Tactical ETF Rotation Portfolios
Tactical ETF Rotation
Portfolios
Investing for rapidly evolving markets
Investors are looking for solutions that can help them both keep their wealth and grow it, in the face of rapidly changing market conditions. The PMC Tactical ETF Rotation Portfolios, with subadvisory services from Innealta Capital (a division of AFAM Capital), are designed to respond to market changes--by rotating between equities for growth and bonds for stability and income.
Tactical Opportunities Over Time
Tactical asset allocators seek to increase gains and limit losses by moving out of equities when they drop and moving into equities as they rise, often based on statistical models.
Multi-Asset Class All Equity vs. U.S. Fixed Income Portfolio Time Period: 3/31/1995 to 3/31/2015
500 450 400 350 300 250 200 150 100
50 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-- Multi-Asset Class All Equity -- Barclays Capital US Aggregate
= Inflection points for tactical allocators
1 Equity returns represented by a composite index consisting of 40% Russell 3000, 40% MSCI EAFE and 20% MSCI Emerging Markets indices. The Russell 3000 Index measure the performance of the largest 3,000 U.S. companies. The MSCI EAFE Index measures international equity performance and is comprised of 21 MSCI country indices, representing the developed markets outside of North America: Europe, Australasia and the Far East. The MSCI Emerging Markets Index represent emerging equity market performance and is comprised of 26 MSCI country indices.
2 Fixed income returns represented by the Barclays Capital U.S. Government Aggregate. The Barclays Capital Aggregate Bond Index covers the U.S.-dollar-denominated, investment-grade, fixed-rate, taxable bond market. One cannot directly invest in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges, past performance is no guarantee of future results, and one cannot directly invest in an index.
Source: Innealta Capital via Morningstar. The referenced indices are shown for general market comparisons and are not meant to represent portfolio performance.
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Tactical ETF Rotation Portfolios
Investing for rapidly evolving markets
ETF Portfolios for Agility
Exchange-traded funds (ETFs) can offer strategic, broad market exposure or precise segment exposure (styles, geographic regions, currency and commodities) tailored to an investor's goals, risk tolerance, and time horizon.
The Tactical ETF Rotation Portfolios employ an innovative ETF-based tactical methodology created by Innealta Capital. The portfolios shift between equities and fixed income based on a quantitative model that generates signals on a daily basis. These signals are used to adjust asset class exposures opportunistically. As market forecasts become bearish, models seek a defensive approach and allocate to fixed income. As market forecasts become bullish, models aim to become more aggressive by allocating to equities.
Disciplined Framework
The Tactical ETF Rotation Portfolios use a quantitative model that seeks to limit risks while potentially enhancing returns. When selecting sectors or countries to invest in, the model employs a combination of fundamental and technical analysis to determine their relative attractiveness.
The quantitative model is based on four criteria:
Risk Uses metrics to capture the level of uncertainty in the various markets
Technical Measures momentum and market conviction metrics to quantify the strength of market movements
Fundamentals Tracks the relative value of each equity market vs. bonds
Economic Assesses the overall economy (includes monetary policy, the shape and level of term structure of interest rates, business cycle identification, personal consumption, credit spreads and real interest rates)
PMC Tactical ETF Rotation Portfolios: Sector and Country Rotation
The Tactical ETF Rotation Portfolios are offered in two strategies: Sector and Country
Sector
Portfolios invest in equity ETFs of a group of domestic economic sectors, such as energy, materials, utilities, financials and health care. The investment strategy is binary ? the portfolio is either entirely in or out of a sector at any given time. This strategy is available in two approaches: Core and Total Return.
Core Tactically alters exposures among sectors or global markets based on the quantitative model and a strict buy and sell discipline.
Total Return Uses leveraged ETFs, when available, to seek enhanced returns by increasing allocations to higher yielding asset classes.*
*There is no assurance this objective will be met.
Sector Rotation
Asset Allocation?At Maximum Equity Exposure
10% Energy
10% Consumer Discretionary
10% Materials
10% Telecom Services
10% Industrials
10% Utilities
10% Consumer Staples
10% Financials
10% Health Care
10% Info Technology
This chart represents potential investable sectors and their maximum exposure for the PMC Tactical ETF Sector Rotation Portfolios.
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Tactical ETF Rotation Portfolios
Investing for rapidly evolving markets
Country Portfolios invest in ETFs with exposure to developed and developing countries. The investment strategy is binary ? the portfolio is either entirely in or out of a country at any given time. This strategy is available through the Core approach only.
Country Rotation
This map represents potential investable countries and their maximum exposure for the PMC Tactical ETF Country Rotation Portfolios. Each country has a maximum allocation of 5% of the portfolio.
PMC Tactical ETF Rotation Portfolios: Fixed Income
When the quantitative model indicates that a forecast for a country or sector is not attractive, the model allocates to the Fixed Income Portfolio. The Fixed Income Portfolio aims to generate above-average yield by trying to invest in those fixed-income sectors that have strong risk-adjusted performance potential and available ETFs.
U.S.
Agency Aggregate Corporates Mortgage Municipal TIPS Treasuries
Global
Aggregate Corporates Sovereign TIPS
International-Aggregate
Aggregate Corporates Sovereign
International-Regional
Aggregate Corporates Sovereign
This chart represents potential investable fixed-income asset classes for the PMC Tactical ETF Fixed Income Portfolio.
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Investing for rapidly evolving markets
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The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this brochure is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment vehicle. Investment decisions should always be made based on the investor's specific financial needs and objectives, goals, time horizon, and risk tolerance. Past performance is not indicative of future results.
Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) funds are subject to interest rate risk which is the risk that debt securities in a fund's portfolio will decline in value because of increases in market interest rates.
Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Income (bond) ETFs are subject to interest rate risk which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates.
The PMC Tactical Portfolio may utilize inverse and leveraged ETFs. Leveraged ETFs are ETFs that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse ETFs utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. Inverse and leveraged ETFs are generally most suitable for sophisticated investors who understand leverage and are willing to assume the risk of magnified potential losses. Given the risk/ return trade-offs, these types of ETFs may not be appropriate for long-term investors who typically subscribe to "buy and hold" investment strategies.
Neither Envestnet, Envestnet | PMCTM nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.
FOR ONE-ON-ONE USE WITH A CLIENT'S FINANCIAL ADVISOR ONLY.
? 2015 Envestnet, Inc. All rights reserved.
PMC_FS_TR_0415
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