Introducing EVO An Evolutionary Money Management System Potomac Advisors Inc. Presented by Rich Paul 1
H e l l o! 2 Today s Agenda 1 W h o I a m, W h a t I d o & H o w I d o i t 30-years of registered, investment advisory experience. 2 M y p e r f o r m a n c e GIPS compliant, and GIPS and Theta Research verified track record.
I N T R O D U C I N G Rich Paul 3 C a r e e r H i g h l i g h t s : 25 year tenure as an electrical engineer/weapons system analyst. 30 year tenure as a registered investment advisor. Founder of Potomac Fund Management, CEO from 1987-2003. Co-founding member of NAAIM - authored NAAIM s first performance measurement standards while serving as Chairman of the committee. Co-authored landmark JPM article: Market Timing Works, Where it Matters Most In the Real World. E V O 1 H i s t o r i c a l P e r f o r m a n c e : 18.55% 15.32% $1000M 15.29% $1000M 14.08% 3 yr 7 yr 10 yr Inception P e r f o r m a n c e c a l c u l a t i o n s f r o m J u n e 1, 2 0 0 2 t h r o u g h J u l y 3 1 s t, 2 0 1 6. ( N e t : i n c l u d e s 2. 7 5 % m a n a g e m e n t f e e )
# 4 A B O U T U S E V O : ev o lu tion-ary (ĕv ə-lo o shə-nĕr ē): AN E V O L U T I O N A R Y M O N E Y M A N A G E M E N T A gradual process in which something changes into a different and usually more complex or better form. SYSTEM
# 5 A B O U T U S T H E K E Y T O E V O S S T R A T E G Y Academic research indicates that when multiple trading systems are aggregated the noise and errors will tend to diversify away, while the signal remains, and is stronger.
A B O U T EVO 6 How signals are created EVO is a mechanical system, by which all signals are generated based on algorithmic rules using technical analysis. This eliminates all subjective biases and emotion from trading decisions. Select from a Universe of 120+ Individual Trading Systems Creates Thousands of Combinations Validated Combinations are included in a Single EVO Composite New Combinations Continually Evaluated for Inclusion
# 7 A B O U T EVO Evolved from a composite of 8 to over 20+ multiple trading systems E V O S S Y S T E M P R O F I L E Trading systems are divided into long-term filters & short-term triggers. Buy / Sell / Short / Hold decisions plus protective stops EVO 1 trades are executed in Rydex S&P 500 index funds Long Positions: Rydex Nova Fund, an S&P 500 1.5X Leveraged mutual fund Short Positons: Rydex Inverse S&P 500 Fund = Inverse 1.0X S&P 500 Trades ~20 round trips per year (1 RT = 1 buy & 1 sell. Projection is based on current model) All In, i.e., 100% invested on each trade
Performance a posse ad esse
A B O U T E V O = 9 EVO s evolution: June 2002 March 2015 A l l r e s u l t s a r e n e t o f a 2. 7 5 f e e. T H E O R I G I N A L E V O 1 By using forward-testing, we can see how the original 8 system would have performed if never changed. F o r w a r d - t e s t e d E VO1 As EVO evolved from 8 to 18 systems, we see performance improve with little change to risk & volatility. A c t u a l R e s u l t s A N N U A L I Z E D R A T E O F R E T U R N 10.14% VS 14.11% M A X D A I L Y D R A W D O W N -25.27% -27.12% U L C E R I N D E X 6.38% 6.20%
P E R F O R M A N C E 10 14+ Year Performance Results J u n e 1, 2 0 0 2 t h r o u g h J u l y 3 1, 2 0 1 6. ( N e t o f a 2. 7 5 f e e ) Metric EVO1 S&P 500 % of Time Invested Long 51.1% 100% % of Time Invested Short 0.4% N/A # Winning Trades 90 N/A # Losing Trades 57 N/A % of Winning Trades 61% N/A Average Gain of Winning Trades 4.06% N/A Average Loss of of Losing Trades -2.35% N/A Ratio Avg. Winning Trade to Avg. Losing Trade 1.73 N/A
