Dorsey, Wright & Associates

Transcription

1 Dorsey, Wright & Associates Technical Insights, Powerful Solutions Amy Kemp Senior Analyst Boulder Springs Drive, Suite 150; Richmond, VA P:

2 DWA Background: Founded January 1987 Research Services: Daily Equity & Market Analysis Report : Daily research report covering global capital markets, focusing on tactical asset rotation and risk management Extensive technical analysis website available with over 7,000 domestic stocks, 19,000 international stocks, 20,000 mutual funds, and 1,500 ETFs charted on a Point & Figure basis 30+ different Guided ETF Model Portfolios, covering the scope of asset classes and ETF providers Weekly ETF Reports featuring each of the 30 guided models DWA Media produces its own multimedia (video) presentations and weekly podcasts D.A.L.I.: Asset Allocation Guidance based on relative strength analysis across, and among, asset classes Tactical Tilt Models: Turn-key 3 rd party ETF model management Most Recently Published Book by DWA: Point & Figure Charting, 4 th Edition Money Management Services & Products Mutual Funds: Virtus Sector Trend Fund (PWBAX) Virtus Equity Trend Fund (VAPAX) Virtus Global Equity Trend Fund (VGPAX) Virtus Multi-Asset Trend Fund (VAAAX) Arrow DWA Balanced Fund (DWAFX) Arrow DWA Tactical Fund (DWTFX) Exchange Traded Funds: First Trust Dorsey Wright Focus 5 ETF (FV) First Trust Dorsey Wright Int l Focus 5 ETF (IFV) First Trust Dorsey Wright Dynamic Focus 5 ETF (FVC) PowerShares DWA Momentum Portfolio (PDP) PowerShares DWA Developed Momentum Portfolio (PIZ) PowerShares DWA Emerging Momentum Portfolio (PIE) PowerShares DWA SmallCap Momentum Portfolio (DWAS) PowerShares DWA NASDAQ Momentum Portfolio (DWAQ) PowerShares DWA Basic Materials Momentum Portfolio (PYZ) PowerShares DWA Consumer Cyclicals Momentum Portfolio (PEZ) PowerShares DWA Consumer Staples Portfolio (PSL) PowerShares DWA Energy Momentum Portfolio (PXI) PowerShares DWA Financial Momentum Portfolio (PFI) PowerShares DWA Healthcare Momentum Portfolio (PTH) PowerShares DWA Industrials Momentum Portfolio (PRN) PowerShares DWA Technology Momentum Portfolio (PTF) PowerShares DWA Utilities Momentum Portfolio (PUI) PowerShares DWA Tactical Sector Rotation Portfolio (DWTR) PowerShares DWA Tactical Multi-Asset Income Portfolio (DWIN) Arrow DWA Tactical ETF (DWAT) Unit Investment Trusts: First Trust Dorsey Wright RS Dividend Trust First Trust Dorsey Wright RS Top 50 Trust SmartTrust Dorsey Wright Int l Momentum Trust 2

3 Must be able to navigate through both Bull and Bear markets. 3

4 Traditional Asset Allocation Rinse Wash Rebalance Mean Variance Optimization Source: wealthfront.com 4

5 A Few Practical Considerations Modern Portfolio Theory is predicated upon academic observations that clients don t often adhere to in reality Strategic Allocation is free on the internet. In the absence of value, the only consideration is price. MPT offers no means for separating one s self from other Financial Advisors. 5

6 Our Game Plan The Point & Figure Methodology Trend Analysis Measuring Direction of Movement The DWA Evaluation Process Supply & Demand Relative Strength Measuring Magnitude of Movement 6

7 Relative Strength Research The premier anomaly is momentum: stocks with low returns over the last year tend to have low returns for the next few months and stocks with high past returns tend to have high future returns. Eugene Fama & Kenneth French ( Dissecting Anomalies June 2007) Source: Tactical Capital, from Morningstar Data The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Investors cannot invest directly in indexes, which have no fees. Past performance is no guarantee of future returns. Potential for profits is accompanied by possibility of loss. Copyright Dorsey, Wright & Associates, LLC. For Financial Professional Use Only. Not For Use With The Public. 4

8 Relative Strength Calculation All major sports have a ranking system. The Point & Figure Relative Strength tool is the ranking system we use for stocks and ETFs. Daily Calculation: Stock X 100 = Relative Strength Index Reading This reading is plotted on a Point & Figure chart which then tells us whether we can expect that stock or ETF to outperform or underperform the base index.

