Risk Statistic Descriptions Unless otherwise specified, all risk statistics are for the past 10 years
SEM Risk Score = Scores range on a scale of 0 to 100 based on the answers to the questionnaire.
Riskalyze Score = An estimate based on the volatility of the portfolio and a regression of the Riskalyze scores for some buy and hold index fund portfolios. This can be used to compare the SEM portfolio to a Riskalyze score, which can range from 0 to 100. Riskalyze is a financial technology provider not affiliated with SEM.
Tolerisk Score = An estimate based on the volatility of the portfolio and a regression of the Tolerisk scores for some buy and hold index fund portfolios. This can be used to compare the SEM portfolio to a Tolerisk score, which can range from 0 to 100 and generates a recommended investment in stocks as a percentage for the client. Tolerisk is a financial technology provider not affiliated with SEM.
Value@Risk (MVaR) = a Measure of TOTAL risk based on the historical distribution range and a 97% probability. This measure not only takes into account previous losses, but potential losses based on the historical level of risk in obtaining returns.
Maximum Drawdown (MaxDD) = a Measure of risk based on the historical hypothetical loss from the highest recent value to the lowest value, measured on a monthly basis, net of the maximum management fee.
Monthly Up Capt. = Monthly Upside Capture (2000-Present); % of S&P 500 gain during up months.
Monthly Dwn Capt. = Monthly Downside Capture (2000-Present); % of S&P 500 loss during down months; IMPORTANT—a negative downside capture means the portfolio MADE money during the down months (on avg).
All results assume the maximum management fee was deducted in arrears and capital gains and dividends were reinvested. Starting October 1, 2006, the maximum management fee for all accounts is 0.5625% per quarter for the "tactical" programs & 0.375% per quarter for the Dynamic programs (DIA, DBA, DAA, & DAG). The maximum fee for AmeriGuard accounts is 0.375% per quarter. Results prior to June 30, 2001 for INA and TB programs are model performance results achieved by Merit Advisors, a sub-advisor to SEM. Performance results from June 2001 to December 2003 were subject to services provided by Merit Advisors and represent a single High Yield Bond trading system. Merit provided the buy & sell signals and SEM chose to accept or reject the signal, selected the fund(s) to use and executed the trades. Performance since June 30, 2001 represents the results of SEM tracking accounts. Results after 2003 for INA reflect multiple trading systems developed by SEM. Results prior to September 30, 2005 for EPA are not actual, they are HYPOTHETICAL model performance. Results prior to December 31, 2006 for EGA are not actual, they are HYPOTHETICAL model performance. Some of the mutual funds currently being used were not available until June 2000, making the HYPOTHETICAL results unattainable during that time. Results prior to June 30, 2014 for TAB are not actual, they are HYPOTHETICAL model performance. Results prior to April 30, 2016 for DIA, DAA, DBA, & DAG are not actual, they are HYPOTHETICAL model performance. One of the mutual funds currently being used (Emerging Market Leveraged Index) was not available until 2005, making the HYPOTHETICAL results unattainable during that time. AmeriGuard portfolio results are hypothetical prior to June 1, 2017. There are inherent limitations in HYPOTHETICAL results. Actual mutual fund prices are utilized where available. Where HYPOTHETICAL results were obtained using the actual indices prices, mutual fund expenses are approximated using expense ratios of the funds. Results do not include the benefit of money market dividends used when the active systems are on defense. Real time results WILL deviate from the HYPOTHETICAL results due to several factors such as mutual fund expenses, differences between the time the trade was placed and the actual market closing price, tracking differences between the fund and the index, the fact that material economic and market factors might have an impact on the investment advisor’s decision making process, and the fact that tested results occurred in an unusually strong market environment.
Advisor reserves the right to add or replace trading systems during real time without restating model performance results if they believe the return/risk profile will not change substantially. All accounts within a program at a specific custodian are managed in a similar manner.
From July 1, 2001 to December 31, 2015, performance results are the asset weighted average performance for each custodian representative account within each program. If custodian represented less than ten percent of the total program assets, results may not be included. Beginning in 2016 results are an asset weighted composite of all accounts in the program for the entire period. For more details on the composite construction, please contact Strategic Equity. Individual client results may vary from the performance of the composite. Some or all of the following may occur: There could be cash flows into or out of the account. The advisor could select a different fund in the same asset class for different client accounts. Different custodians could have different fund availability, annual costs, and fees. The advisor may use different trading systems or system allocations at different custodians. Clients in the same program can be charged different fees. Fee schedules are available in Strategic Equity Management’s Firm Brochure or upon request.
Benchmark results were provided by Morningstar or the index provider and include dividends unless otherwise indicated.
Past performance is no guarantee of future results. There is potential for loss as well as gain in security investments of any type, including those managed by Strategic Equity Management, Inc. The investments discussed in this presentation may not be suitable for all investors. Strategic Equity Management’s Firm Brochure is available upon request.
