Focus 3

THIS MODEL IS INSPIRED BY MEBANE FABER’S EXTENSION OF HIS BASIC GLOBAL TACTICAL ASSET ALLOCATION MODEL.

Strategy Description

The Focus 3 model is a global, rules-based tactical ETF strategy with the objective of long-term capital appreciation while minimizing risk.

The strategy ranks 13 ETFs in different asset classes including:  U.S. stocks, International and Emerging markets, Real Estate, Commodities, Gold, U.S. Treasuries, Corporate, and International Bonds.

The model uses our systematic ranking process to select the top 3 ETFs each month with an absolute return focus.  When conditions are favorable, the model will be fully invested in the top three different markets and may hold significant cash or fixed income positions during unfavorable market conditions.

Definitions

Sharpe Ratio – the average return earned in excess of the risk-free rate.  A higher Sharpe Ration is better

Risk-Free Rate – represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time.

Sortino Ratio – another measure of risk that takes into account the downside deviation of the asset.  A higher Sortino Ratio is better.

What is Drawdown?

Drawdown is the measure from the highest high to the lowest low or peak to trough during a specific time period.  It is an important measurement of risk.  A larger drawdown requires a more significant increase in the security to recover.

Volatility measures the change in price of an investment.  The higher the volatility, the higher the difference between the high and the low of an investment’s price.

The 12 Month Rolling ROR is the compound rate of return for the last 12 months.  The rate of return is the gain or loss on an investment over a specified time period, expressed as a percentage of the investment’s cost.

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