The U.S. Unconstrained model is a dynamic model designed to adjust to the changing market conditions within the U.S. stock and bond markets. It is a new approach to the traditional 60/40 portfolio.
In the 60/40 portfolio, the goal is to buy 60% in stocks and 40% in bonds and hold through all market cycles. Traditionally, when one investment type is down, the other will rise. But this isn’t always how the markets behave.
Our model analyzes the stock and bond markets to determine when to invest in each market and when to exit. This allows the model to take advantage of bull markets and avoid bear markets.
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 price of an investment. The higher the volatility, the higher the difference between the high and the low of an investment’s price.