Model Portfolios
Which Model Portfolio Meets Your Objective?
1. Income Model Portfolio
OET INC 1001
This model is designed to protect principal contributions subject to market volatility. Then to provide an ongoing target income in the range of 3 to 5% without invading original principal. In today’s environment with low or negative interest rates these target returns cannot be reached with the peer portfolio of government bonds. It should be noted that a portfolio of nonqualified money (non-IRA money) will have a large exposure to tax-free municipal bonds. In addition, government bonds will be included, with the intent of avoiding the ravages of future inflation. This is seen in the use of treasury inflation protection bonds (TIP’s). In addition, corporate dividends and special investment dividends will be used to bolster the ongoing cash flow and maintain the portfolio principal.
2. Growth and Income Model Portfolio
OET G&I 2001
This model portfolio is similar to the income portfolio with the allocations changed. There will be less allocation to bonds, a higher allocation to dividend producing stocks, to growth-oriented ETF’s , and target returns of 6-9%. There will be a higher standard deviation and more risk.
3. Growth Model Portfolio
OET GRO 3001
Within this model portfolio the target return is 9-12%. There will continue to be an allocation for dividend producing stocks and those special ETF’s providing substantial dividend income. You will also find a portion of the portfolio dedicated to growth ETF’s. This portfolio will be continually evolving to meet the ever-changing environment of our modern marketplace. In addition, there will be a 20% exposure to the growth-oriented segment using options on stocks and ETF’s. This portfolio has greater risk.
Performance-based accounts
4. Aggressive Income and Growth portfolio
OET AIG 4002
Within this model portfolio you will find an income target of 12% at which point a performance bonus becomes effective. To achieve this performance, you will find an allocation to inflation protection bonds. If there is nonqualified money, an allocation to municipal tax-free state and city bonds will be used. There will be an allocation to dividend producing stocks as well as an allocation for active ETF transformation. There will be a 30% exposure to the option marketplace
5. Aggressive Derivative Model Portfolio
OET AGD 5002
Within this model portfolio you will find a targeted performance of 30%, once achieved the performance bonus becomes effective. Note there are high watermarks for both performance portfolios such that only gains in the portfolio may be subject to performance bonus fees only one time. An allocation to that part of the market which October Effect feels it has the best opportunity to expand or protect your invested assets given current market conditions. It is not uncommon to see the portfolio heavily allocated to cash, stocks, treasury inflation protection bonds, tax-free municipal bonds, and an assortment of options. Currently the strategy being used by October Effect Ltd. in its performance-based accounts is very much that of a market neutral advisor. During the earnings season we concentrate our investment activities on companies which should exhibit high volatility in their earnings.
The Market has four very familiar investment outcomes, the market can go up, the market can go down, the market may go sideways, and the market may exhibit extremely large moves up or down. By using a strategy involving the purchase of long strangles or buying both puts and calls on those companies with the highest volatility projection during earnings is a nondirectional strategy.
We are taking a nondirectional position and waiting for the actual marketplace and Company activity to direct our action, thereby making one leg of our investment profitable. In the meantime, both the transactions will lower the underlying cost of each strangle. We are currently using a version of performance record with an outside third party (Theta Research) to monitor our performance.