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 Nobel Laureate Professor Harry Markowitz’s Critical Line Algorithm (CLA) to calculate efficient frontiers– defined as the various portfolios that comprise the most-efficient combinations of risk and return (i.e., the highest return for a given level or risk or the lowest risk for a given level of return).

CAAR is separated into two variations, CAAR-Conservative and CAAR-Growth, each of which targets a different investment objective.  Two iterations of CLA are run and the resulting portfolios are combined and adjusted, as necessary, to generate a target asset allocation mix for each of the two investment objectives.

Under normal market conditions, CAAR’s model portfolio is rebalanced to 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, when volatility spikes, rebalancing is carried out monthly, to enable CAAR to better adapt to rapid changes in market trends.

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 Tactical Risk Strategy (“TRS”) is a rules-based asset allocation strategy that combines a tactical approach to managing exposure to various sectors of the US markets with a static buy-and-hold portfolio consisting of major US equity and bond market components. The strategy also utilizes a canary signal derived from trailing returns on Treasury Inflation Protected Securities ETF over various time frames to generate Risk On/Off signals. Accordingly: 

• If the canary signal indicates Risk On, the tactical component of the strategy selects top-performing assets from the defined offensive fund universe. On the other hand, top-performing assets from the defensive fund universe are selected if the canary signal indicates a Risk Off.
• Meanwhile, the static or buy-and-hold component of the portfolio offers a fixed allocation to major components of the US equity and fixed income markets.

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:

• SMB-Conservative maintains an equity range of 30-45% depending on the strategy’s assessment of market risk, while SMB-Growth maintains an equity range of 50-75%.
• When market risk is estimated to be low to moderate, SMB will invest in a market beta portfolio with 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’s rules-based algorithm adjusts the strategy’s portfolio risk exposure to adapt to the evolving state of bond-market price trends.

FIT adjusts the portfolio’s exposure to the bond market on a monthly basis and holds exchange traded bond funds with relatively strong, positive performance in recent history. The strategy uses a momentum model to select the strongest performers from its 10-fund universe. To the extent that few or no funds reflect strong upside momentum for a given month, the portfolio is allocated to a cash proxy – an exchange traded fund holding short-maturity Treasury bills.

Investment Approach

We implement our investment approach by:

• Evaluating each client’s personal investment objectives and tolerance for risk.
• Developing a personalized portfolio for clients using a core-satellite approach.
• Identifying those investment strategies that are best suited to each client.
• Implementing the strategies by investing in low-cost-index tracking ETFs.

Risk Management

The Milwaukee Company’s investment strategies are designed to generate alpha over the long term by lessening fluctuations in the value of client portfolios over the short term. Our strategies use academically tested, data driven risk management techniques such as dynamic asset allocation, trend following, sector rotation, mean variance optimization and statistical modeling, in an effort to enhance risk adjusted returns.

Additionally, The Milwaukee Company monitors many widely accepted capital market risk signals and economic indicators to assess the risk of the current market and economic conditions.

Benchmarking

We believe that an investment benchmark should be unambiguous, investable, measurable and robust.  We also believe the performance and management of a benchmark should be safeguarded from manipulation and unburdened by market frictions experienced by real-life portfolios such as transaction costs, expenses, management fees, and capital gains taxes.

Tax Management

Even the best investment performance can be undermined if the impact of taxes is not carefully considered. Therefore, The Milwaukee Company is careful to avoid unnecessary or excessive ordinary income taxes and proactively manages capital gain taxes.

We also collaborate with the tax attorneys at O'Leary-Guth Law Office, S.C. via our T.E.A.M. Work Program to proactively help our clients lessen their exposure to income, capital gain, estate, gift, and generation-skipping taxes.

Reporting

Client accounts are custodied at Fidelity Investments and can be directly accessed, revised, and monitored by The Milwaukee Company clients. Fidelity Investments provides The Milwaukee Company’s clients with statements of all client account activity.

The Milwaukee Company also uses Morningstar software to generate monthly and yearly reports of client account activity and performance.  These reports are posted to a secure web portal that our clients may access online.