Alpha Power Investing Newsletter

January 2, 2018

Power Indexing in the Mid-Term Election Year
 
As readers of our monthly newsletter are aware, the “core strategy” for the Alpha Mid-Cap Power Index Managed Account strategy involves:
  1. Holding the S&P MidCap 400 Index during a time of year we refer to as the annual “Power Zone”, which includes the months of November through May.
  2. Holding intermediate-term treasury bonds during a time of year we refer to as the annual “Dead Zone”, which includes the months of June through October.
In addition, the Alpha Mid-Cap Power Index strategy also uses leverage of 1.5 beta during 20 specific trading days during the fourth quarter of each year.  However, for the purposes of this newsletter we will focus solely on the “core strategy” involving the annual “Power Zone” and “Dead Zone” periods described above using index return data.
 
2018 is a mid-term election year within the four year U.S. presidential election cycle.  So let’s look at how the Power Zone/Dead Zone core strategy performed historically during mid-term election years.  For testing purposes, we will use monthly total return index data from the PEP database compiled by Callan Associates as follows:
  • During each mid-term election year (starting in 1982) we will hold the S&P MidCap 400 Index during the months of January through May and the months of November through December (Power Zone).
  • Also during each mid-term election year we will hold the Bloomberg Barclays Intermediate Treasury Index (this index closely tracks the performance of 3-7 year low volatility treasury notes) during the months of June through October (Dead Zone). 
Figure 1 displays the full mid-term year results generated using total return index data as detailed above (i.e., long mid-cap stocks seven months of the year and intermediate-term treasuries for the remaining five months of each year) vs. the S&P MidCap 400 Index (buy and hold).
 
 
Figure 2 displays the cumulative returns generated only during mid-term election years using the Power Zone/Dead Zone core strategy vs. the S&P MidCap 400 Index as measured using total return index data.
 
 
Holding mid-cap stocks during the Power Zone months and intermediate-term treasury bonds during the Dead Zone months has been a powerful strategy during mid-term election years:
  • 8 of the past 9 mid-term election years have seen the core strategy post a gain.
  • The average gain was +16.1% and the median gain was +17.9%.
  • 7 of the 9 mid-term election years have seen a gain of +10.9% or more.
  • The worst post-election year was 1994 when the core strategy lost -6.7%.
The goal of the Alpha strategies is to maximize the tradeoff between reward and risk over the long term.  In other words, across a full market cycle (from bull market high to bull market high, and/or from bear market low to bear market low) the objective is to outperform the overall stock market and to do so while exposing investors to less risk and volatility than one would experience using a simple buy-and-hold approach.
 
Past results do not guarantee futures results.  It is not possible to predict how the Power Zone/Dead Zone core strategy will perform in 2018 in comparison to previous mid-term election years.  Regardless of what happens in 2018, the key point is to simply note that you are employing a strategy with a consistent record of long-term success.
 
To read more about Alpha's strategies, please go to the Strategies and Performance page of our website at www.alphaim.net to read the brochures and view the actual performance results.
 

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. The data used to construct the illustrations were 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.

Alpha Investment Management, Inc. is a 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.


© 2018 Alpha Investment Management, Inc.

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