Alpha Power Investing Newsletter

October 1, 2019

Announcing the NEW Alpha International Power Index Strategy

This month, Alpha Investment Management is pleased to announce the launch of our newest investment strategy, the Alpha International Power Index Strategy. The strategy objectives are:

  • Consistent long-term growth of capital
  • Significantly less volatility than buy-and-hold
  • Broad, global diversification

The Alpha International Power Index Strategy is an asset allocation strategy which seeks to exploit several seasonal trends that have been prevalent for many decades in stock markets around the globe. This strategy is designed specifically to exploit these remarkably consistent trends in the global stock market.

The MSCI EAFE Index
The MSCI EAFE Index is an equity index created by Morgan Stanley Capital International (MSCI) and designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East (hence the acronym EAFE), excluding the U.S. and Canada. This index was chosen for use with this strategy because of its global scope and the availability of ETFs and mutual funds that track this index.

Power Zone and Dead Zone Overview
The Alpha International Power Index Strategy invests in equities during the "International Power Zone" and low volatility bond funds during the "International Dead Zone". Our own research indicates that a wide array of single-country and global stock indexes experience the bulk of their positive returns during certain months within the calendar year. We refer to this collection of months as the "International Power Zone". During these months the strategy invests in the MSCI EAFE Index in order to maximize exposure to a portfolio of stocks from around the globe.

We treat the "International Dead Zone" as a "risk off" period, where we emphasize preservation of capital and income by investing in typically conservative lower volatility bonds instead.

The "International Power Zone"
The "International Power Zone" encompasses the months of November through April plus July of each year. Our research shows that these seven months combined - starting with the Power Zone cycle that began on November 1, 1970 - have produced positive gains in the MSCI EAFE Index roughly 83% of the time and has generated an average annual return of +11.5%.

Our research also shows that MSCI EAFE Index performance during the "International Power Zone" has vastly outperformed simply buying and holding the index continuously. The following chart displays the cumulative returns generated by the MSCI EAFE Index during the annual seven-month "International Power Zone" versus buying and holding the index continuously beginning November 1, 1970.

Comparing the "International Power Zone" to the "International Dead Zone"
The following charts illustrate the long-term cumulative returns of the MSCI EAFE Index during the annual seven-month "International Power Zone" (November, December, January, February, March, April, and July) versus those achieved during the annual five-month "International Dead Zone" (May, June, August, September and October) beginning May 1, 1970.

As you can see, index performance during the "International Power Zone" versus index performance during the "International Dead Zone" has historically been starkly different. This difference - as well as the long-term persistence of this trend - represents a potential "edge" that an investor can exploit if they are able to maintain the requisite discipline.

The Alpha International Power Index
The Alpha International Power Index tracks the hypothetical cumulative performance achieved by:

  1. Holding the MSCI EAFE Index ONLY during the annual seven-month "International Power Zone" and;
  2. Holding a 50/50 allocation of the Bloomberg Barclays 1-3 Year U.S. Treasury Index and the Bloomberg Barclays Intermediate U.S. Treasury Index during the five-month "International Dead Zone" of each year.

The hypothetical performance of the Alpha International Power Index has been vastly superior to the performance of the underlying index itself. Once again, the results depicted in the chart are hypothetical and not actual returns and past performance is no guarantee of future performance. The purpose of this chart is simply to highlight the potential to outperform a simple buy-and-hold approach to international investing by exploiting the persistent, long-term nature of historical seasonal trends prevalent in the international stock market.

The Complete Alpha International Power Index Strategy
Now that we have detailed how the historical long-term seasonal trends that serve as the "foundation" upon which the Alpha International Power Index Strategy is built, let's examine the specific trading rules for the actual strategy. The strategy seeks to achieve long-term growth of capital while experiencing lower volatility than that of a simple buy-and-hold approach by employing the following investment rules on an annual basis:

Rule #1 - "International Power Zone": Each year, hold a MSCI EAFE Index fund/ETF during the months of January, February, March, April, July, November and December (seven months).

Rule #2 - "International Dead Zone": Each year, hold low-duration and/or intermediate-term conservative bond funds/ETFs during the months of May, June, August, September and October (five months).

Summary
For roughly the past 10 years, U.S. stock indexes have outperformed international stock indexes. However, over the past 50 years there has been a very clear pattern of "back and forth" between the two.

If history holds true to form, now is a good time for investors to once again be looking at investing globally. At the same time, it also makes sense to consider an approach that offers a potential advantage to the traditional "buy-and-hold" approach. Our research has revealed that for at least five decades, an international stock index position during the "International Power Zone", and a "risk off' position in U.S. treasuries during the "International Dead Zone", has generated vastly superior results overall than simply buying and holding an international stock index.

For these reasons, we are pleased to announce the launch of our new Alpha International Power Index Strategy.

For more detailed information about the strategy, please refer to the strategy brochure and fact sheet at the Strategies and Performance section of our website at www.alphaim.net.

Jay Kaeppel
Vice President and Director of Research
Alpha Investment Management, Inc.
877-229-9400
www.alphaim.net
info@alphaim.net

Disclosures and Disclaimers: Past performance is not a guarantee of future performance. The returns illustrated in the charts above do not represent actual trading and are not representative of the returns the Alpha International Power Index Strategy. The data does not include management fees or the cost of funds, trading, or other expenses. The illustrations are designed to quantify the effect of certain time periods (as specified) on the MSCI EAFE Index, the Bloomberg Barclays 1-3 Year U.S. Treasury Index and the Bloomberg Barclays Intermediate U.S. Treasury Index. Indexes are not investment vehicles and persons cannot invest directly in an index. Index funds/ETFs may vary somewhat from index returns due to management fees and portfolio structure. The MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada. The Index is available for a number of regions, market segments/sizes and covers approximately 85% of the free float-adjusted market capitalization in each of the 21 countries. Developed Markets countries in the MSCI EAFE Index include: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.

The data used to construct the illustrations was obtained from third-party sources. While Alpha believes the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.

The information contained herein does not constitute and should not be construed as investment advice, an offering of investment advisory services, or an offer to sell or a solicitation to buy any security. Before investing in any fund and/or strategy, investors should consider the investment objectives, risks, charges and expenses of the fund/strategy and its investment options.

Alpha Investment Management, Inc. is a SEC registered investment advisor located in the State of Ohio. Such registration does not imply a certain skill or training and no inference to the contrary should be made. The information and opinions expressed in this document are for informational purposes only. Any recommendation or opinion made in this document may not be suitable for all investors. The information contained herein does not constitute and should not be construed as investment advice, an offering of investment advisory services, or an offer to sell or a solicitation to buy any security.  

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