AMERISERV PREMIER EQUITY DISCIPLINE® Model

The AmeriServ Premier Equity Discipline®Model is an objective, risk sensitive, systematic methodology designed to reduce the inherent risk of the equity market. The Discipline is the culmination of over twenty years of research to mitigate the equity market’s downside risk or volatility.

Regardless of how the portfolio management and risk management activity is characterized, e.g., investing, trading, speculating, or hedging; regardless of the markets and instruments traded; and, regardless of the strategies and tactics employed; one requirement is common to all applications - the need to understand and manage the risk inherent in the underlying activity. All analytical decision- making and implementation processes are oriented to making sure that risk can be prudently managed before focusing on the potential reward.

The AmeriServ Premier Equity Discipline® Model places risk management/mitigation at the forefront. The model is designed to manage and mitigate the equity market’s inherent downside risk. The Discipline’s focus is long-term (calendar year). Consequently, short-term swings (tactical shifts), while possible, are not the norm. In its purest form, the Model will eliminate equity exposure during periods when the probability of experiencing a significant long-term decline is significant.

The objective of the Discipline is to implement an objective, decision-based methodology designed to mitigate the risk of remaining fully invested during long-term periods of significant market decline. The Discipline provides a systematic approach designed to out-perform the S&P 500 Index during bullish phases. Of equal or greater importance, the Discipline attempts to reduce the probability of a client experiencing below S&P 500 Index benchmark results during bear market stages.

Statistics

Betas and Alphas go hand in hand. Ideally, you want a Discipline with a low beta and high alpha. This means you have found a Discipline that has outperformed the benchmark while experiencing less risk than the index.

Alpha ratio – If you are attempting to determine if a discipline has exceeded the performance of an index on a risk adjusted basis, you should focus upon their alpha ratio. A positive alpha of 4 means the discipline has outperformed the S&P 500 Index by 4.0% per year on a risk adjusted basis.

Beta ratio – where the alpha looks at excess risk adjusted returns over the index, the beta looks at the index component of a fund’s return. In context, the S&P 500 benchmark beta ratio is 1. If you have a beta of 1, it is said that you have the same risk as the market. If you have a beta of 0.55, it is said that you have experienced about 55% of the risk of the market. In other words, the fund, advisor or discipline has a lower risk profile than the market.

Sharpe Ratio – the Sharpe ratio measures the return of the discipline compared to the risk free rate of return. The risk free rate of return is the 91-day Treasury-bill rate. This should be similar to money market returns. Often this ratio is used to determine if a discipline is able to beat the money market. A positive Sharpe ratio means the discipline did better on a risk-adjusted basis than the 91-day Treasury-bill rate. In other words, the higher the Sharpe ratio, the better.

How should you use these ratios?

Our goal in providing this information is really not to confuse you. Rating and analyzing investment disciplines is an imperfect science. There are many times when market movements cannot be explained by statistics because of random activity.

Our point has always been that investors place far too much emphasis on the reward or return side of the performance equation. Risk is an equally important component of the performance evaluation equation.



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Past performance is no guarantee of future results.