Alpha Power Investing Newsletter

December 5, 2016

Power Index Investing by the Numbers


The Alpha Mid-Cap Power Index strategy focuses on the S&P MidCap 400 Index between late October and the end of May in the following year and intermediate-term treasuries during the rest of the year. The reasons for this - in a nutshell - are twofold:
  • Consistency of returns
  • Outperformance versus other relevant investments
To better appreciate these traits, first understand that we differentiate between two periods within the year:
  • The "Power Zone" begins on the first trading day of November and ends on the last trading day the following May.
  • The "Dead Zone" begins on the first trading day of June and ends on the last trading day of October of the same year.
Now let's examine some relevant performance numbers starting in 1981 and extending through October 2016. For comparison's sake we will use monthly total return data for the S&P MidCap 400 Index, the S&P 500 Index and the Intermediate-term Treasury Bonds Index (Data source: Callan Associates PEP Database). In the following section we will look at MidCap performance during the "Power Zone" versus its performance during the "Dead Zone". We will also compare MidCap performance to that of the S&P 500 Index and the Intermediate-term Treasury Bonds Index.
 
Returns during the "Power Zone"
 
In Figure 1 below we see the total return for all three investment vehicles only during the Power Zone each year starting at the end of October 1981.
 
 
The cumulative gain for MidCaps (+6,679%) during the Power Zone was 33.9 times greater than the cumulative gain for intermediate-term treasuries (+197%) and 2.94 times greater than the cumulative gain for the S&P 500 Index (+2,274%).
 
Figure 2 displays the same data graphically as a monthly equity curve.
 
 
Figure 3 displays absolute and relative performance data for MidCaps, Intermediate Treasuries and the S&P 500 Index for the 1981 through 2016 period.
 
 
Things to note in Figure 3:
 
*The MidCap Index registered a gain during the Power Zone 88.6% of the time versus 82.9% for the S&P 500 Index
 
*The MidCap Index registered an average gain (+13.3%) that was 4.16 times greater than the average gain for intermediate bonds (+3.2%) and 1.33 times greater than the average gain for the S&P 500 Index (+10.0%).
 
*The MidCap Index registered a median gain (+13.6%) that was 5.67 times greater than the median gain for intermediate bonds (+2.4%) and 1.60 times greater than the median gain for the S&P 500 Index (+8.5%).
 
During the first month of the current Power Zone that began on November 1, 2016, the S&P MidCap 400 Index is up +8.01%, the S&P 500 Index is up +3.70%, and the U.S. Treasury 3-7 Yr. Bond Index is down -2.11%.
 
Returns during the "Dead Zone"
 
Now let's look at the end May to the end of October time period, also known as the "Dead Zone". In Figure 4 below we see the total return for all three investment vehicles during the Dead Zone starting at the end of May 1981.
 
 
The cumulative gain for intermediate-term treasuries during the Dead Zone (+280%) was 13.3 times greater than the cumulative gain for MidCaps (+21%) and 3.94 times greater than the cumulative gain for the S&P 500 Index (+71%).
 
Figure 5 displays the same data graphically as a monthly equity curve.
 
 
Figure 6 displays absolute and relative performance data for MidCaps, Intermediate Treasuries and the S&P 500 Index for the 1981 through 2016 period during the Dead Zone.
 
 
Things to note in Figure 6:
 
*Intermediate-term treasuries registered a gain during the Dead Zone 91.7% of the time versus 77.8% for the S&P 500 Index and 66.7% for MidCaps.
 
*Intermediate-term treasuries registered an average gain (+3.8%) that was 1.90 times greater than the average gain for the S&P 500 Index (+2.0%) and 3.17 times greater than the average gain for MidCaps (+1.2%).
 
*Intermediate-term treasuries registered a median gain (+4.0%) that was 1.67 times greater than the average gain for the S&P 500 Index (+2.4%) and 1.18 times greater than the average gain for MidCaps (+3.4%).
 
Summary
 
So far during the 2016-2017 "Power Zone", MidCaps are handily outperforming both the S&P 500 Index and intermediate-term treasury bonds. There is of course no guarantee that this trend will continue to hold and/or expand between now and the end of May 2017. Nevertheless, the figures presented in this month's newsletter suggest that the concept of the Alpha Mid-Cap Power Index strategy is based on a solid foundation.
 
To learn more about our strategies, go to the Strategies and Performance of our website at www.alphaim.net read the brochures and fact sheets.
 

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

Disclosures: Past performance is not a guarantee of future performance. Indexes are not investment vehicles. The returns illustrated above are not returns of any Alpha strategy and do not include management fees or the cost of funds, trading, or other expenses. To see the impact of these costs, please refer to the net of fees and expenses performance data for specific Alpha strategies. The illustrations above are designed to quantify the effect of certain time periods on representative market indexes.

Alpha Investment Management, Inc. is an SEC registered investment advisor. 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.


© 2016 Alpha Investment Management, Inc.

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