Multifactor Portfolio Models

Multifactor Portfolio Models

Through Dec. 31, 2016

NOTE: Please read the important disclosure about the portfolio models at the bottom of this page. It will provide you with background information and additional detail on hypothetical model portfolio performance, our investment philosophy, approach, and methodology as well as measurement of risk and sources and descriptions of the data that we use.

 

 Multifactor Equity Index Portfolio

The Multifactor Equity Index Portfolio composition is 90% globally diversified stocks with tilts toward value, small cap and profitability combined with 10% publicly-traded real estate investment trust stocks. The Large Cap Equity Index Portfolio used as a comparison is 60% S&P 500 Index and 40% MSCI EAFE Index (net div). 

 

Portfolio Model Annualized Return

 

 

 

Multifactor 80/20 Index Portfolio

The Multifactor 80/20 Index Portfolio composition is 72% globally diversified stocks with tilts toward value, small cap and profitability combined with 8% publicly-traded real estate investment trust stocks and 20% short to intermediate-term high quality fixed income.  The international fixed income allocation is currency hedged. The Large Cap 80/20 Index Portfolio used as a comparison is 48% S&P 500 Index, 32% MSCI EAFE Index (net div) and 20% Barclays US Aggregate Bond Index.

 

Portfolio Model Annualized Return

 

 

 

Multifactor 60/40 Index Portfolio

The Multifactor 60/40 Index Portfolio composition is 54% globally diversified stocks with tilts toward value, small cap and profitability combined with 6% publicly-traded real estate investment trust stocks and 40% short to intermediate-term high quality fixed income. The international fixed income allocation is currency hedged. The Large Cap 60/40 Index Portfolio used as a comparison is 36% S&P 500 Index, 24% MSCI EAFE Index (net div) and 40% Barclays US Aggregate Bond Index.

 

Portfolio Model Annualized Return

 

 

 

Multifactor 40/60 Index Portfolio

The Multifactor 40/60 Index Portfolio composition is 36% globally diversified stocks with tilts toward value, small cap and profitability combined with 4% publicly-traded real estate investment trust stocks and 60% short to intermediate-term high quality fixed income. The international fixed income allocation is currency hedged. The Large Cap 40/60 Index Portfolio used as a comparison is 24% S&P 500 Index, 16% MSCI EAFE Index (net div) and 60% Barclays US Aggregate Bond Index.

 

Portfolio Model Annualized Return

 

 

Important Information About Model Portfolios

These model portfolios have been created to be used solely as an educational tool.  The models are purely hypothetical, based on historical performance of certain asset classes and constructed from indices representing those asset classes. 

The model portfolios were designed and constructed based on modern portfolio theory and a multifactor model.  The result of the application of the model is that so-called “small cap” stocks, "value" stocks (stocks of firms with a high book-to-market ratio) and the stocks of firms with greater profitability are emphasized in the portfolio and provide a greater expected return than the overall market over time. However, these asset classes – particularly, small cap and value stocks – may provide excess return because they are riskier asset classes. Consequently, the additional risk of these asset classes should be mitigated or diversified as much as possible, using other asset classes with low correlation of returns.

Charts compare performance of the Multifactor Index Portfolios since January 1, 1976 to the Large Cap Index Portfolios and other selected indices.  The Large Cap Index Portfolios and selected indices are presented to illustrate the return premium associated with the multifactor model. The Multifactor Index Portfolios include exposure to emerging markets to illustrate the additional benefit of global diversification.  The Large Cap Index Portfolios include international exposure, but it is limited to developed countries.

These materials are subject to change without notice and, due to the rapidly changing nature of the securities markets, may quickly become outdated.  All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed.  This information is distributed solely for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service.

Talis Advisory Services, LLC is an investment advisor registered with the United States Securities and Exchange Commission.  Consider the investment objectives, risks, and expenses carefully before investing.

