ABOUT THE MANAGER
Model Capital Management LLC (“MCM”) is an independent SEC-registered investment advisor, and is based in Wellesley, MA. Utilizing its fundamental, forward-looking approach to asset allocation, MCM provides asset management services that help other advisors implement its dynamic investment strategies (collectively “MCM’s Strategies”) designed to attempt to reduce significant downside risk. MCM is available to advisors on AssetMark, Envestnet, SMArtX and other SMA/UMA platforms, but is not affiliated with those firms. MCM implements the its investment strategies using primarily ETFs or other broad-based index financial instruments.
Actual performance is presented for MCM’s Strategies since their respective inception dates. Performance figures presented are net of trading costs and of MCM’s maximum investment management fee. Past performance is not a guarantee of future returns.
MCM claims compliance with the Global Investment Performance Standards (GIPS®). MCM’s performance has been independently verified for the periods Jan 1, 2014 through December 31, 2018. The verification reports are available upon request.
Investment results are time-weighted performance calculations representing total return. Monthly geometric linking of performance results is used to calculate annual returns. All realized and unrealized capital gains and losses as well as all dividends and interest from investments and cash balances are included on return calculation.
The investment results shown are not representative of an individually managed account’s rate of return, and differences can occur due to factors such as timing of initial investment, client restrictions, cash movement, etc. securities used to implement the strategies can differ based on account size, custodian, and client guidelines.
Relative Return: The portfolio’s return relative to its benchmark. It is calculated as the difference between the portfolio’s annualized return and its benchmark annualized return for the same period. Relative return can be used to measure the value added or subtracted by a fund manager relative to passive index benchmark.
Standard Deviation: measures the volatility, or the degree of variation of returns around the average return. The higher the volatility of investment returns, the higher the standard deviation will be. For this reason, standard deviation is often used as a measure of investment risk. A more volatile stock or investment would have a higher standard deviation.
Sharpe Ratio: A return-to-risk ratio developed by William Sharpe that measures the return generated per unit of risk. The return (numerator) is defined as the incremental average return over the risk-free rate (such as 3-month Libor). Risk (denominator) is defined as the standard deviation of these incremental returns over the risk-free rate. A higher Sharpe Ratio would indicate an investment manager, method, or strategy achieving higher returns (relative to risk-free rate) per unit of risk.
Information Ratio: An active return-to-risk ratio that measures the active return (over benchmark) generated per unit of active risk. The active return (numerator) is defined as difference between the portfolio’s annualized return and its benchmark annualized return for the same period. The active risk (denominator) is defined as the standard deviation of these active returns over the benchmark. A higher Information Ratio would indicate an investment manager, method, or strategy achieving higher active returns per unit of active risk. In active investment management analysis, Information Ratio is often considered to be a measure of skill of a manager or method.
Past performance is not indicative of future returns. The value of investments and the income derived from them can go down as well as up. Future returns are not guaranteed and a loss of principal may occur.
The investment strategies described herein do not ensure a profit and do not protect against losses in declining markets. Model Capital Management’s risk-management process includes an effort to monitor and manage risk, but should not be confused with (and does not imply) low risk.
The 5-year or similar time period that may be shown in MCM’s performance presentations is short, and does not include all potential market scenarios that can occur, and their impact on the portfolio. Maximum drawdown is calculated as the worst cumulative peak-to-trough decline from any month-end data point to any other month-end data point. The potential drawdowns of respective MCM’s Strategy could exceed that shown in MCM’s performance presentations.
There are risks associated with any investment approach. Investors should carefully consider risks before investing in MCM’s strategies. Only some of the risks are described as follows:
1. Equities: MCM’s Strategies may, from time to time, allocate 100% of client portfolios to a broad equity market index or a combination of equity market indices. Investing in equity markets involves significant risks: (a) Common stock holders of a company may lose 100% of their investment in case of bankruptcy of the company. (b) Broad equity market indices (such as the S&P 500) are volatile – the index level, or price, fluctuates significantly over time. Investors may incur a loss if the time of redemption of their investment coincides with a downturn in general equity market.
2. Exchange-Traded Funds (“ETFs”): ETFs are securities the price of which is based on the underlying portfolio or index. ETF’s total assets (size), liquidity, expenses, and premium/discount to their net asset value (NAV) are subject to change due to the ETF sponsor or manager actions, market conditions, or other reasons beyond our control. One or more of the following risks may cause an ETF investment to deviate from the underlying index and to erode the value of a portfolio investment: high expenses, low liquidity, the price being materially different from NAV.
The benchmark for most MCM’s strategies is the custom balanced benchmark which combines an allocation (such as 60%) to equity index, and an allocation (such as 40%) to fixed-income index, with the allocations rebalanced monthly. The equity benchmark is the total return of SPDR® S&P 500 ETF (SPY), managed by State Street Global Advisors. The fixed-income benchmark is the total return of iShares Core U.S. Aggregate Bond ETF (AGG).
The benchmarks/indices are chosen based on similar risk between the benchmark and the respective MCM’s Strategy. The benchmarks have not been selected to represent that an investor’s performance would follow it closely, but rather is disclosed to allow for comparison of the investor’s performance to that of a well-known and widely recognized index.
Reference to a benchmark does not imply that the respective MCM’s Strategy will achieve returns, experience volatility, or have other results similar to the index. The composition of a benchmark may not reflect the manner in which the the respective MCM’s Strategy is constructed in relation to expected or achieved returns, investment holdings, asset allocation guidelines, restrictions, sectors, correlations, concentrations, volatility, or tracking error targets, all of which are subject to change over time.
ABOUT THE INVESTMENT
MCM’s investment strategies may be offered to investors as a separately-managed account (SMA) or as an investment portfolio on a unified managed account (UMA) or custodian platforms. Accounts are typically managed by the applicable Managing Advisor responsible for custody, financial planning, and client reporting, and sub-advised by Model Capital Management LLC. Terms and restrictions may apply, such as a minimum investment amount.