Dorsey, Wright & Associates_2016_Amy_Kemp_Tactic.pdf · 2018-04-03 · PowerShares DWA Utilities Momentum Portfolio (PUI) ♦ PowerShares DWA Tactical Sector Rotation Portfolio (DWTR)

Copyright © 1995-2016 Dorsey, Wright & Associates, LLC®. For Financial Professional Use Only. Not For Use With The Public.

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P: 804.320.8511

Amy KempSenior Analyst

[email protected]

Dorsey, Wright & AssociatesTechnical Insights, Powerful Solutions

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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

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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 3rd party ETFmodel management

Most Recently Published Book by DWA: Point & Figure Charting, 4th Edition

2

DWA Background:Founded January 1987


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

Copyright © 1995-2016 Dorsey, Wright & Associates, LLC®. For Financial Professional Use Only. Not For Use With The Public. 3

Mean Variance Optimization

Rinse … Wash … Rebalance …

Source: wealthfront.com

Traditional Asset Allocation


“Modern Portfolio Theory” is predicated upon academic observations that clients don’t often

adhere to in reality

MPT offers no means for separating one’s self from other Financial Advisors.

Strategic Allocation is free on the internet. In the absence of value,

the only consideration is price.

A Few Practical Considerations …


5

Our Game Plan

Trend Analysis

Measuring Direction of Movement

RelativeStrength

Measuring Magnitudeof Movement

The DWA Evaluation

ProcessSupply & Demand

The Point & Figure Methodology


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.

“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)

Relative Strength Research

Copyright © 1995-2016 Dorsey, Wright & Associates, LLC.® For Financial Professional Use Only. Not For Use With The Public.4

Source: Tactical Capital, from Morningstar Data

• 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 StrengthIndex 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.

Relative Strength Calculation


Double Top Double Bottom

45 O 45 X XO X O X OO X O X OO X O OO X X S

40 O X 40 X OO X X OO X X OO X X OO X X O

35 O B 35 X OO X X X O X O X X O X O X X O O X

30 30

Point & Figure Method:The Most Basic Patterns


With Positive RS… (4/7/1999 – 2/20/2007)

SBUX: 323.48% SPXEWI: 87.55% SPX: 10.01%

With Negative RS… (2/20/2007 – 3/16/2009)

SBUX: -67.15% SPXEWI: -53.34% SPX: -48.35%

With Positive RS. . . (3/16/2009 – 4/29/2016)

SBUX: 943.23% SPXEWI: 247.95% SPX: 173.95%

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

10Copyright © 1995-2016 Dorsey, Wright & Associates, LLC®. For Financial Professional Use Only. Not For Use With The Public.

Starbucks (SBUX)vs.

S&P Equal Weighted Index (SPXEWI)

When the RS Chart is on a buy signal, it suggests outperformance by the numerator (i.e., SPX).

Start Date

End Date Signal SPX AGG

11/22/00 7/31/03 Sell - 25.11% 23.16%7/31/03 7/15/08 Buy 22.68% 1.84%7/15/08 6/5/09 Sell - 22.62% - 0.69%6/5/09 2/11/2016 Buy 94.56% 9.99%

Buy and hold SPX: 38.32%Buy and Hold AGG: 37.01%Switching: 191.94%

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.


Stocks vs Bonds

11

Step One:Create Inventory

Step Two:Relative Strength Analysis

Step Three:Rank Each Asset Class

DALI evaluates the supply and demand forces of asset classes, and ranks them from strongest to weakest based on their relative strength score.

US Equities Int’l Equities

Commodities Fixed Income

Foreign Currencies Cash

Dynamic Asset Level Investing (DALI) Tool


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 © 1995 – 2016 Dorsey, Wright & Associates, LLC®. For Financial Professional Use Only. Not For Use With The Public.

