Andy at 626-535-0630 or [email protected] to request a fact sheet. Click here for a list of platforms where our separately managed accounts are available.

Historical Performance Of the Dorsey, Wright Systematic Relative Strength Growth Strategy: The performance represented in this brochure is based on monthly performance of the Systematic Relative Strength Growth Model. Net performance shown is total return net of management fees for all Dorsey, Wright & Associates managed accounts, managed for each complete quarter for each objective, regardless of levels of fixed income and cash in each account. The advisory fees are described in Part II of the adviser’s Form ADV. The starting values on 12/31/2006 are assigned an arbitrary value of 100 and statement portfolios are revalued on a trade date basis on the last day of each quarter. All returns since inception of actual Accounts are compared against the S&P; 500 Index. The S&P; 500 is a stock market index based on the market capitalizations of 500 leading companies publicly traded in the U.S. stock market, as defined by Standard & Poor’s. A list of all holdings over the past 12 months is available upon request. The performance information is based on data supplied by the Manager or from statistical services, reports, or other sources which the Manager believes are reliable. Past performance does not guarantee future results. In all securities trading, there is a potential for loss as well as profit. It should not be assumed that recommendations made in the future will be profitable or will equal the performance as shown. Investors should have long-term financial objectives when working with Dorsey, Wright & Associates. The inception for this strategy was 12/31/1994. However, the strategy underwent a material change that was complete on 12/31/2006. The material changes included adding an exposure overlay and a systematic stock selection process.

There may be some truth to the idea that there are greater opportunities for outperformance in less efficient markets. That has certainly been the case in our line-up of separately managed accounts. The strategy where we have been able to generate the largest margin of outperformance over time has been our Systematic RS International portfolio.

As shown below, this portfolio has outperformed its benchmark by 6.56 percent annually (net) since its inception of 3/31/2006.

As of 1/31/16

Characteristics of our Systematic RS International portfolio:

• Invests in 30-40 international stocks out of an investment universe of several hundred American Depository Receipts (ADR’s).
• Invests in Small, Mid, and Large-Cap stocks
• Relative Strength determines which securities are bought and when they are sold
• Minimum investment is $100,000
• Available as a separately managed account on many different platforms.

Top holdings as of 1/31/16 are shown below:

To learn more about this portfolio, please call 626-535-0630 or e-mail [email protected].

Historical Performance of the Dorsey, Wright Systematic Relative Strength International Strategy

The performance represented in this brochure is based on monthly performance of the Systematic Relative Strength International Model. Net performance shown is total return net of management fees for all Dorsey, Wright & Associates managed accounts, managed for each complete quarter for each objective, regardless of levels of fixed income and cash in each account. The advisory fees are described in Part II of the adviser’s Form ADV. The starting values on 3/31/2006 are assigned an arbitrary value of 100 and statement portfolios are revalued on a trade date basis on the last day of each quarter. All returns since inception of actual Accounts are compared against the MSCI EAFE Total Return Index. The MSCI EAFE Total Return Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the United States and Canada and is maintained by MSCI Barra. A list of all holdings over the past 12 months is available upon request. The performance information is based on data supplied by the Manager or from statistical services, reports, or other sources which the Manager believes are reliable.

There are risks inherent in international investments, which may make such investments unsuitable for certain clients. These include, for example, economic, political, currency exchange, rate fluctuations, and limited availability of information on international securities.

Past performance does not guarantee future results. In all securities trading, there is a potential for loss as well as profit. It should not be assumed that recommendations made in the future will be profitable or will equal the performance as shown. Investors should have long-term financial objectives when working with Dorsey, Wright & Associates.