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Performance Summary
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Active vs Passive - Part 2 |
Active vs Passive - Part 2: Comparison vs traditional, passive indexes over rolling 3-year periods
Academics state that active investment management cannot consistently outperform passive indexes. They point to the poor success rates that individual mutual funds have versus passive indexes as proof of this view. F-Squared differs with this claim.
Our AlphaCycle Indexes are based upon active investment management, and use the institutionally-proven steps of 1) professional manager selection, 2) diversification at the process level, and 3) embedded manager rotation, to create a more consistent and repeatable means of creating investment value add (alpha).
Rolling 3-year periods are one of the most effective means of distinguishing between "luck" and "skill". The chart below shows the results of over 800 rolling 3-year periods for the AlphaCycle Indexes and their ability to outperform passive indexes. The 78% success rate vs a passive index compares to less than 20% for individual mutual funds over longer-time periods, and represents a 4-fold improvement in "success" 1.
Please note that F-Squared then creates Tracking Portfolios of individual stocks that are designed to replicate the performance of the AlphaCycle Indexes. The Tracking Portfolios are sometimes also known as Model Portfolios. Investors will invest in the Model Portfolios, not the AlphaCycle Indexes.
1 Sources: American Stock Exchange, Morningstar Direct, F-Squared Investments, and "The Difficulty of Selecting Superior Mutual Fund Performance", Thomas P. McGulgan, Journal of Financial Planning, 2/2006.
2F-Squared Investments DOES NOT GUARANTEE that the performance of the tracking models will in fact replicate the performance of the target AlphaCycle Index.
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