ITR Equity Optimizer Model™

The ITR Equity Optimizer Model™ utilizes ITR Economics' proprietary system of leading indicators and knowledge of the business cycle to build wealth throughout the equities business cycle. The Model is designed to reduce your risk exposure when business cycle decline is imminent and to position assets to your advantage before business cycle rise takes hold. Success results from empirically measuring shifts in the equities business cycle.

Interested in learning more about the model? We have been live with Optimizer A and B working in concert since October 1, 2020. To receive occasional updates on the Optimizer's performance, simply fill out the form below to be added to our email list. 

 

Chart updated 4/1/2021.
Optimizer March 2021
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Optimizer Updates

The Optimizer Model was engineered based on ITR’s knowledge and experience regarding economic cycles, leading indicators, and financial trends, as evidenced by our long-term track record of success in forecasting. We have long been asked to provide “stock tips” based on our work and track record both in economic forecasting and in applying that methodology to sectors/stocks. That effort is now systematized into a coherent, objective methodology that is part of our ongoing work at ITR Economics and a field of study we are continuing to research.

We partnered with Clark Bellin and his firm, Bellwether Wealth, in running the Optimizer Model for interested individuals. Bellwether Wealth built upon the existing Optimizer A, which is ETF-based. The result, Optimizer B, uses state-of-the-art machine learning and artificial intelligence in order to select individual stocks to be bought from within the sectors identified by ETF-based Optimizer A. By its very nature, the Optimizer is not a static system, and the methodology used is advanced and specifically intended to be objective through its use of measurable trends. ITR’s methodology and the objective nature of Optimizer A and B result in an investment process that is often a perfect fit within an overall investment strategy.

Don't miss our complimentary webinar to learn more about the Optimizer Model!

May 14 at 1 p.m. ET, from ITR’s Studio A
Presenters: Alan Beaulieu (ITR), Eric Post (ITR), Clark Bellin (Bellwether Wealth)

This webinar will show how the Optimizer Model (parts A and B) works, why it works, and how it has performed since its inception. ITR Economics President Alan Beaulieu and Senior Economist Eric Post will be joined by Clark Bellin, principal of Bellwether Wealth. They will present and discuss components of the Optimizer Model, how it is used as part of the broader process of wealth management, and how it has performed relative to its benchmarks.

Click here to register.

We have been live with Optimizer A and B working in concert since October 1, 2020. The results are shown via the chart below (October 1 through end of January 2021).

optimizer chart feb 2021

 

a) The 50/50 refers to the allocation of funds within the Model, 50% ETFs (Optimizer A) and 50% specific stocks (Optimizer B). The top line on the chart is pure Optimizer B.
b) We previously discussed that Optimizer A is the foundation for Optimizer B. The latter uses machine leaning and AI to derive stocks most likely to perform well based on the Optimizer A input.
c) The entire system continues to be numbers driven and therefore objective, allowing investors to minimize the downside of behavioral finance biases.

You are welcome to follow the Optimizer’s performance by going to our website. Monthly updates are posted there along with some additional technical information. As a reminder, Bellwether Wealth is the only wealth management firm authorized to run the Optimizer A and B.

You are always welcome to send me an email, and I would be happy to answer any questions you may have.

 

Thank you for your continued interest.

Best regards,

Brian Beaulieu

CEO

We are pleased to announce that the Optimizer A and Optimizer B are up, running, and available to you.

The goal of Optimizer A and B is to maximize the upside while minimizing volatility.

The below chart shows the cumulative returns of the two Optimizer models, a blend of the two models, and two traditional ways of measuring relative performance. If you attended our ITR Webinar on Dec. 15, 2020, you have “met” Clark Bellin, our development and business partner at Bellwether Wealth. You also had the opportunity to learn in some detail about the Optimizer B aspect of the program. Clark has that portion of the webinar up on his website if you would like to see it now.

 

Optimizer A and B Performance Through Dec 31 2020

 

Regarding the chart:

  • Teal (top number) is Optimizer B ONLY (this is what my daughters are utilizing because they are young and aggressive by nature)
  • Blue is 50/50 Optimizer A and B (this is where Alan and I have allocated our money and ITR’s funds)
  • Pink is Optimizer A only (this is perhaps where I will go when I eventually retire; we will see what Clark advises)
  • Orange is S&P 500
  • Yellow is a momentum ETF. Since momentum is a strong feature of the Optimizer B model, Clark watches this for correlation. It also shows him that ALL the feature sets used in the Optimizer B model matter and provide superior results.