9 Point & Figure Method: The Most Basic Patterns Double Top Double Bottom 45 O 45 X X O X O X O O X O X O O X O O O X X S 40 O X 40 X O O X X O O X X O O X X O O X X O 35 O B 35 X O O X X X O X O X X O X O X X O O X

10 Starbucks (SBUX) vs. S&P Equal Weighted Index (SPXEWI) With Positive RS (4/7/1999 2/20/2007) SBUX: % SPXEWI: 87.55% SPX: 10.01% With Positive RS... (3/16/2009 4/29/2016) SBUX: % SPXEWI: % SPX: % With Negative RS (2/20/2007 3/16/2009) SBUX: % SPXEWI: % SPX: % This example is presented for illustrative purposes only and does not represent a past or present recommendation. The performance numbers are price returns, not inclusive of dividends, fees, or other expenses. Investors cannot invest directly in an Index like the SPX or SPXEWI, indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss 10

11 Stocks vs Bonds Start Date When the RS Chart is on a buy signal, it suggests outperformance by the numerator (i.e., SPX). End Date Signal SPX AGG 11/22/00 7/31/03 Sell % 23.16% 7/31/03 7/15/08 Buy 22.68% 1.84% 7/15/08 6/5/09 Sell % % 6/5/09 2/11/2016 Buy 94.56% 9.99% Buy and hold SPX: 38.32% Buy and Hold AGG: 37.01% Switching: % RS Signal: Buy = Outperformance of SPX to Bonds Sell = Underperformance of SPX to Bonds This example is presented for illustrative purposes only, and does not represent a past or present recommendation. Performance of the switching strategy is the result of back-testing. Back-tested performance results have certain limitations. Such results do not represent the impact of material economic and market factors might have on an investment advisor s decision-making process if the advisor were actually managing client money. Back-testing performance also differs from actual performance because it is achieved through retroactive application of a model investment methodology designed with the benefit of hindsight. The performance numbers above are pure price returns, not inclusive of dividends, fees, or all transaction costs. Investors cannot invest directly in an Index, like the S&P 500 Index (SPX), and index performance numbers do not include fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. 11

12 Dynamic Asset Level Investing (DALI) Tool DALI evaluates the supply and demand forces of asset classes, and ranks them from strongest to weakest based on their relative strength score. Step One: Create Inventory US Equities Commodities Foreign Currencies Int l Equities Fixed Income Cash Step Two: Relative Strength Analysis Step Three: Rank Each Asset Class 12

13 Current DALI Perspective Data as of 5/2/2016 Tactical Tilting is now focused toward Fixed Income due to the recent change in our DALI Tool. This example is presented for illustrative purposes only, and does not represent a past or present recommendation. The performance numbers above are pure price returns, not inclusive of dividends, fees, or all transaction costs. Investors cannot invest directly in an Index, like the S&P 500 Index (SPX), and index performance numbers do not include fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. Copyright Dorsey, Wright & Associates, LLC. For Financial Professional Use Only. Not For Use With The Public. 13

14 Step 2: Tactical Tilting Strategic Allocation Tactical Guidance Strategic Pitfalls Rigid Guidelines Unresponsive to trend changes Can stay wrong for long periods of time Tactical Tilt Rules-based Respects boundaries Adapts to leadership change Tactical Pitfalls Emotional Over-rides Counter-intuitive to implement Can lead to highly focused exposure 14

15 Step 1: Strategic Boundaries The Tilt allocation concept is about facilitating the strategic allocation framework to succeed in a truly tactical investment world. Strategic Boundaries Commodity Domestic Intl. Eqty Currency Fix Inc. Cash Eqty MIN 0% 10% 10% 0% 10% 0% MAX 20% 80% 30% 20% 40% 30% Commodity Domestic Intl. Eqty Currency Fix Inc. Cash Eqty MIN 0% 20% 5% 0% 20% 0% MAX 10% 75% 25% 10% 60% 33% Commodity Domestic Intl. Eqty Currency Fix Inc. Cash Eqty MIN 0% 0% 0% 0% 40% 0% MAX 10% 40% 20% 10% 80% 50% Benchmark Aggressive 80% Stocks Tilt / 20% Allocation Bonds Benchmark Moderate 60% Stocks Tilt / 40% Allocation Bonds Conservative Benchmark 40% Stocks Tilt / 60% Allocation Bonds This example is presented for illustrative purposes only and does not represent a past or present recommendation. 15

16 The Allocation Process 45% of your moderate allocation is accounted for at all times. The remaining 55% is allocated tactically based on DALI rankings. The remaining 15% is added to US Equities With Fixed Income now in the #1 spot, you add 40% to your 20% minimum to reach your maximum boundary of 60%. This example is presented for illustrative purposes only, and does not represent a past or present recommendation. 16

