Alpha Power Investing Newsletter

June 6, 2016

Sitting It Out

As of May 31st, all of Alpha's strategies (with the exception of the Alpha Multi-Income Strategy) have dropped out of the equity market and are now invested in conservative bond funds. Our flagship strategy, the Alpha Mid-Cap Power Index Managed Account, will spend the next five months in intermediate government bonds. All strategies will shift back into equities in late-October, just prior to the election, in order to profit from the normal robust returns the market provides at year-end.
Due to the historical trend of the stock market in the summer and early autumn, we have dubbed the five-to-six months prior to November as the "dead zone". During this period the stock market has been up about 60% of the time since 1950 (Dow Industrials), punctuated by dramatic declines (2002 and 2008) just before the fourth quarter.
The chart below shows the returns of the S&P 500 held only during the June through October time period for the past 15 years.
In as much as we are long-term investors, seeking to lower risk and volatility, it makes little sense to expose our assets to this kind of lackluster long-term performance, with heart-stopping declines, when the same performance (or better) can be achieved by holding low-risk, low-volatility bonds instead.
The chart below shows the returns of the Barclays Intermediate Treasury Index held only during the June through October time period for the past 15 years.
Here's the interesting part: Combine these observations with the performance of smaller capitalization stocks, such as the S&P MidCap 400 Index, and see what happens over time. Holding intermediate treasuries during the "dead zone" and the S&P MidCap 400 Index the remainder of the year has produced a powerful, long-term investment trend with remarkably low volatility.
Alpha uses this phenomenon as the basis for our Mid-Cap Power Index Managed Account investment strategy. We believe that intermediate treasuries will continue to provide consistently positive returns over the foreseeable future.
We add a couple of nuances to this simple strategy to boost returns without substantially adding extra risk. To see the net of fees performance and read about the complete strategy, go to the Strategies and Performance page of our website at and download the Alpha Mid-Cap Power Index MA brochure.

Sincerely yours,
Jerry Minton, Ph.D.
1-877-229-9400, Ext. 11

Disclosure: 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 illustration above is designed to quantify the effect of a certain time period on representative market indexes.

© 2016 Alpha Investment Management, Inc.
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