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Strategies, Inc.
Strategy Update
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Subscriber Clients to ISI's Global Macro-Market Indicator & related Risk Adjusted Model
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Click link to right and provide password to view .PDF for latest update of ISI's RAM cumulative report.
RAM 's introductory report is an 8-page, 11x17 booklet format, which provides a graphic and narrative introduction of RAM from its mathematical inception on December 31, 1918. As the cumulative chart (and supporting numeric data) illustrates, RAM has outperformed its stock market benchmark. Its secret to success is risk-management during declining markets. While typically under-performing in rising markets (see summary on Page Four), RAM has dramatically outperformed its stock market in down markets. Thus, over a typical full market cycle, including both up & down markets, RAM has outperformed its stock market benchmark in both absolute & risk-adjusted terms. Of course, past results don’t assure future performance (Update LMM-RA07-3)
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Narrative Overview . . . RAM employs two major components. First, overall stock market allocation comes from ISI’s Macro Market Indicator or MMI, which was developed over a 6-year period from 1983-1989 and implemented into ISI’s market strategy in 1989. It was employed in a similar manner (to determine the percentage of stock market exposure) in ISI’s flagship program, Equity Managed Account Service or EMAS. The MMI’s prime series of components are related to monetary conditions (i.e. interest rate levels and trends) and Federal Reserve Board policy. It also includes factors for economic trends, market sentiment, inflation/deflation trends and market valuation. MMI is an objective mathematical model with data and stock market allocation readings starting in January 1919.
MMI is an unemotional measure aimed at measuring overall the stock market’s risk profile. MMI has seven levels, with the highest stock market allocation at the highest MMI level. Allocation percentages drop as MMI levels fall.
In the 1990s the MMI was expanded to a global perspective and renamed Global Macro-Market Indicator or GMMI.
Stock market allocation levels for the RAM can range from 100% long the S&P 500, for MMI level 7, to 10% for MMI level 1. (MMI’s allocations ranged from 100% to 10% when employed for ISI’s EMAS.) Historically, level 7 has occurred 11.3% of the total trading days (23, 674 from 1/2/1919 to 3/30/2007) and 10.8% for level 1. See Page Four for explanations of the stock market index, RA’s leveraged funds and money market fund assumptions.
RAM’s second component is the required amount of momentum (measuring the difference between the current price and a series of moving averages for different time periods) that determines if the GMMI allocation will be activated. Momentum requirements vary according to GMMI readings, with less required to be invested in the S&P index fund at GMMI level increase, and vice versa.
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