Benchmark Descriptions and Comparison to SEM Programs
There are material differences between the programs SEM manages and the benchmark selected that impact performance. The objective of the benchmark is to represent a passive investment in similar asset classes to this program. The objective of all SEM Programs is to provide benchmark type returns with lower volatility over a full market cycle. The returns in this program should be expected to vary from the returns of the benchmark due to our active management style, which utilizes money market funds and inverse funds or sub-accounts with the goal of reducing volatility. The benchmark for the ENCORE portfolios is the weighted average of the benchmarks of the underlying SEM portfolios. All underlying portfolios use the Morningstar (MS) Categories as benchmark. Each Morningstar Category represents the average return for the mutual funds in the Morningstar database for that respective category. The benchmarks for each program are as follows:
· Income Allocator (MS Category Multisector Bond);
· Tactical Bond (50% MS Category High Yield Bond, 50% MS Category Short-Term Government Bond);
· Dynamic Income Allocation (MS Category Preservation Allocation--15-30% Equities)
· Dynamic Asset Allocator (MS Long-Short Equity Category)
· Dynamic Balanced Allocation (MS Category Moderate Allocation--50-70% Equities)
· Enhanced Growth (MS Category Tactical Allocation);
· Dynamic Aggressive Growth (MS Category Aggressive Allocation—85% Equities);
· Tax Advantaged Bond (50% MS Category High Yield Muni, 50% MS Category Muni National Short)
. AmeriGuard Portfolios use the MS Allocation Category benchmark that matches the portfolio name
The following is a description of the benchmarks used in the performance materials:
S&P 500 Index: The S&P 500 is a capitalization weighted, unmanaged group of 500 stocks as selected by the Standard & Poor’s Publishing Company. They are usually the 500 largest companies in terms of market capitalization and are chosen to represent the entire market’s value. The S&P 500 is used by many institutional investors as a performance benchmark representing the “stock market” return.
Morningstar Category Multisector Bond: Used for funds that seek income by diversifying their assets among several fixed-income sectors, usually U.S. government obligations, foreign bonds, and high-yield domestic debt securities.
Morningstar Category High Yield Bond: High-yield bond portfolios concentrate on lower-quality bonds, which are riskier than those of higher-quality companies. These portfolios generally offer higher yields than other types of portfolios, but they are also more vulnerable to economic and credit risk. These portfolios primarily invest in U.S. high-income debt securities where at least 65% or more of bond assets are not rated or are rated by a major agency such as Standard & Poor's or Moody's at the level of BB (considered speculative for taxable bonds) and below.
Morningstar Category Short-Term Government Bond: Short-government portfolios have at least 90% of their bond holdings in bonds backed by the U.S. government or by government-linked agencies. This backing minimizes the credit risk of these portfolios, as the U.S. government is unlikely to default on its debt. These portfolios have durations typically between 1.0 and 3.5 years, so they have relatively less sensitivity to interest rates and, thus, low risk potential. Morningstar calculates monthly breakpoints using the effective duration of the Morningstar Core Bond Index in determining duration assignment. Short is defined as 25% to 75% of the three-year average effective duration of the MCBI.
Morningstar Category World Allocation: World-allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. While these portfolios do explore the whole world, most of them focus on the U.S., Canada, Japan, and the larger markets in Europe. It is rare for such portfolios to invest more than 10% of their assets in emerging markets. These portfolios typically have at least 10% of assets in bonds, less than 70% of assets in stocks, and at least 40% of assets in non-U.S. stocks or bonds.
Morningstar Category Preservation Allocation (15-30% Equities): The Preservation Target Risk Allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. These portfolios tend to hold larger positions in bonds than other asset-allocation portfolios. These portfolios typically have 15% to 30% of assets in equities and the remainder in fixed income and cash.
Morningstar Category Moderate Allocation (50-70% Equities): The Moderate Target Risk Allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. Designed to be a "balanced" investment, these portfolios tend to hold larger positions in stocks than moderate-allocation portfolios. These portfolios typically have 50% to 70% of assets in equities and the remainder in fixed income and cash.
Morningstar Category Moderate Aggressive Allocation (70-85% Equities): The Moderate Aggressive Target Risk Allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. These portfolios tend to hold larger positions in stocks than moderate-allocation portfolios. These portfolios typically have 70% to 85% of assets in equities and the remainder in fixed income and cash.
Morningstar Category Aggressive Allocation (85% + Equities): Aggressive-allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. These portfolios tend to hold larger positions in stocks than moderate-allocation portfolios. These portfolios have over 85% of assets in equities and the remainder in fixed income and cash.
Morningstar Category High Yield Muni: High-Yield Muni portfolios typically invest a substantial portion of assets in high-income municipal securities that are not rated or that are rated at the level of or below BBB (considered high-yield within the municipal-bond industry) by a major ratings agency such as Standard & Poor’s or Moody’s.
Morningstar Category Muni National Short: Muni national short portfolios invest in bonds issued by various state and local governments to fund public projects. The income from these bonds is generally free from federal taxes. To lower risk, these portfolios spread their assets across many states and sectors. These portfolios have durations of less than 4.5 years (or, if duration is unavailable, average maturities of less than five years).
Morningstar Category Long-Short Equity: Long-short portfolios hold sizable stakes in both long and short positions in equities and related derivatives. Some funds that fall into this category will shift their exposure to long and short positions depending on their macro outlook or the opportunities they uncover through bottom-up research. Some funds may simply hedge long stock positions through exchange-traded funds or derivatives. At least 75% of the assets are in equity securities or derivatives.
3 Month T-Bill: Three-month Treasury Bills are short-term securities issued by the U.S. government that are generally considered to be risk-free. Morningstar determines the arithmetic mean of the investment rates on all three-month Treasury Bills issued during a given month as reported by the U.S. Treasury's Bureau of the Public Debt. Morningstar then converts the investment rate into a price and then a monthly return, using the assumption that the T-Bill is held to maturity. Used in some charts to illustrate the “risk-free” return that could have been obtained from the “average” 3-month Certificate of Deposit (CD). It should be understood a T-Bill or CD is not an appropriate benchmark for any of SEM’s programs. Data prior to July 31, 2013 uses Morningstar US Treasury Certificate of Deposit 3 Month.
Target Retirement Funds: The returns for the Target Date Retirement portfolios use the Vanguard Investor share returns based on the specific objective.
There is no representation made as to the future results of SEM’s programs or if they will be profitable.