Portfolio Shield™ is a unique investment strategy designed to take risk when the equity markets are rising and reduce risk when the equity markets are falling. It is a formula-based long-only equity strategy that has a unique hedging mechanism to reduce the downside risk of the strategy when markets get volatile, or worse, during Bear markets.
There are five Portfolio Shield™ models to choose from depending on your investment goals and risk tolerance level.
Portfolio Shield™ is a dynamic strategy that adapts to changing market conditions monthly.
During Bull markets, when stock prices are rising, Portfolio Shield™ will adjust the portfolio to take advantage of rising stock prices.
During Bear markets, when stock prices are falling, Portfolio Shield™ will take a defensive allocation by reducing its equity exposure and increasing the portfolio’s allocation to bonds and cash.
Portfolio Shield™ is a simple, easy-to-understand investment strategy that adds convexity to the S&P 500® and Nasdaq-100, and utilizes a long-term Treasury bond fund to potentially deliver higher investment returns with less risk compared the S&P 500® over the past three, five, ten, and fifteen years, based on current and back-tested Morningstar® returns.
Portfolio Shield™ Growth, Balanced, Income, and Conservative models add an aggregate bond fund, made up of corporate bonds, U.S. Treasury securities, and Mortgage-Backed Securities, as a base layer to further reduce risk. By adding an aggregate bond fund, Portfolio Shield™ Growth, Balanced, Income, and Conservative have strong risk-adjusted returns despite their reduced risk.
By investing in equity ETFs that track the S&P 500® and Nasdaq-100 at all times with a systematic options overlay, Portfolio Shield™ rises and falls with the broad stock market. Based on current and Morningstar® back-tested returns, Portfolio Shield™ has outperformed the S&P 500 twelve out of the past fifteen years, gross of advisory and transaction fees.
Portfolio Shield™ has two unique features to reduce risk and volatility, based on Standard Deviation and Beta:
On the first trading day of each month, two formulas are run, and all models are rebalanced according to the results.
The first formula looks at the relationship between stock prices and Treasury yields, since Treasury yields generally lead stock prices lower, on average, by three months. Should the market conditions warrant, the first formula will recommend the models reduce their equity exposure with a long-term U.S. government bond fund, or as I refer to it as hedging the strategy.
By adding, increasing, decreasing, or removing the Treasury bond fund from the allocation, Portfolio Shield™ can improve upside performance during Bull markets and reduce downside risk during Bear markets or volatile periods.
The second formula allocates each position in the strategy based on the individual volatility, or fluctuations, of each position. A greater percentage is given to the positions with the least volatility.
Most investment strategies available today were either developed decades ago or were designed to work under a specific set of conditions. Portfolio Shield™ was designed to work within the constructs of our monetary system and is optimized to work in today’s financial markets.
Portfolio Shield™ takes the best aspects of low-cost index investing and incorporates a unique way to reduce risk when equity markets are falling.
When compared to a traditional diversified portfolio, a volatility-controlled portfolio, or a “robot” advisory portfolio, Portfolio Shield’s unique design and hedging strategy allow Portfolio Shield™ to generate higher returns for less risk over 3-, 5-, and 10 years when compared to investing in the S&P 500®, based on current and backtested returns by Morningstar®.
The strategy is designed to allocate itself to the S&P 500® and the Nasdaq-100 with convexity and the Nasdaq-100 with convexity when the equity markets are rising (at the discretion of the managers, may temporarily use the S&P 500® with convexity and the Nasdaq-100 with convexity during Bear markets). When the equity markets slow down or start to correct, the portfolio reduces its equity exposure by adding a long-term U.S. Treasury fund to the allocation.
The Treasury fund acts as a brake to reduce the downside risk of the portfolio when stocks go down. This works because when stocks fall, bonds typically rise. The bond allocation has the potential to offset a large portion of the fall in the equity allocation.
Portfolio Shield™ was designed around our monetary system, along with the business and credit cycles. With a deep understanding of how the stock and bond markets work inside our monetary system, the strategy can adjust between both as economic conditions change.
Portfolio Shield™ uses five highly liquid, low-fee ETFs. Large market makers back each ETF to provide maximize liquidity during the monthly rebalancing and to provide daily liquidity to meet client needs.
SPDR® S&P 500 ETF (SPY)
Invesco QQQ Trust ETF (QQQ)
iShares Core Aggregate Bond ETF (AGG)
iShares Trust iBoxx High Yield ETF (HYG)
iShares Trust 7-10 Year Treasury Bond ETF (IEF)
With a limited number of potential investments in the allocation, investors will be able to easily determine how their portfolio is allocated.
All current and back-tested returns, along with all the risk analytics are validated by Morningstar®. Each month Morningstar® provides an updated Investment Detail Report on the Portfolio Shield™ strategy. Morningstar® is the premier provider of data and analytics for the financial services industry.
Portfolio Shield™ is a formula-based strategy that is rebalanced on the first trading day of each month based on its formulas. The formulas are not overridden regardless of market conditions.
Future changes to the monetary system, such as a repeal of parts of the Federal Reserve Act to allow direct monetization of debt, may require changes to the strategy.
The advisory fee to manage Portfolio Shield™ is 1% per year on household accounts under $2 million and 0.5% per year on the total amount for household accounts over $2 million.
Fees are billed quarterly in advance and any unused days are refunded.
The expense ratio for each ETF used by Portfolio Shield™ is stated in the prospectus of each ETF. The returns of each ETF are net of their expense ratio.
Updates on the strategy are made publicly available following each monthly rebalance on Steve’s website under the Portfolio Shield™ category.