QAS ALPHA GENERATION REVIEW – JUNE 2018:
QAS US EQUITY OPPORTUNITY MULTI-REGIME “ALL- TERRAIN” INDEX OUTPERFORMS 2018 YTD.
QAS FLAGSHIP ACTIVE US EQUITY ETF STRATEGY GENERATES CONSISTENT ALPHA
>>>This index strategy is offered through a separately managed accounts program by a licensed financial advisory firm. Contact QAS for more information (www.qas-service.com) >>>
QAS US Equity Opportunity Multi-Regime “All-Terrain” index continues its strong performance in 2018. As of June 5, the index had +4.6% return vs. +3.6% (S&P 500).
As we indicated in our previous publication (Sep 22, 2017), this strategy showed a consistent alpha generation pattern. Since its launch on 01/01/2016, a cumulative excess return vs. S&P 500 has been consistently above 300 bps, peaking in January 2018 at 1200 bps, and it is currently situated at 1000 bps (+53% vs. +43% cumulative return 01/01/2016 – 06-05-2018).
Source: Bloomberg
After being in protective mode for several months this year, this strategy has returned to an “aggressive” regime on 05/17/18, and currently is running with a total of 150% equity exposure.
Independent Sources of Alpha
Most investors are only exposed to simple strategies with two sources of alpha – securities selection and position sizing (allocation), which are limited by the portfolio manager’s area of interest or investment product specialization.
The QAS research toolbox allows for additional independent sources of alpha that can co-exist in a well-oiled portfolio structure.
With the QAS US Equity Opportunity Multi-Regime “All-Terrain” strategy we attempted to address several issues raised by sophisticated investors:
- Periodically, the US Small Cap segment delivers significantly higher returns vs. Large Cap. Financial advisors tend to avoid the Small Cap segment due to “high-risk parameters” and difficulties with reliable tactical allocation. It’s good to have the ability to boost investment returns when Small Cap stocks outperform Large Cap stocks.
- Financial advisors ignore Leveraged ETFs for many reasons (mostly risk concerns). These products are largely used by day-traders for short-term strategies. Investors feel they miss an opportunity for above-average returns during expanded low-volatility periods.
- It’s good to have the ability to differentiate between light corrections and severe market declines. A good strategy should have several layers of protection.
In summary, investors would like to take advantage of higher returns by higher risk investment instruments during positive market periods and protect their investment during negative market periods.
To address these issues we have implemented a “five regime” tactical allocation scheme based on the ETF instruments:
Regime 1 [ Most Aggressive, Leverage ] We add a 2x Leveraged ETF exposure to core.
Regimes 2, 3 [ Normal Positive] We rotate between Large Cap and Small Cap exposures.
Regime 4 [ Neutral, Min. Protection ] We reduce equity exposure lightly.
Regime 5 [ Most Defensive, Safety ] We reduce equity exposure significantly, add safety instruments, such as US Treasury and Gold ETFs.
The QAS US Equity Opportunity Multi-Regime “All-Terrain” Index represents a unique tactical allocation strategy that has expanded the traditional set of 1-2 sources of alpha up to 5.
The index is maintained in QAS production and Bloomberg with a start date of 01/01/2016. It has been exclusively licensed to a major US financial advisory company that offers a separately managed accounts program for individual investors and financial advisors. Please contact QAS for more information (www.qas-service.com).
© QAS 2018. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this article.
