So What Is The SignalPoint™ Portfolio Strategy?
When do I buy? When do I sell? What do I buy? Which should I sell? Are earnings up? What is CNBC saying? What is the P/E ratio? How is momentum? What are the insiders doing? How is sentiment? What does the analyst say? How about management?
Investors and investment professionals alike are faced with these and many other questions on a constant basis. The SignalPoint™ Portfolio Strategy provides an answer…discipline, structure, and transparency.
Objectives of SignalPoint™ Portfolio Strategy:
- Steadily and methodically capture profits when sectors appreciate.
- Systematically add to positions during periods of weakness.
- Maintain ample cash reserves for liquidity and portfolio cushioning.
- Exploit the volatility in the market.
Walnut Capital Management taps into the power of Exchange Traded Funds, or ETFs, in lieu of individual stocks1. In combination with our proprietary algorithm, which seeks to produce above-market performance while reducing normal market risk, we provide our clients with an “emotion free” investment model.
Exchange traded funds are sold by prospectus. Please consider the investment objectives, risk, charges and expenses carefully before investing. The prospectus, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest.
For example, in our all-domestic ETF portfolio, DomesticSignal, stocks in all 10 sectors of the Dow Jones Major Market Index represent 50 percent of invested assets. The other 50 percent of invested assets are represented by three ETFs representing about 1,600 stocks held in the S&P Mid-Cap 400 Value Index, the S&P 600 Small-Cap Growth Index and the S&P 600 Small-Cap Value Index. In addition to the 10 sectors representing the Dow Jones Major Market Index and the three ETFs representing 1,600 small- and mid-cap shares2, cash represents a very important 14th position in the portfolio. All 14 holdings are coordinated with our proprietary risk assessment model. This concept allows us to manage well-diversified equity portfolios in a tax-efficient manner3.
The discipline we apply to the SignalPoint™ Portfolio Strategy allows us to potentially harvest the volatility intrinsic to each ETF index. Market events generally affect each market sector differently. We attempt to limit exposure in rising sectors without disturbing other ETF components. We seek to increase exposure in declining sectors without disturbing other ETF components. Adding or subtracting dollars from each component is done in increments of ~5 percent in any one month, which results in dollar cost averaging in the affected components.4 Each of the Dow Jones Major Market Index components has a weighting that ranges around 4 percent of invested capital. Weighting for the three S&P small and mid-cap components ranges around 12 percent. Our all-important 14th position, cash, carries a weighting ranging from 20 to 35 percent, on average.
We believe our ETF strategy provides a widely diversified emotionless portfolio and a procedure for assessing and managing risk.
Our risk assessment process is composed of four variables, which the algorithm uses to produce a given figure for how much cash should be on hand given the market risk:
Relative Valuation—This is the sum of the Value Line P/E ratio5 and the 13-week Treasury rate. The sum usually adds up to about 20. If it’s below 19.0, we consider the market to be bullish and above 22.3 to be bearish.
Speculation—This is derived from Value Line’s Best/Worst Performers list. It looks at the 41 best and worst stocks over the last 13 weeks and compares the percent change in the two lists to determine speculative activity.
Divergence—This is a measure of divergent thinking on the part of investors. It’s Norman Fosback’s “High/Low Logic Index” except applied to the NYSE plus the NASDAQ Composite. This index is the lesser of the following two percentages:
- New highs as a percent of issues traded.
- New lows as a percent of issues traded.
When the Index is high, we consider the market to be in a period of great divergence, with many new highs along with many new lows. We feel this is not conducive to higher stock prices.
IPO Zeal—This looks at the total number of issues available on the NASDAQ and NYSE traded each week. It peaked at more than 9,000 and is now down to about 7,000. We have found this component seems to only show significant bearishness about once a decade.
The 13 ETF indexes determine the dollars allocated to each by measuring the group’s position within its dynamic trading range.
(1) Exchange Traded Funds seek investment results that, before expenses, generally correspond to the price and yield of a particular index. There is no assurance that the price and yield performance of the index can be fully matched and investors can not invest directly in an index. Exchanged Traded Funds are subject to risks similar to those of stocks. Investment returns may fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost.
(2) The prices of small and mid company stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.
(3) Asset allocation/diversification can not eliminate the risk of fluctuating prices and uncertain returns. Wachovia Securities Financial Network is not a legal or tax advisor.
(4) A periodic investment plan such as a dollar cost averaging does not assure a profit or protect against a loss in declining markets. Since this strategy involves continuous investment, the investor should consider his or her ability to continue to purchase through periods of low price levels.
(5) The value Line P/E Ratio takes the latest closing price of the Value Line Index and divides it by the latest 12 months earnings per share from total operations. (Companies with negative earnings receive an NE.) The Value Line Index is an equal-weighted stock index containing 1,700 companies from the NYSE, American Stock Exchange, Nasdaq and over-the-counter market.
The PIM program is not designed for excessively traded or inactive accounts, and may not be suitable for all investors. Please carefully review the Wachovia Securities Financial Network advisory disclosure document for a full description of our services.