Dynamic International Strategy (DIS)

The Milwaukee Company’s Dynamic International Strategy (DIS) seeks to provide risk-managed exposure to global equities ex-U.S. The strategy invests one-half of the portfolio in a fixed allocation to index funds and top-rated actively managed international stock funds. A price-trend dynamic approach is used to manage the other half of the portfolio.

The price-trend signal that is used by the dynamically managed share of the portfolio is derived from a proxy for the total international stock market. When the proxy’s trend is positive, this share of the portfolio is invested in a broadly diversified index ETF that targets global equities ex-U.S. When the proxy’s trend is negative, this share is invested in cash-like investments.

The passive half of the portfolio is allocated to six international funds that are equally weighted (8.33% in each). Three of these funds are actively managed, and other three are factor-based index funds. This part of the portfolio is rebalanced annually.

Classic Asset Allocation Rebalancing (CAAR)

The Milwaukee Company’s Classic Asset Allocation Revisited (CAAR) strategy is a rules-based investment strategy that uses a statistical process known as “mean-variance optimization” (MVO) to create optimal portfolios with the highest expected return for a given level of risk – a target that Nobel Prize-winning economics professor Harry Markowitz referred to as the “efficient frontier”.

CAAR utilizes a variation of Harry Markowitz’s Critical Line Algorithm (CLA) to create efficient frontiers and identify optimal portfolio allocations. CLA allows for additional flexibility when solving a mean-variance optimization, allowing CAAR to control risk and maintain equal-weight diversification amongst its holdings.  

Under normal market conditions, CAAR is rebalanced under a new efficient frontier semi-annually using a trailing six-month period in order to emphasize the momentum factor as a compliment to the portfolio optimization process. However, CAAR monitors the CBOE Volatility Index (VIX) and will rebalance monthly on a trailing three-month period when market volatility is high. 

Market Tracking Strategy (MTS)

The Market Tracking Strategy (MTS) is an investment strategy that focuses on U.S. markets and utilizes broad market trends to tactically adapt its portfolio to reflect those trends.  The strategy uses The Milwaukee Company’s “Momentum Tracking Indicator” (MTI) to track the growth of the U.S. stock market relative to that of the U.S. bond market, and adjusts allocations to a broad mix of U.S. stocks and bonds using exchange-traded funds (ETFs) accordingly. 

MTI compares the trailing one-year performance for the U.S. stock and U.S. bond markets over the prior 12 months to assess the stock market’s trend.  Depending on the relative strength of stocks vs. bonds, MTI classifies the stock market trend into one of the three states: Bull, Bear or Neutral.

The portfolio holds a 75% weighting in index tracking equity ETFs when MTI signals that the stock market’s trend is bullish; 60% is invested in equities when the market trend is neutral, and 45% is invested in equities when the market trend is bearish.  The strategy also holds a modest allocation in a gold ETF to enhance diversification.

Sector Rotation Strategy (SRS)

The Milwaukee Company’s Sector Rotation Strategy (SRS) is a growth-oriented, rules-based investment strategy that combines the evidence-based concepts of momentum and contrarian investing by tactically increasing and decreasing amounts invested in equities and fixed income in response to changing market trends and economic conditions.

The equity component of SRS invests in market-weighted sector ETFs that represent the main sectors of the S&P 500 Index, a large-cap U.S. stock market benchmark.  It uses momentum and value factors as the foundation for asset allocation recomendations. The signals are further refined with a multi-factor model known as The Milwaukee Company Risk Index (MCRI) to generate a near-term forecast for the stock market.

More specifically, SRS:

• Seeks capture the momentum factor by overweighting sectors that have outperformed over the prior six months.

• Engages in contrarian investing by underweighting sectors that have outperformed over prior two years.

MCRI incorporates a range of economic and market indicators to generate a near-term forecast of S&P 500 risk based on the 1-year return outlook for the stock market.  If MCRI assesses the current level of equity risk as favorable then the strategy recommends 100% allocation to equities.  Otherwise, the strategy will allocate 50% of the portfolio to fixed income.

