Direct Risk Targeting + Systematic Active Rebalancing = Alpha

Summary of Active Fixed Income Model Portfolio performance

Portfolios use a proprietary methodology of systematic Direct Risk Targeting, treating ETFs and Funds as Risk Factors, resulting in both significant Alpha and greater liquidity than directly owning bonds.

This bypasses the traditional entangled methods of yield, duration and sector weighting, which are inefficient, and result in almost no Alpha and being short liquidity. 

The models shown use our Gen3 Risk Models. Gen 4 is coming! Fact Sheets are on our Documents page.

Available on Schwab iRebal, InterActive Brokers, and as Direct Indices on indexone.io

PlusAlpha Active Model Portfolios & Benchmarks

Sep 2024

YTD 2024

1-year

3-year

5-Year

ITD 1/2016

AnnualAlpha -AGG

Beta-AGG

Corr - AGG

B’Berg LQA Bid/Ask

ARAM PlusAlpha Active Model Portfolios using 400+ ETFs (Net returns)

AGG+ Baseline

0.8%

6.5%

11.1%

7.2%

30.4%

63.8%

4.5%

0.8

0.56

0.13

AGG+ Aggressive

2.1%

7.4%

13.6%

-3.4%

57.9%

112.6%

7.6%

1.1

0.45

0.12

AGG+ Aggressive- Diversified

1.9%

7.0%

13.1%

-5.0%

43.3%

89.7%

5.7%

1.3

0.56

0.07

AGG+ Inv Grade

1.2%

4.5%

8.2%

5.7%

9.8%

29.5%

1.8%

0.73

0.59

0.02

Active Benchmark Indices created by ARAM (using 8-9 Benchmark ETFs)

Active IG Benchmark

1.2%

4.7%

9.8%

-4.1%

3.3%

25.6%

0.8%

1.0

0.91

0.01

Active Broad Benchmark

1.1%

6.2%

10.9%

-1.5%

5.9%

34.9%

2.0%

0.8

0.71

0.01

Passive Benchmark Indices

Agg Index

1.3%

4.4%

11.6%

-4.1%

1.7%

17.3%

0.0%

 1.00

 1.00


U.S. Treasury

1.2%

3.8%

9.7%

-5.3%

-1.0%

11.2%

-0.4%

 0.91

 0.94


Govt-Related

1.2%

4.6%

10.3%

-1.6%

3.1%

20.4%

0.6%

 0.85

 0.96


Corporate

1.8%

5.3%

14.3%

-3.5%

5.9%

32.0%

1.0%

 1.27

 0.91


Securitized

1.2%

4.6%

12.2%

-3.3%

0.7%

12.3%

-0.4%

 0.93

 0.95


MBS

1.2%

4.5%

12.3%

-3.6%

0.2%

11.4%

-0.5%

 0.94

 0.94


High Yield

1.6%

8.0%

15.7%

9.6%

25.9%

73.0%

5.2%

 0.78

 0.53




The Returns summarized above are out-of-sample simulated/hypothetical returns for the Model Portfolios. Fees are assumed. The underlying portfolio returns are based on the monthly Total Returns computed by Bloomberg for each of the underlying ETFs, with execution risk and liquidity at scale being the primary risks to the simulations. 

The model portfolios are created using our proprietary programs for systematic active management, and target the risk of the a Benchmark Index or ETF at every rebalaning period to create a new portfolio, with the out-of-sample returns computed until the next rebalancing period. 

Research on the risk targeting algorithms are continously improved, with the model returns replaced when we discover a better algorithm to reduce risk and improve stability of returns.

The model portfolios can be constructed from ETFs, mutual funds, REITs and stocks. Currently we are focusing on US and USD financial products, but will continously be adding new products and models.

Please see our Fact Sheets and newsletters for details and commentary on how model portfolios are constructed.

ARAM's Plus Alpha: A Solution based on Research
on Fixed Income Risk, Behavioral Biases and Market Structure

37 years of experience in Fixed Income, in Research, Trading, Sales and Asset Management, including Trading with 500+ Invesment Managers the 1990s

1987-2024: Continuously solving Risk and Asset Pricing problems using Macro Economics

2014: Studies of Market Structure in Fixed Income and MBS – identification of Shortcomings and Biases; PerfectVision dream is formed

2016-2018: Papers on Market Structure, including letters to the SEC

2016: Solution to Market Structure limitations – AGG Plus Alpha (Mutual Funds)

2017: Extended to ‘Retail version’ – using ETFs

2017-2023: Solutions for other applications: REITS, High Yield, Dividend Stocks, OCIO, Asset Allocation, Factor Equity portfolios, and more

2023: Gen 2 of Agg Plus Alpha created – using ETFs - improvements in Risk Targeting

2024: Gen 3 Plus Alpha created (current version) – further improvements in Risk Identification and Risk/Return tradeoffs

2024: Macro Perfectvision Breakthrough - Gen 4 eCIO (now undergoing testing)

eCIO: the Future of Fixed Income - using Macro Risk Targeting for “PerfectVision” returns


History of Plus Alpha Portfolio Construction

Gen 1 to Gen 3 – targeting the risk of a benchmark
•Gen 1 – Mutual Funds: 2016-2020 – 3+% Alpha
•Gen 1 - ETFs: 2017-2020 – 2.5% Alpha
•Gen 2 – ETFs: 2023 – 3+% Alpha
•Gen 3 – ETFs: 2024 – 4+% Alpha
•Gen 3 – Large Benchmark ETFs: 2024 - 2.6% Alpha

2024 - Identification of Market Implied Risk from the PerfectVision portfolios, and portfolio construction using Macro Risk Models

2024 Gen 4 – targeting Macro Risk systematically

Gen 4 “eCIO” – new risk algorithm - 6+% Alpha expected (with ETFs)

Gen 4 is coming, and will disrupt Fixed Income Investing