Learn how diversifying beyond traditional stocks and bonds has historically optimized long-run portfolio performance.
Asset allocation is a key determinant in driving overall portfolio performance. Stock market investments that were left alone during the 2008 financial crisis recovered by the end of 2012. Diversified portfolios that were rebalanced during market downturns recovered faster.
[1] Following the 2008 recession, a 60/40 portfolio that was rebalanced annually recovered in less than 15 months, roughly 4 months sooner than the passive 60/40 portfolio without rebalancing. [2] The rebalancing 60/40 portfolio continued to outperform the passive portfolio during periods of recovery. Our example 60/40 model portfolio rebalanced annually on January 1st, and is composed of 60% Morningstar Core U.S Equity Index and 40% Bloomberg Barclays 7-10yr Treasury Index.
We believe asset allocation across traditional stocks and bonds is no longer enough to ensure optimal performance. The right defensive diversifier strategy provides:
[3] Directly following the 2008 recession, a 50/30/20 portfolio with diversifiers that was rebalanced annually recovered in 12 months – nearly 7 months sooner than the passive 60/40 portfolio. By 2010, the 50/30/20 portfolio had significantly outperformed the rebalancing 60/40 portfolio. [4] After nearly a decade long bull run for U.S. stocks, the 50/30/20 portfolio captured most of the market appreciation, and was only slightly behind the rebalancing 60/40 portfolio. Our example 50/30/20 model rebalances annually on January 1st, and is composed of 50% Morningstar Core U.S Equity Index, 40% Bloomberg Barclays 7-10yr Treasury Index, and 20% CP High Yield Trend Index.
The material provided herein has been provided by Counterpoint Mutual Funds, LLC and is for informational purposes only. Counterpoint Mutual Funds, LLC serves as investment adviser to one or more funds distributed through Northern Lights Distributors, LLC member FINRA/SIPC. Northern Lights Distributors, LLC and Counterpoint Mutual Funds, LLC are not affiliated entities.
The right diversifier has historically improved portfolio drawdown performance, especially in challenging markets.
One benefit of a tactical high yield fixed income diversifier is that it functions as a distinct asset class from traditional fixed income. This trait gives investment advisors an additional tool to reduce portfolio drawdown risk.
[5] During the 2008 financial crisis, a 50/30/20 portfolio with diversifiers that was rebalanced annually displayed much better drawdown characteristics, recovering 6 months sooner than the 60/40 portfolio with rebalancing. [6] After a long bull run for U.S. stocks the 50/30/20 portfolio is only 4.3% behind the traditional 60/40 portfolio. Our example 60/40 and 50/30/20 models are rebalanced annually on January 1st, and are composed of Morningstar Core U.S Equity Index, Bloomberg Barclays 7-10yr Treasury Index, and CP High Yield Trend Index.
In addition to reducing portfolio declines, the right tactical high-yield income diversifier reduced the risk of ruin, especially for clients making regular withdrawals during retirement.
[7] Given an inflation adjusted (2%/year) $40K lump-sum withdrawal (4% of $1 million) distributed annually, a 50/30/20 portfolio significantly outperforms both traditional 60/40 and 100% stock portfolios both in drawdown during the 2008 financial crisis and in recovery. [8] On 12/31/2019, after a long bull run for U.S. stocks the 50/30/20 is up 71%, only 0.6% behind the 60/40 portfolio. Our example 60/40, 50/30/20 and 100% stock models are rebalanced annually on January 1st, and are composed of Morningstar Core U.S Equity Index, Bloomberg Barclays 7-10yr Treasury Index, and CP High Yield Trend Index.
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.
The material provided herein has been provided by Counterpoint Mutual Funds, LLC and is for informational purposes only. Counterpoint Mutual Funds, LLC serves as investment adviser to one or more funds distributed through Northern Lights Distributors, LLC member FINRA/SIPC. Northern Lights Distributors, LLC and Counterpoint Mutual Funds, LLC are not affiliated entities
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Important Risk Information
Investments in the CP High Yield Trend Fund involves risk including possible loss of principal and may not be suitable for all investors. The Fund is new with a limited history of operations. There is no assurance that the Fund’s strategy for allocating assets will achieve its investment objectives. The extent that Authorized Participants (AP) exit the business or are unable to proceed with creation or redemption orders, Fund shares may be more likely to trade at a premium or discount to net asset value and possibly face trading halts or delisting. Issuers of a security and other instruments may not be able to make principal and interest payments when due. Fluctuation in the value of equity securities held by the Fund causes the net asset value of the Fund to fluctuate.
The Fund is structured as an ETF and is subject to risks including, market price variance, trading issues and not being individually redeemable. ETF investments involve advisory and other expenses which will be indirectly paid by the Fund. The Fund’s investments may include ETFs with foreign securities, which are subject to risks beyond those associated with investing in domestic securities. Growth stocks may react differently to market events and are subject to more abrupt market movements. The Fund’s income may decline when yields fall and an increase in rates may cause the value of securities held by the Fund to decline. High yield or ‘junk’ bonds present greater risk than bonds of higher quality. There is no assurance that the Index Provider will compile, compose or calculate the index accurately and the Fund’s performance may diverge from that of the index.
ETF shares are not redeemable with the issuing fund other than in large Creation Unit aggregations. Instead, investors must buy or sell ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling. The NAV of the Fund’s shares is calculated each day the national securities exchanges are open for trading as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time (the “NAV Calculation Time”). Shares are bought and sold at market price (closing price) not NAV. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined).
An active secondary market for the Fund’s shares may not exist. Although the Fund’s shares will be listed on an exchange, subject to notice of issuance, it is possible that an active trading market may not develop or be maintained. There is no guarantee that distributions will be paid.
Investors should carefully consider the investment objectives, risks, charges and expenses of the CP High Yield Trend Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained at www.cpetfs.com or by calling 844-509-2775. The prospectus should be read carefully before investing. The CP High Yield Trend Fund is distributed by Northern Lights Distributors, LLC, member FINRA/SIPC.
3052-NLD-1/14/2020