CP HIGH YIELD TREND INDEX
A rules-based quantitative index that uses a blend of allocations to US high yield corporate bond ETFs and US 3-7 year treasuries.
HYTREND seeks to provide exposure to the US high yield corporate bond market while reducing risk in times of market turbulence. The index uses a blend of trend-following and time-series momentum methodologies. It draws from a wide range of parameters to reduce model risk from parameter mis-specification, reflecting a robust method of allocating to US High Yield Corporate ETFs while attempting to reduce unnecessary portfolio turnover.
The Index’s components are weighted using quantitative models to determine allocations to the two asset classes when the Index is rebalanced, which can occur daily. The Index is composed, in 20% increments (e.g., 0%, 20%, 40%, 60%, 80% or 100%), of U.S. high yield corporate bonds ETFs with the remainder in U.S. Treasury ETFs.
The first model determines a recommended allocation to U.S. high yield corporate bonds by evaluating the current market price against the dividend-adjusted moving average price data for the entire range of 100-200 day periods of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the historical momentum returns of the HYG for the same periods. The second model adjusts this recommended allocation by rounding the allocation to the nearest 20% increment, but only allows the final allocation to U.S. high yield corporate bonds to move by a 20% increment day-over-day. The final allocation remains unchanged if the rounded allocation from the second model varies by more than 5% from the recommended allocation of the first model.
As demonstrated above, the model evaluates the total percentage of today dividend-adjusted price of HYG ETF above many moving averages (each one, from 100-day to 200-day) as the dashed-black line, and likewise the percentage of momentum signals (lookback price-changes above zero percent, from 100-day to 200-day lookbacks) as the dotted-green line. This signal is aggregated into the raw score, or the red line. This is the first model.
The second model adjusts the actual portfolio allocation, displayed in solid blue, by rounding the raw score to the nearest 20% increment, but only allows day-over-day changes in allocation to High Yield Bond ETFs by 20% increments. A final adjustment is performed to keep the allocation unchanged day-over-day in the event the absolute change to the rounded allocation from earlier in the process varies by more than 5% the absolute change of the first model (the red line). This step exists to lower turnover and reduce the impact of signal noise on the actual allocation.
|Effective Portfolio Date: 2020-09-18|
|Effective Portfolio Date: 2020-09-21|
The index methodology is designed to determine day-ahead index position as of the day prior to index rebalance.
Investments cannot be made in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Past performance is no guarantee of future results.
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