The Cornerstone Tactical Income model is Portfolio Cafe’s newest model. It is designed for investors seeking income from a diversified portfolio of income ETFs.
Morningstar Classification: Non-Traditional Bond
The objective of the Cornerstone Income Model is to seek steady income while protecting capital. It achieves this through the tactical allocation of four separate systematic models of income ETFs: Credit Duration, High Yield, Alternative, and Dividend Income. These four models are then combined by their weighted risk-adjusted returns with our “downside risk protector” to minimize risk and maximize gains.
The model is rebalanced on a monthly basis.
Our goal: The Cornerstone Income strategy was designed to address the special challenges faced by today’s income investor. Three decades of falling interest rates and aggressive central bank intervention have created an environment of uncertainty for investors. The strategy uses a rules-based methodology to overweight the best performing fixed income and dividend ETFs in an effort to maximize income and capital growth. The strategy will dynamically allocate to cash in an attempt to limit downside risk during equity and fixed income bear markets.
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 the 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.