The Atlas Global Defensive Equity Strategy (the Strategy) aims to outperform the global equity index through favorable selection of countries and sectors and loss avoidance during severe bear markets.
Atlas Capital Advisors LLC (the Manager) uses a proprietary framework to evaluate expected returns, market sentiment, and risk for the single country and U.S. sector indices which together comprise the global equity market. Based on this assessment, the Manager adjusts the weight of portfolio holdings towards the countries and sectors with more favorable characteristics and away from those with less favorable characteristics.
When the overall assessment of the risk/return profile of equity markets is favorable, the Manager expects the fund to be fully invested in equity markets (generally over 75% of the time). Suppose global economic data are worsening and a substantial portion of the global equity market exhibits undesirable characteristics. In that case, the Manager expects to de-risk the Strategy by allocating a portion of the Strategy to short-term fixed income. The degree of de-risking is a function of the proportion of the global equity market with an unfavorable assessment. The proportion of the Strategy in equities may be as low as 50% in the most negative scenario.
The Strategy uses a consistent, systematic approach with a foundation in academic and Manager proprietary research. The benchmark for the Strategy is the FTSE Global All Cap-Net Tax (U.S. Regulated Investment Company) Index.
Research
The Manager utilizes academic and investment practitioner research regarding equity factors (Fama, French, Carhart, and others) and in-house research, which is ongoing. The Manager also utilizes proprietary research regarding the influence of global economic data on equity market outcomes. The Manager has been running enhanced equity index strategies since 2003. Read more about Atlas Multi-Factor approach.
Approach
(1) Invest Globally:
- Diversification across geographic markets provides the opportunity to benefit when there are attractive markets outside the home country.
(2) Create alpha from beta management:
- Return of any equity market index (the equity beta) can be achieved dynamically and cheaply via ETFs.
- Additional return (alpha) can be generated from systematic beta management – informed choices about which stock markets to own and avoid. Generating alpha from beta management is often under-appreciated and under-utilized by investors.
(3) Take risk where it is more likely to be rewarded:
- Examine valuation, momentum, growth, risk and currency for each market. Allocate the risk budget primarily to favorable markets.
(4) Defend against losses:
- When too many equity markets turn bad, and the global economy worsens, move assets to short-term fixed income to avoid losses for investors.
Allocation discipline
(1) Index assessment: Evaluate fifty-one segments of global stock market (thirty-seven country indices, eleven U.S. sector indices, international small-cap, U.S. small and mid-cap). Evaluation based on valuation, momentum, growth, risk, and currency.
(2) Economic assessment: The Manager continually updates a dataset of the important economic data from the world’s largest economies and evaluates whether global economic data are improving or deteriorating, on average.
(3) Allocation decision: Index and economic assessments lead to a decision on equity weight in strategy (usually 100%)
(4) Portfolio Weighting: Within the equity allocation of the Strategy, the weight to countries and sectors are set relative to the market capitalization weight of the benchmark, with more favorable indices given more weight than the benchmark and the less favorable with weights below the benchmark.
Rebalancing
Portfolios are rebalanced quarterly, using the process described above.