P E R F O R M A N C E Historical Performance 11 J u n e 1, 2 0 0 2 t h r o u g h J u l y 3 1, 2 0 1 6. ( N e t o f a 2. 7 5 f e e ) Calendar Year Returns (* = partial year) Year EVO1 S&P500 + / - YTD 8.59% 7.66% +0.93% 2015 9.12% 1.38% +7.74% 2014 20.25% 13.69% +6.56% 2013 46.79% 32.39% +14.40% 2012 21.39% 16.00% +5.39% 2011 2.38% 2.11% +0.27% 2010-2.80% 15.06% -17.86% 2009 16.79% 26.46% -9.67% 2008 16.61% -37.00% +53.61% 2007 15.93% 5.49% +10.44% 2006 12.44% 15.79% -3.35% 2005-3.73% 4.91% -8.64% 2004 15.86% 10.88% +4.98% 2003 31.81% 28.68% +3.13% 2002* -1.93% -16.69% 14.76% Summary Statistics Metric EVO1 S&P 500 Annualized Rate of Return 14.08% 7.31% Cumulative Return 547% 172% Standard Deviation (mo.) 4.14% 4.20% Loss Standard Deviation (mo.) 2.78% 3.71% Sortino Ratio RF (Citi 3 mo. TB) 1.66 0.67 Sharpe Ratio 0.90 0.42 Maximum Drawdown -25.45% -51.0% Up Capture vs. Market 82.1% 100% Down Capture vs. Market 40.2% 100% Alpha Vs. Market 10.5% 0% Beta vs. Market 0.39 1.00 R-Squared vs. Market 0.15 1.00
Y O U R M O N E Y Growth of a Hypothetical $100,000 Investment 12 A l l r e s u l t s a r e n e t o f a 2. 7 5 f e e.
Consistent performance, nearly positive absolute returns 13 # P E R F O R M A N C E Maximum calendar year loss only -3.73% Strategy was up +16.6% in 2008: S&P down -37% R E A L - T I M E P E R F O R M A N C E ; S T E L L A R R E S U L T S Program doubled the return of the S&P 500 Total Return with half the risk System evolution produced continuously improving results Actual results better than the if original composite were used Current model projects better than the actual results (based on backtests) Over a recent 10-year period, the program beat every single actively managed mutual fund, ETF, and all but one index (on a gross of fees basis) 292 signals (146 round trips) over 14 years demonstrate statistically significant results
C L O S I N G T H O U G H T S 14 The EVO competitive advantage Real- t i m e S t e l l a r 1 All results are actual. No hypotheticals or back-tested results. 6 Superior performance, beats on risk and return. 2 H i s t o r y EVO went live May 31, 2002, over 14 years ago. 3 V e r i f i e d GIPS verified track record through June 2014. Theta Research provides ongoing verification. 7 C o n s i s t e n c y The only strategy ranked in the top four in performance in all seven time periods from one to 10 years as tracked by Theta Research through July 2016 after applying a 2.5% advisory fee. Ranking Highlights: Three #1 rankings Three #2 rankings Ranked #1 or #2 on a risk adjusted basis for all time periods from three to 10 years. (Theta s Ulcers Performance Index)
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GIPS VERIFICATION 16
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18 Potomac Advisors Performance Disclosure EVO composite performance is based on actual accounts and comprises all accounts in the composite. Composite returns are time-weighted total returns that reflect the reinvestment of dividends and capital gain distributions. Composite returns are net of the underlying mutual fund management fees and other fund (administrative) expenses. No redemption or 12(b)1 (fund marketing) fees were charged for these composites. Composite returns are shown gross of fees, thus no adjustment for fees has been made, neither for income taxes. Performance for other composites in other investment programs offered may differ materially (more or less) from the performance of this composite. The volatility of the market indices may materially differ (more or less) from that of this composite. Benchmark returns such as the S&P 500 are total returns and reflect the reinvestment of dividends. It should not be assumed that future recommendations will be profitable or equal past performance. The investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. This material is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. Such offers can only be made where lawful under applicable law. This presentation is for use by investment professionals only. It is not intended to be distributed to the public and such use is prohibited. It is intended to demonstrate to advisers the performance of the manager, not the actual performance after fees which may different for licensees of the EVO system.