New Active Methodology

February 14, 2014, by CLS Investments

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Q: What is CLS’s active methodology?

Pure, focused, global portfolios dedicated to a particular asset class segment, risk, or theme. These portfolios are concentrated; they will take active tilts relative to their benchmarks, and likely have higher turnover than our conventional Risk-Budgeted portfolios over time.

Q: What are the differences between the active strategies and Quads?

While both share many attributes, including being pure, focused, ETF portfolios, the Quad portfolios have a unique portfolio construction approach. In short, each Quad portfolio contains four different non-cash asset class segments (i.e. “quads”). Each one of these non-cash asset classes will use 1-2 ETFs, meaning that the entire Quad portfolio will utilize fewer than 8 ETFs. CLS Active will hold 8-12 names.

Q: Ideally, what portion of an investor’s portfolio should be allocated to a CLS active strategy?

It really depends on the strategy in question. For most, the suggested allocation is 5-20 percent. For a few others, which represent bigger asset class segments, such as Active Growth, Active Value, and International Rotation Quads, we recommend up to 30 percent. For advisors and investors who want some potential protection versus large market declines, we recommend a maximum weight of 40 percent for the Protection Quad.

A client’s risk budget is derived from the client’s specific answers to CLS’s Confidential Client Profile questionnaire, which establishes the client’s financial goals, ability to handle risk, and overall investment time horizon. The individual client risk budget is expressed as a percentage of the risk of a well-diversified equity portfolio.

Treasury Securities are securities issued by the U.S. Government. Generally issued to fund its operations and backed by the full faith and credit of the U.S. Government, treasury securities are considered extremely low risk investments. Treasuries may include: Treasury Bills (T-Bills), short-term debt instruments which mature one month to one year after issue; Treasury Notes, which mature at one to ten years after issue; Treasury Bonds (T-Bond), marketable, long-term fixed-interest debt instruments with a maturity over ten years; or Treasury Inflation Protected Securities (TIPS), long-term debt instruments that mature between five and twenty years and are indexed to inflation in order to shield investors from inflation risks. The return on treasury investments is measured by the Treasury Yield.

High quality investments are investments made in companies and/or products with outstanding characteristics. Although high quality investing attempts to eliminate as much risk as possible, risk is always inherent in any investment methodology.