The Cornerstone 2 model is an updated version of our previous Cornerstone Income model.
The objective of the model is to seek steady income while protecting capital. It does this by using a tactical allocation of four separate models: Bonds, Quality, Dividends, and Alternatives.
Each of these models is designed to provide income in different market conditions. By separately evaluating the different investments, the model is designed to choose the top-performing investments each month. The four models are then combined based on their Sharpe ratio while using our downside risk protector©
The model's dynamic allocation ranks market opportunities based on Relative Return, Absolute Return, and Volatility. Monthly, mathematical scoring ranks ETFs for each investment model and the top-ranking positions are allocated to meet current market conditions.
As ETFs move in and out of favor, the model rotates its market exposure, alternating its positions based on their mathematical ranking relative to the prior month's allocation and each other.
Although not anticipated, in some market conditions, it is possible that cash and fixed income positions can be the highest mathematical ranking within each model.
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 portfolio 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.