17 100% Tactical Tilt Moderate Allocation Strategy Historic Asset Class Weighting Based Upon Tactical Tilt Methodology 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Domestic Equity (%) Int'l Equities (%) Fixed Income (%) Commodities (%) Currency (%) Cash (%) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Allocation data prior to Index inception (5/25/2012) is the result of back-testing. Back-tested results are hypothetical (they do not reflect trading in actual accounts) and are provided for informational purposes to illustrate the effects of the strategy during a specific period. Back-tested results have certain limitations. Such results do not represent the impact of material economic and market factors might have on an investment advisor s decision making process if the advisor were actually managing client money. Back-testing performance also differs from actual performance because it is achieved through retroactive application of a model investment methodology designed with the benefit of hindsight. 17

18 A Lesson in Adaptation DALI Rankings: 6/8/08 DALI Rankings: 9/2/08 Source: The Economist, June 8 th 2008 Lehman : 9/15/08 The examples presented above are for illustrative purposes only and do not represent past or present recommendations. 18

19 Today s Outlook for Equities Data as of 5/2/

20 The Focus Five Model 20

21 First Trust Energy AlphaDEX Fund (FXN) versus First Trust Health Care AlphaDEX Fund (FXH) First Trust Technology AlphaDEX Fund (FXL) 3/4/16-4/29/16 Symbol Return FXN 14.98% FXH 5.47% 3/7/16-4/29/16 Symbol Return FXN 9.49% FXL -0.19% The examples on this slide are presented for illustrative purposes only, and do not represent a past or present recommendation. The performance numbers above are price returns, not inclusive of dividends or all transaction costs. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss 21

22 The Focus Five Model Matrix ETF Matrix Function: Summation of big RS wrestling match between First Trust sector line-up Focus buying on top quartile Hold position until RS deteriorates sufficiently Matrix rankings as of 4/29/2016 This example is presented for illustrative purposes only, and does not represent a past or present recommendation. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. 22

23 **Model inception date is October 21, Performance data after model inception date is model data. The Model s NET numbers reflect a theoretical annual management fee of 1.5%, deducted quarterly. This is not a fee charged by Dorsey Wright. Management fees may vary. Neither the returns for the Model nor the benchmark include the reinvestment of dividends and may not include all transaction costs. Performance data does not reflect the material impact economic and market factors might have on an investment advisor s decision making process if the advisor were actually managing client money. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. 23

24 Hypothetical Growth of $100k Portfolios (Data 1/30/2000 4/30/2016) $600,000 $500,000 S&P 500 Index 60/40 Benchmark Moderate Tactical Tilt (w/ Proxy ETFs) Moderate Tactical Tilt Moderate Tactical Tilt (PROMOD): % $400,000 $300,000 $200,000 Moderate Tactical Tilt (w/ Proxy ETFs): 94.84% $100,000 SPX: 48.11% $0 DWA6040: 42.00% Inception date of Dorsey Wright Tactical Tilt Models is 5/25/2012. Back-tested performance is hypothetical (it does not reflect trading in actual accounts) and is provided for informational purposes to illustrate the effects of the strategy during a specific period. Back-tested performance results have certain limitations. Such results do not represent the impact of material economic and market factors might have on an investment advisor s decision making process if the advisor were actually managing client money. Back-testing performance also differs from actual performance because it is achieved through retroactive application of a model investment methodology designed with the benefit of hindsight. All performance numbers are price returns for Models and Passive Benchmarks, not inclusive of dividends, management fees or all potential transaction costs. Investors cannot invest directly in the DWA6040 Index. It is an internal benchmark created and maintained by Dorsey Wright. Past performance not indicative of future results. Potential for profits accompanied by possibility of loss. 24

25 Model History & Back-testing Tactical Tilt portfolios produced positive absolute & relative returns in , though market conditions became more tenuous early in 2016, and the portfolios lagged. Performance numbers prior to 5/25/2012 are the result of back-testing. Performance numbers following that date are model performance numbers.back-tested performance is hypothetical (it does not reflect trading in actual accounts) and is provided for informational purposes to illustrate the effects of the strategy during a specific period. Back-tested performance results have certain limitations. Back-testing performance differs from actual performance because it is achieved through retroactive application of a model investment methodology designed with the benefit of hindsight. Performance results (both backtested and model returns) do not represent the impact of material economic and market factors might have on an investment advisor s decision making process if the advisor were actually managing client money. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. 25

26 Tactical Tilt Performance Fact Sheet A logical, organized, portfolio construction process guided by relative strength can produce attractive outcomes (after fees) without taking unreasonable risk to do so. Model Returns do not reflect the actual returns of any single client account. Fees and Returns vary from one account to the next. Returns of the strategies do not include dividends or all potential transaction costs. Model performance data does not represent the impact of material economic and market factors might have on an investment advisor s decision making process if the advisor were actually managing client money. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Back-tested performance is hypothetical (it does not reflect trading in actual accounts) and is provided for informational purposes to illustrate the effects of the strategy during a specific period. Back-tested performance results have certain limitations. Such results do not represent the impact of material economic and market factors might have on an investment advisor s decision making process if the advisor were actually managing client money. Back-testing performance also differs from actual performance because it is achieved through retroactive application of a model investment methodology designed with the benefit of hindsight. 26

