XiAlpha-500 Tactical Solution

An Evidence Based Systematic Process For Adjusting Equity Market Exposure

 Long Term Appreciation Through All Environments

 

Why invest in XiAlpha-500?


The market is mostly rational when viewed through our framework - a proprietary process to assess the market reward/risk profile using sustainable, fundamental factors. Market exposure is adjusted based upon a rules-based process validated over fifty years covering multiple economic cycles. It is expected to deliver attractive, uncorrelated returns, particularly during down markets, when diversification most needed.

 How it works


The reward/risk profile of the market is not constant. Having a time-tested way to measure and understand it is essential. Our framework allows us to profile it in real-time. The XiAlpha-500 Tactical Solution dynamically adjusts exposure to the S&P 500 to match the profile observed in our framework. It has the flexibility to be short 100% the market up to leveraged long 200%. 

 

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Process

The process begins by understanding the risk/reward environment from our framework and applying a set of rules based on the value of the factors in the framework. Priority is given to fundamentals such as valuation, with secondary adjustments based on market internals.

 
Three Risk/Reward Environments

We observe three types of risk/reward environments and adjust our equity exposure to match the current environment.
 
  
Three-Step Implementation

  1.  Establish upper and lower Exposure Limits based on the fundamentals.
  2.  Determine an appropriate Base Allocation based on the fundamentals.
  3.  Tilt the Base Allocation for market internal and environmental conditions.
 
Three Month Focus

  •  The model dynamically adjusts exposure to the S&P 500 based upon the expected risk-adjusted returns for the next three months.
  •  Three-month horizon allows us to adapt to changing market conditions without generating excessive portfolio turnover.
 
Performance - Historical Backtest

The following chart shows the hypothetical implementation of the strategy, which permits long exposure up to 200% and short exposure up to -100% versus a passive buy and hold strategy.

    The year-by-year comparison provides a better picture of how the strategy compares to the passive S&P strategy in years when the market is up versus years when the market is down.

Backtested results have been generated with the benefit of hindsight. There can be no assurance that similar results will be obtained in the future.

 
Benchmarking

We benchmark the product against the S&P 500 and also a relatively new tactical ETF offering a strategy with a similar objective, The Hull Tactical US ETF, ticker symbol HTUS. Our Factsheet provides monthly live returns compared to both of these benchmarks.