FF 2.0
The FF2.0 FormulaFolio is our newest quantitative model. It is an agressive portfolio that seeks to capitalize in both the up and down moves in 3 major US stock market indices:
- S&P 500 (large cap stocks)
- S&P 400 (mid cap stocks)
- Russell 2000 (small cap stocks)
This is accomplished through analyzing sets of stocks that make up each respective index as sub-indices. By breaking each index down and then reconstructing hundreds of smaller groups of sub-indices it gives us additional data sets, which is crucial for probability calculations. The sub-indices are then measured each day against a small set of factors that our independent research has shown are predictors of intermediate term direction (4 to 12 weeks) of US stocks. Based on this calculation the model selects the appropriate ETF (exchange traded fund) to capitalize on the probable direction of the benchmark.
Lastly, there is a daily position size algorithm that runs separately from the probability algorithm. This is designed to reduce the weight of our holdings in the event a market gets too overbought or too oversold. The purpose is to allow us to participate in market moves, but to do so as prudently as possible.
For more information on this model, check out the FormulaFolios TV section of our site to watch video walk-through of our investment strategies.