We are excited about the performance prospects going forward. Optimizer A is the platform that makes the model function and is geared to minimize volatility. Optimizer B takes emotion and the human judgment element out of the process and utilizes machine learning to drive superior results. Both A and B are numbers-driven and therefore objective approaches, as spelled out by Clark in the Dec. 15 ITR webinar.

Contact either me, or Clark directly at cbellin@bellww.com, if you have any questions, would like additional information, or want to start utilizing the Optimizer Model.

 

Best regards,

Brian Beaulieu

CEO

Exciting advances in the ITR Optimizer Model. The research and development is concluded and we are moving to independent verification.

1-year-, 3-year, and 5-year alpha relative to the overall market (SPY) is appreciably improved as a result of the following:

  1. Weekly, not monthly, inputs/signals are now used

  2. The signal components are refined and broadened

  3. There are now twice as many investment opportunities with small cap ETFs now part of the model

 

Next steps are verification of our internal results and working with Bellwether Wealth on the most effective way to roll the ITR2 Model out if the outside testing is successful.

Thank you for your continued interest.

 

Best regards,

Brian Beaulieu

CEO

COVID-19 necessitated refocusing our research efforts from the Optimizer Model toward dealing with the essentially unprecedented natural disaster and related economic issues. We appreciate your forbearance regarding the gap between updates.

  1. We opted to have the Optimizer in “Cyclical” mode on April 1. This was not an easy call. The monthly data inputs indicated a defensive posture should be taken. However, our analysis of events, trend probabilities, and weekly data suggested to us that "Cyclical” (planning for rise in the Optimizer Model components) was the correct call. The S&P 500 had its low point March 23; of course, no one knew for sure that would be the low when we made our decision on April 1. However, our analysis suggested that the opportunity costs associated with going “defensive” were too great, even if the market moved lower in the short term. The move to “Cyclical/rise” turned out to be a good call.

  2. Our Optimizer partner, Bellwether Wealth, is currently working on some advanced modeling to determine if there is a cost-effective means of adding alpha (outperformance) to the Optimizer during bull markets.

  3. ITR Economics is running a separate alpha-seeking track. About 70% of the software is developed. Again, time is our biggest enemy with COVID-19 still creating havoc.

  4. We have not made any progress to date on developing daily/weekly “tripwires” in the event that there is another calamity similar to what occurred in February 2020. In my 40 years as an economist, I have not seen such a dramatic and “blind” turnaround in the market. As such, its reoccurrence is likely a low probability–high impact event. Nonetheless, we want to prepare for it and expect to get this research going again by the end of this year.

Thank you for your continued interest.

Best regards,

Brian Beaulieu

CEO

Here is what is going on:

  • The Optimizer modeling continues. We are running money through the model as previously reported and are pleased with the results.
  • There is now an Optimizer 2.0 that has gone through the modeling process and is also running money. Model 2.0 is constructed to provide additional lift during prolonged bull markets via changes we made to the component weighting structure within the model, while still providing all the downside protection inherent to the Optimizer.
  • We have also developed the Optimizer-S that was mentioned in an earlier Update. That modeling went very well and provided even more lift during prolonged bull markets while maintaining all the advantages of the downstroke protection. We also reduced the exposure to certain industries within the Optimizer-S as a means of reducing what we discern as risks related to those industries even though they historically provided benefit.
  • The Optimizer-S outperforms the Optimizer 2.0. We think the Optimizer-S should be considered as entailing more risk because of the added exposure to upside factors and the removal of the industries that historically offered value. The S gave an annualized rate of return of 17.68 from 12/31/94 to 12/31/2019. The S&P gave an annualized rate of return of 10.22 during that same period. Changing the period from 3/1/2009 to 12/31/2019, the S did 19.00 while the S&P did 17.06. The market bottomed in 3/2009. A fee of 1.5 was charged on the Optimizer in both situations and no fee charged on the S&P 500.
  • We think the Optimizer 2.0 and the Optimizer-S are going to prove themselves very worthwhile equity investment vehicles given the rise that we see ahead and the ongoing probability of a 2022-23 general economic recession with a probable outsized downturn in the equities market.

 

Thank you for your continued interest.