Targeted Risk Strategy (TRS)

The Milwaukee Company’s Targeted Risk Strategy (TRS) is a trend-following strategy that is intended to generate attractive risk-adjusted returns by encouraging portfolio stability during bear markets. 

Trend following is based on the premise that over shorter time frames, markets tend to continue their current trend for a period of time.  In other words, markets that are trending lower tend to continue moving lower, and vice versa.  In turn, trend following strategies avoid/sell securities exhibiting a negative trend and favor/buy those with a positive trend. 

TRS uses a Trend Signal indicator based on drawdowns and rebounds to evaluate the current trends of each of the Primary ETFs. TRS will invest in the Primary ETF whenever its Trend Signal is positive, and will invest in the Alternative ETF if the Primary ETF’s Trend Signal is negative.

Tactical Stock Strategy (TSS)

The Milwaukee Company’s Tactical Stock Strategy (TSS) is an investment strategy that invests in U.S. bonds, growth stocks and value stocks of large, “blue-chip” U.S.-based companies.  The amount allocated to each of these sectors depends on the state of the U.S. economy, which is determined with nowcasts generated by The Milwaukee Company Economic Index (MCEI).

In addition to MCEI, TSS also utilizes what is known as The Milwaukee Company Growth-Value Indicator (MCGVI).  MCGVI serves as a secondary indicator in TSS and adds an additional layer of tactical screening to determine the relative valuation of growth and value stocks.

The U.S. equities component of TSS consists of shares included in the Russell 1000 Index, which represents the 1,000 largest firms in the multi-cap Russell 3000 Index. 

Companies included in the Russell 1000 Index have two subsets.

• The Russell 1000 Growth Index is comprised of Russell 1000 companies with relatively higher price-to-book ratios, higher I/B/E/S forecast medium term (2 year) growth and higher sales per share historical growth (5 years).
• The Russell 100 Value Index includes Russell 1000 companies with relatively lower price-to-book ratios, lower medium term (2 year) growth prospects, and lower sales per share growth.

Systematic Market Beta (SMB)

The Milwaukee Company’s Systematic Market Beta strategy (SMB) seeks to generate market returns under normal conditions, and serve as a hedge when the risk of an extended correction or bear market appears likely in the near term for either the stock or bond markets, or both.

SMB’s goal is to reduce risk and enhance performance by adjusting asset allocations based on the risk outlook, as determined by a set of proprietary indicators developed by The Milwaukee Company. The basic framework for managing the portfolio:

• When market risk is estimated to be low to moderate, SMB will invest in a market beta portfolio that is reflective of the broad stock and bond markets:  60% allocated to stocks, 35% to bonds, and 5% in commodities.
• When either the stock or bond market (or both) appears to be vulnerable to an extended decline, SMB will adopt a relatively conservative approach by lessening exposure to those securities that are most susceptible to the risk at hand.

SMB assesses stock market risk by assessing (i) the S&P 500’s price-trend behavior based on several measures of moving averages over varying time frames; and (ii) return volatility using the standard deviation for various rolling periods for daily return.

Bond market risk is evaluated using a two-factor model that estimates the probability of interest rates rising or falling in the near-term. 

Fixed Income Trend Strategy (FIT)

The Milwaukee Company’s Fixed Income Trend (FIT) strategy invests in a broadly diversified fixed income portfolio consisting primarily of U.S. securities.  The strategy adjusts the portfolio risk exposure to adapt to the evolving state of bond-market price trends.

Under normal market conditions, FIT invests in a core portfolio comprised primarily in U.S. government, municipal and investment-grade corporate bond ETFs.  Small allocations to funds targeting high-yield bonds, foreign bonds, real estate investment trusts, and convertible securities are also held for diversification purposes.

When bond-market risk appears to be elevated, the strategy reduces or eliminates exposure to sectors that are relatively vulnerable to rising interest rates and reinvests the proceeds in defensive-oriented funds until the bond market trend looks bullish again.

FIT uses a combination of two indicators to assess bond market risk.

• The first uses a type of trend - following indicator known as a moving average convergence/divergence oscillator (MACD), that shows the relationship between two moving averages.
• The second is tied to a simple ratio of the 10-week and 100-week exponential moving averages of the returns generated by the strategy’s core portfolio.