Although we have made every attempt to present this data fairly, hypothetical performance is still potentially misleading for a number of reasons:

  • Indices are not available for direct investment.  Index performance does not reflect the expenses associated with the management of an actual portfolio. The performance of an index is not an exact representation of any particular investment.
  • Hypothetical data does not represent actual performance and should not be interpreted as an indication of actual performance.
  • Since these are purely hypothetical models, there can be no assurance that a client would have achieved similar rates of return over the same time period.
  • Performance data represents past performance only and there can be no assurance that future returns will in any way resemble those presented for the model portfolios.
  • Current performance may be higher or lower than the performance shown.
  • Results do not include the impact of taxes, if any.
  • Results are dependent upon market and/or economic conditions.

 

Sources and Description of Data

Index data is supplied by Dimensional Fund Advisors, Inc. Information is from sources deemed reliable but its accuracy cannot be guaranteed. The index-based portfolios are constructed using the following indices:

Multifactor portfolios

US Large Cap Stocks:  S&P 500 Index, 1/1/1970 – 12/31/2016

US Large Cap Value Stocks:  Dimensional US Large Cap Value Index, 1/1/1970 – 12/31/2016

US Small Cap Stocks:  Dimensional US Small Cap Index, 1/1/1970 – 12/31/2016

US Small Cap Value Stocks:  Dimensional US Small Cap Value Index, 1/1/1970 – 12/31/2016

US Real Estate Securities (REITs):  Dow Jones US Select REIT Index, 1/1/1978 – 12/31/2016

International Stocks:  MSCI World ex-USA Index (net div), 1/1/1970 – 12/31/1974

International Value Stocks:  Fama/French International Value Index, 1/1/1975 – 12/31/1993, then Dimensional International Value Index, 1/1/1994 – 12/31/2016

International Small Cap Stocks:  Dimensional International Small Cap Index, 1/1/1970 – 12/31/2016

International Small Cap Value Stocks:  Dimensional International Small Cap Value Index, 7/1/1981 – 12/31/2016

Emerging Markets Stocks:  MSCI Emerging Markets Index, 1/1/1988 – 12/31/1993, then Dimensional Emerging Markets Index, 1/1/1994 – 12/31/2016

Emerging Markets Value Stocks:  Dimensional Emerging Markets Value Index, 1/1/1989 – 12/31/2016

Emerging Markets Small Cap Stocks:  Fama/French Emerging Markets Small Cap Index, 1/1/1989 – 12/31/1993, then Dimensional Emerging Markets Small Cap Index, 1/1/1994 – 12/31/2016

Fixed Income:  Merrill Lynch 1-Year US Treasury Note Index, 1/1/1970 – 12/31/2016, Morningstar Long-Term Government Bonds Index, 1/1/1970 – 12/31/1972, Barclays US Government Bond Index Intermediate, 01/01/1973 – 12/31/1975, Barclays Treasury Bond Index 1-5 Years, 01/01/1976 – 12/31/2016, Citigroup World Government Bond Index 1-5 Years (hedged to USD), 01/01/1985 – 12/31/2016, Citigroup World Government Bond Index 1-3 Years (hedged to USD), 01/01/1985 –12/31/2016

Large Cap Portfolios

US Large Cap Stocks:  S&P 500 Index, 1/1/1970 – 12/31/2016

International Large/Mid-Cap Stocks:  MSCI EAFE Index, 1/1/1970 – 12/31/2016

Fixed Income:  Barclays US Aggregate Bond Index:  1/1/1976 – 12/31/2016

We use an annualized standard deviation figure as an approximation because the annualized figure is the most common way of presenting standard deviation and because it provides a measure that may be more easily compared to Morningstar and other advisors’ figures.  To calculate the annualized standard deviation, we multiply the monthly standard deviation figure by the square root of the number of periods in a year.  Standard deviation calculated using actual annual data may differ materially from this estimate. The portfolios are rebalanced monthly.  The Sharpe Ratio is calculated using one-month US Treasury Bills as the risk-free rate of return.

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