Disclosures

/Disclosures
Disclosures 2017-08-18T14:14:01+00:00

Readers of Financial Research Should Maintain a Healthy Dose of Skepticism

Our firm mission is dedicated to investor education and we often highlight and discuss hypothetical results associated with our own research and/or the research of others. We rarely (if ever) discuss live performance on the “blog” area of our website, so the reader should assume that anything they read on the “blog” is hypothetical and subject to all the disclaimers below. We ask that you use your common sense when reviewing and interpreting research findings that use hypothetical results or live performance results. Clearly, there has never been a backtest published that wasn’t “good” and even live track records are subject to survivor bias. We must account for this intense selection bias when reviewing materials. See here for an article on this subject.

The Official Disclosures

Performance figures contained herein are hypothetical, unaudited and prepared by Alpha Architect, LLC; hypothetical results are intended for illustrative purposes only.

Past performance is not indicative of future results, which may vary.

There is a risk of substantial loss associated with trading commodities, futures, options and other financial instruments. Before trading, investors should carefully consider their financial position and risk tolerance to determine if the proposed trading style is appropriate. Investors should realize that when trading futures, commodities and/or granting/writing options one could lose the full balance of their account. It is also possible to lose more than the initial deposit when trading futures and/or granting/writing options. All funds committed to such a trading strategy should be purely risk capital.

Hypothetical performance results (e.g., quantitative backtests) have many inherent limitations, some of which, but not all, are described herein. No representation is being made that any fund or account will or is likely to achieve profits or losses similar to those shown herein. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently realized by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses are material points which can adversely affect actual trading results. The hypothetical performance results contained herein represent the application of the quantitative models as currently in effect on the date first written above and there can be no assurance that the models will remain the same in the future or that an application of the current models in the future will produce similar results because the relevant market and economic conditions that prevailed during the hypothetical performance period will not necessarily recur. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, all of which can adversely affect actual trading results. Hypothetical performance results are presented for illustrative purposes only.

Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index.

There is no guarantee, express or implied, that long-term return and/or volatility targets will be achieved. Realized returns and/or volatility may come in higher or lower than expected.

Third Party Authors and Data Sources

Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases have not been updated through the date hereof.  While such sources are believed to be reliable, neither Alpha Architect nor its affiliates assumes any responsibility for the accuracy or completeness of such information and such information has not been independently verified by Alpha Architect.

Many authors provide material on our website. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. This material has been provided to you solely for information and educational purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and Alpha Architect to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Alpha Architect.

Tax-Related Matters

Neither Alpha Architect nor its affiliates provide tax advice. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matters addressed herein.  You should seek advice based on your particular circumstances from an independent tax advisor.

The information contained in this communication is not meant to substitute for a thorough estate planning and is not meant to be legal and/or estate advice.  It is intended to provide you with a preliminary outline of your goals.  Please consult your legal counsel for additional information.

Gross Performance Calculations

Results from the research we discuss may be shown gross of fees and do not reflect the effect of investment fees which would lower performance.  Performance reflects the reinvestment of dividends and other earnings.  Performance information shown does not reflect any charges or fees which may or may not be imposed by Alpha Architect or another money manager, which will reduce performance returns.  The following hypothetical illustrates the compound effect fees have on investment return:  For an account charged 1% with a stated annual return of 10%, the net total return before taxes would be reduced from 10% to 9%.  A ten year investment of $100,000 at 10% would grow to $259,374, and at 9%, to $236,736 before taxes.

Definitions for Common Terms Used in Our Research

  • CAGR: Compound annual growth rate
  • Standard Deviation: Sample standard deviation
  • Downside Deviation: Sample standard deviation, but only monthly observations below 41.67bps (5%/12) are included in the calculation
  • Sharpe Ratio (annualized): Average monthly return minus treasury bills divided by standard deviation
  • Sortino Ratio (annualized): Average monthly return minus treasury bills divided by downside deviation
  • Appraisal Ratio (annualized): CAPM regression intercept estimate divided by regression residual volatility
  • Worst Drawdown: Worst peak to trough performance (measured based on monthly returns)
  • Rolling X-Year Win %: Percentage of rolling X periods that a strategy outperforms
  • Sum (5-Year Rolling MaxDD): Sum of all 5-Year rolling drawdowns
  • Down %: The Down Number Ratio is a measure of the number of periods that the investment was down when the benchmark was down, divided by the number of periods that the benchmark was down. The smaller the ratio, the better
  • Up %: The Up Number Ratio is a measure of the number of periods that the investment was up when the benchmark was up, divided by the number of periods that the benchmark was up. The larger the ratio, the better
  • Tracking Error: Tracking Error is measured by taking the square root of the average of the squared deviations between the investment’s returns and the benchmark’s returns
  • Negative Correlation: Correlation of returns relative to benchmark returns when the benchmark is negative
  • Positive Correlation: Correlation of returns relative to benchmark returns when the benchmark is positive