Current DALI Perspective

13

Data as of 5/2/2016

Rigid GuidelinesUnresponsive to trend

changes

Can stay “wrong” for long periods of time


Strategic Pitfalls Tactical Pitfalls

Emotional “Over-rides”Counter-intuitive to implement

Can lead to highly focused exposure

Rules-basedRespects boundariesAdapts to leadership

change

Strategic Allocation Tactical Guidance

Tactical Tilt

Step 2: Tactical “Tilting”

14

Benchmark40% Stocks /60% Bonds



Commodity Domestic Eqty

Intl. Eqty Currency Fix Inc. Cash

MIN 0% 0% 0% 0% 40% 0%MAX 10% 40% 20% 10% 80% 50%



MIN 0% 20% 5% 0% 20% 0%MAX 10% 75% 25% 10% 60% 33%



MIN 0% 10% 10% 0% 10% 0%MAX 20% 80% 30% 20% 40% 30%

ModerateTilt

Allocation

ConservativeTilt

Allocation

The “Tilt” allocation concept is about facilitating the strategic allocation framework to succeed in a truly tactical investment world.

Strategic BoundariesCommodity Domestic

EqtyIntl. Eqty Currency Fix Inc. Cash

MIN 0% 10% 10% 0% 10% 0%MAX 20% 80% 30% 20% 40% 30%



MIN 0% 20% 5% 0% 20% 0%MAX 10% 75% 25% 10% 60% 33%



MIN 0% 0% 0% 0% 40% 0%MAX 10% 40% 20% 10% 80% 50%

Aggressive Tilt

Allocation


This example is presented for illustrative purposes only and does not represent a past or present recommendation.

Step 1: Strategic Boundaries

The Allocation Process

45% of your moderate allocation is accounted for at all times.

The remaining 55% is allocated tactically based on DALI rankings.

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.


The remaining 15% is added to US Equities


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

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Domestic Equity (%) Int'l Equities (%) Fixed Income (%) Commodities (%) Currency (%) Cash (%)

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.

Tactical Tilt Moderate Allocation StrategyHistoric Asset Class Weighting Based Upon Tactical Tilt Methodology

17

DALI Rankings: 6/8/08

DALI Rankings: 9/2/08

Source: The Economist, June 8th 2008 “Lehman”: 9/15/08The examples presented above are for illustrative purposes only and do not represent past or present recommendations.

A Lesson in Adaptation


Today’s Outlook for Equities


+115 -52 +9 +49 -51 -84

Data as of 5/2/2016

-20 -44 -10 +95

The Focus Five Model


First Trust Energy AlphaDEX Fund (FXN) versus…

First Trust Technology AlphaDEXFund (FXL)

First Trust Health Care AlphaDEX Fund (FXH)

Symbol Return

FXN 9.49%FXL -0.19%

3/7/16 - 4/29/16Symbol Return

FXN 14.98%FXH 5.47%

3/4/16 - 4/29/16

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


Matrix rankings as of 4/29/2016

The Focus Five Model Matrix

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.

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



**Model inception date is October 21, 2009. 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.


$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000S&P 500 Index

60/40 Benchmark

Moderate Tactical Tilt (w/ Proxy ETFs)

Moderate Tactical Tilt

Moderate Tactical Tilt (PROMOD): 397.291%

Moderate Tactical Tilt (w/ Proxy ETFs):94.84%

SPX: 48.11%

DWA6040: 42.00%

Hypothetical Growth of $100k Portfolios(Data 1/30/2000 – 4/30/2016)

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 .

Model History & Back-testing

Tactical Tilt portfolios produced positive absolute & relative returns in 2012-2015, 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

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.


Tactical Tilt: Rewarding Discipline

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 .

65%

76%

88%92% 92% 92%

100% 100%

35%

24%

12%8% 8% 8%

0% 0%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 Month Comparison

3 Month Comparison

6 Month Comparison

12 Month Comparison

18 Month Comparison

24 Month Comparison

36 Month Comparison

60 Month Comparison

Frequency of Excess Positive Returns Moderate Tilt Allocation vs. DWA6040

Updated Sept. 2015

Moderate Tilt Outperforms DWA6040 Outperforms


Call us at (804) 320-8511Or visit

www.dorseywright.com

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



Tactical Tilt Disclosures

29

DisclosuresSome 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 (http://www.sec.gov).


http://www.sec.gov/

Documents

Dorsey, Wright & Associates_2016_Amy_Kemp_Tactic.pdf · 2018-04-03 · PowerShares DWA Utilities Momentum Portfolio (PUI) ♦ PowerShares DWA Tactical Sector Rotation Portfolio (DWTR)