Solutions
XiAlpha Market Timing Solution
An evidence based systematic process for adjusting equity market exposure
Taxable and Tax-efficient account solutions available
XiAlpha Market Timing Process
Two Regimes
The first step in a market timing model is to avoid, or capture through short exposure, the large drawdown periods which have historically comprised about 15%-20% of the days. This is the biggest alpha contributor over the long term. We have a few simple quantitative rules that would have accomplished this objective over the past 48 years, on average, without foregoing the upside in the good years.
For the other 80%-85% of days when the market is generally in an upward trend, it is more challenging - without using leverage - to outperform the index. But within these 80%-85% of days we have identified environments where the risk adjusted returns justify an upward or downward adjustment to risk exposure. For taxable accounts that can margin or leverage up, on the long side, these represent some of the best risk adjusted return opportunities to enhance performance.
Time Frame Focus
- √ Market exposure is continually adjusted to match the expected risk adjusted returns over the next three months.
- √ The three month horizon allows us to adapt to changing environments, without generating excessive portfolio turnover.
- √ Adjustments to market exposure are done gradually over one to two months – depending on volatility – with a maximum daily turnover of 5%.
- √ The process is expected to be at least 95% systematic, rules-based, with the ability to implement a discretionary override in unusual circumstances.
Separate Solutions For Taxable and Tax Efficient Accounts
- √ Our XiAlpha Market Timing Solution benefits from the ability to take both short exposure as well as leveraged long exposure to the market. Short exposure to the major stock indices is accessible to both tax-deferred and taxable accounts, by using inverse ETFs.
- √ Taxable accounts can benefit from the ability to use margin to leverage up on the long side, whereas utilizing margin is not permitted in tax-deferred accounts. On the other hand, given the tax implications of turnover within the portfolio, there is an added benefit to implementing the strategy in a tax efficient account.
- √ Given the advantages and restrictions between the two types of accounts, we offer the solution in two versions; the Reg-T Margin IRA account and the taxable Reg-T account. The only difference is that the taxable account will leverage exposure on the long side up to 60%.
Performance - historical backtest
Performance snippets based on backtest from 1968 - 2015. Returns shown are average annual returns, not compound returns.
Taxable Account with leverage/margin
Tax-efficient Account - no leverage
Two Regimes
The first step in a market timing model is to avoid, or capture through short exposure, the large drawdown periods which have historically comprised about 15%-20% of the days. This is the biggest alpha contributor over the long term. We have a few simple quantitative rules that would have accomplished this objective over the past 48 years, on average, without foregoing the upside in the good years.
For the other 80%-85% of days when the market is generally in an upward trend, it is more challenging - without using leverage - to outperform the index. But within these 80%-85% of days we have identified environments where the risk adjusted returns justify an upward or downward adjustment to risk exposure. For taxable accounts that can margin or leverage up, on the long side, these represent some of the best risk adjusted return opportunities to enhance performance.
Time Frame Focus
- √ Market exposure is continually adjusted to match the expected risk adjusted returns over the next three months.
- √ The three month horizon allows us to adapt to changing environments, without generating excessive portfolio turnover.
- √ Adjustments to market exposure are done gradually over one to two months – depending on volatility – with a maximum daily turnover of 5%.
- √ The process is expected to be at least 95% systematic, rules-based, with the ability to implement a discretionary override in unusual circumstances.
Separate Solutions For Taxable and Tax Efficient Accounts
- √ Our XiAlpha Market Timing Solution benefits from the ability to take both short exposure as well as leveraged long exposure to the market. Short exposure to the major stock indices is accessible to both tax-deferred and taxable accounts, by using inverse ETFs.
- √ Taxable accounts can benefit from the ability to use margin to leverage up on the long side, whereas utilizing margin is not permitted in tax-deferred accounts. On the other hand, given the tax implications of turnover within the portfolio, there is an added benefit to implementing the strategy in a tax efficient account.
- √ Given the advantages and restrictions between the two types of accounts, we offer the solution in two versions; the Reg-T Margin IRA account and the taxable Reg-T account. The only difference is that the taxable account will leverage exposure on the long side up to 60%.
Performance - historical backtest
Performance snippets based on backtest from 1968 - 2015. Returns shown are average annual returns, not compound returns.
Taxable Account with leverage/margin
Tax-efficient Account - no leverage
Objective
The goal of the Market Timing Solution is to deliver a return over the full market cycle, of 5%-6% greater than the S&P 500 benchmark with half the risk and lower drawdowns.
The goal of the Market Timing Solution is to deliver a return over the full market cycle, of 5%-6% greater than the S&P 500 benchmark with half the risk and lower drawdowns.
Invest
- √ The minimum investment in the XiAlpha Solutions is $25,000 – which can be split between the Market Timing and the Tactical Beta Solution.
- √ Fees are 1% per annum.
- √ The minimum investment in the XiAlpha Solutions is $25,000 – which can be split between the Market Timing and the Tactical Beta Solution.
- √ Fees are 1% per annum.