INVESTMENT OBJECTIVE

By tactically allocating between stocks and bonds on a monthly basis, the iQ Monthly Risk On/Risk Off Model seeks to provide positive returns regardless of the direction of the economy or financial markets.

PROCESS

The model utilizes the following four non-correlated factors to determine an allocation between stocks (Risk On) and bonds (Risk Off).

  • Technical (price to 9-month simple moving average)

  • Macro (technical strength of the US dollar)

  • Valuation (S&P 500 price-to-earnings ratio)

  • Seasonal (“Sell in May and Go Away”)

Each of the aforementioned factors account for 25% of the Model’s allocation.  If all four of the factors are “risk on”, then 100% of the Model is allocated to stocks.  If 2 of the 4 indicators are “risk on”, then 50% of the Model allocates to stocks while the other 50% allocates to bonds.

When the Model allocates to stocks, it utilizes the following monthly large-cap strategy:

  • Start with the largest 750 locally-traded stocks.

  • Sort by operating earnings yield and share buyback and select the top 20%.

  • Sort by earnings growth persistence and select the top 20%.

  • Sort by earnings and price momentum and select the top 10.

The benefits of a risk-on/risk-off strategy

A monthly risk-on/risk-off (RORO) strategy can offer several benefits to investors, including:

1. Simplicity: A monthly RORO strategy is relatively simple and easy to implement. It involves allocating to riskier assets during risk-on periods and safer assets during risk-off periods, based on the market’s prevailing conditions.

2. Diversification: By investing across different asset classes, such as stocks ad bonds, a monthly RORO strategy can provide diversification benefits that can help reduce portfolio risk.

3. Risk Management: The monthly RORO strategy is designed to reduce exposure to riskier assets during times of market stress, which can help mitigate portfolio losses during market downturns.

4. Potential for outperformance: By investing in assets that are expected to perform well during risk-on periods and avoiding those that are expected to perform poorly during risk-off periods, a monthly RORO strategy has the potential to outperform a static allocation portfolio over the long term.

Overall, a monthly RORO strategy can be a valuable tool for investors looking to manage portfolio risk and improve returns over the long term.


Please be aware that risk-on, risk-off strategies involve heightened risks and may not be suitable for all investors. These strategies aim to capitalize on market fluctuations, shifting between riskier and safer assets based on prevailing market conditions. However, the effectiveness of such strategies is subject to uncertainties, and there is no guarantee of consistent positive returns. Investing in risk-on assets during market upswings may lead to higher returns, but it also exposes investors to greater losses during downturns. Conversely, allocating to risk-off assets during market declines may offer protection but can result in missed opportunities during growth periods.