27 100% 90% Tactical Tilt: Rewarding Discipline Frequency of Excess Positive Returns Moderate Tilt Allocation vs. DWA6040 Updated Sept % 92% 92% 92% 100% 100% 80% 76% 70% 60% 65% 50% 40% 35% 30% 24% 20% 10% 12% 8% 8% 8% 0% 1 Month Comparison 3 Month Comparison 6 Month 12 Month Comparison Comparison Moderate Tilt Outperforms 18 Month 24 Month Comparison Comparison DWA6040 Outperforms 36 Month Comparison 0% 0% 60 Month Comparison Inception date of Dorsey Wright Tactical Tilt Models is 5/25/2012. Back-tested performance is hypothetical (it does not reflect trading in actual accounts) and is provided for informational purposes to illustrate the effects of the strategy during a specific period. Back-tested performance results have certain limitations. Such results do not represent the impact of material economic and market factors might have on an investment advisor s decision making process if the advisor were actually managing client money. Back-testing performance also differs from actual performance because it is achieved through retroactive application of a model investment methodology designed with the benefit of hindsight. All performance numbers are price returns for Models and Passive Benchmarks, not inclusive of dividends, management fees or all potential transaction costs. Investors cannot invest directly in the DWA6040 Index. It is an internal benchmark created and maintained by Dorsey Wright. Past performance not indicative of future results. Potential for profits accompanied by possibility of loss. 27

28 Sign up for a 21 day free trial, and enjoy full access to Dorsey Wright s equity research platform, including the following popular features: Daily Equity & Market Report a comprehensive daily report Dynamic Asset Level Investing (D.A.L.I.) tool an asset allocation tool Guided Model Portfolios Matrix Plus relative strength tool Global Charting and Alert System covering over 30,000 stocks and funds Portfolio Management and Evaluation tools Multimedia offerings webinars, podcasts, and educational tools Call us at (804) Or visit

29 Tactical Tilt Disclosures 29

30 Disclosures Some performance information presented is the result of back-tested performance. Back-tested performance is hypothetical (it does not reflect trading in actual accounts) and is provided for informational purposes to illustrate the effects of the strategy during a specific period. Back-tested performance results have certain limitations. Back-testing performance differs from actual performance because it is achieved through retroactive application of a model investment methodology designed with the benefit of hindsight. Model performance data as well as back-tested performance do not represent the impact of material economic and market factors might have on an investment advisor s decision making process if the advisor were actually managing client money. Dorsey, Wright & Associates, LLC (collectively, with is parent company and affiliates DWA ) believes the data used in the testing to be from credible, reliable sources, however; DWA makes no representation or warranties of any kind as to the accuracy of such data. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Relative Strength is a measure of price momentum based on historical price activity. Relative Strength is not predictive and there is no assurance that forecasts based on relative strength can be relied upon. Unless otherwise stated, or marked total return, the returns of the strategies do not include dividends for stocks or ETFs. Unless otherwise stated, returns of the strategies do not include all fees or transaction costs. Past performance, hypothetical or actual, does not guarantee future results. In all securities trading there is a potential for loss as well as profit. It should not be assumed that recommendations made in the future will be profitable or will equal the performance as shown. Investors should have long-term financial objectives. The information contained herein has been prepared without regard to any particular investor s investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this material without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources believed to be reliable ( information providers ). However, such information has not been verified by DWA or the information provider and DWA and the information providers make no representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein. DWA and the information provider accept no liability to the recipient whatsoever whether in contract, in tort, for negligence, or otherwise for any direct, indirect, consequential, or special loss of any kind arising out of the use of this document or its contents or of the recipient relying on any such recommendation or information (except insofar as any statutory liability cannot be excluded). Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice. Neither the information nor any opinion expressed shall constitute an offer to sell or a solicitation or an offer to buy any securities, commodities or exchange traded products. This document does not purport to be complete description of the securities or commodities, markets or developments to which reference is made. Each investor should carefully consider the investment objectives, risks and expenses of any Exchange-Traded Fund ("ETF") prior to investing. Before investing in an ETF investors should obtain and carefully read the relevant prospectus and documents the issuer has filed with the SEC. ETF's may result in the layering of fees as ETF's impose their own advisory and other fees. To obtain more complete information about the product the documents are publicly available for free via EDGAR on the SEC website ( 30