Best regards,

Brian Beaulieu

CEO

Here is what is going on:

  • We have been working on adding a “super cyclicals” component to the ITR Equity Optimizer Model™. The intent is to enable the model to perform better than the current iteration during prolonged bull markets without losing the defensive capabilities inherent to the model.
  • The results are encouraging. Our internal analysis indicates that we can add 100+ basis points to our CAGR over the last 10 years and 200+ bps over the last 24 years. The numbers will be appreciable even after “drag” for taxes and transaction costs are taken into consideration.
  • Our next step is to decide on which iteration to move forward with and provide it to Bellwether Wealth for independent modeling. Bellwether Wealth runs the modeling through Morningstar.
  • The Morningstar tests will provide monthly, annual, 3-year, 5-year, and 10-year, etc. comps to the benchmark. We are looking forward to seeing those ASAP.
  • The live testing continues. Results are as we expected, with the funds in the model performing as anticipated. We are putting additional accounts under the model to broaden the performance testing.

The next update will come once we have the Morningstar backtesting results completed.

Thank you for your continued interest.

  1. Live dollar testing began October 4, 2019. From its inception October 4 through October 29, the Optimizer is +65 bps versus the S&P 500 Total Return Index. The Optimizer Model return is 3.60% while the S&P 500 is 2.95%.
  2. We have had numerous meeting with different segments of the financial industry: P/E, VC, Wealth Management firms, and retailers. We’ve garnered a lot of great ideas. The feedback on the Optimizer is positive and supportive.
  3. Our Model currently provides for three “positions” that vary from Aggressive, to Defensive, to Very Defensive. We are starting to define what would constitute “Very Aggressive” and, if it would benefit performance, how it would fit into the model.
  4. We think a future iteration of the Optimizer will look at being able to incorporate into the model slicing the equity platform into small cap, mid cap, large cap, etc.; there are enough differences in performance that this could prove to be worthwhile. 
  5. Another future version may include loading in certain “base” or “mainstay” equities to more aggressively pursue upside alpha during bull markets 

Our next update will be at the December 2019 webinar Alan and I will be doing. In addition to an Optimizer update, the webinar will look at the financial markets/trends, how close we are to our system of leading indicators signaling we are a “go” for the recovery in 2020, a look at how the election might impact some aspects of the forecast and how it won’t impact other aspects at all. The purpose is to get you thinking ahead of the competition so you can make the key decisions to thrive while they are wondering what is going on. 

Best regards,

Brian Beaulieu

CEO

We tested the efficacy of the model back to 1991 using an industry-standard drag on earnings to account for transaction costs and taxes. The testing was done outside of ITR. The results were favorable to the Optimizer Model.

We ran additional analysis using the testing results and determined that we successfully avoided negative returns over any given 5-year period (the S&P 500 experienced negative 5-year returns five times in the test period). The Optimizer model minimized weak return periods, and essentially was on par with the best periods in the specified bands.

# 5 Year Periods, Negative Annual Return 0 5
# 5 Year Periods, 0% to 5% Annual Return 2 4
# 5 Year Periods, 5% to 10% Annual Return 8 2
# 5 Year Periods, 10% to 20% Annual Return 10 9
# 5 Year Periods, 20%+ Annual Return 3 3

 

Twice the Optimizer Model yielded 5-year annual return results slightly more than 5 percentage points lower than the S&P 500. Overall, the S&P 500 provided a better return in 9 of the 23 years we tested.

We are going to investigate those periods where the buy-hold strategy outperformed our model to determine what the causal factors/relationships were in those instances, specifically looking for some consistency in the factors.

Beyond that, we are going to test an additional idea or two to further optimize the model, but we are approaching the point of diminishing returns.

Best regards,

Brian Beaulieu

CEO

We tested the data using an outside source to verify results. We also put an industry-standard drag on earnings to account for transaction costs and taxes. Since the benchmark is a buy and hold strategy, a similar drag was not placed on the benchmark. With the drag taken into consideration, the Equity Optimizer model outperformed the benchmark CAGR over the 12-year test period by 370 bps.

What’s next:

  1. We are going to conduct further back testing to encompass an even broader array of market forces to further test the ability of our model to work under varying circumstances. We all know the admonition that prior results are not a guarantee of future performance, but we can be more confident about the model’s advantages with further back testing because of the varying forces at work in the past and conceivably in the future.
  2. We are also going to tinker with the model to determine if we can improve upon its performance during certain periods where we think the model perhaps could have provided more alpha.
  3. ITR Economics and Clark Bellin of Bellwether Wealth will be investing money to begin “live” testing of the model and create additional data points.

Best regards,

Brian Beaulieu

CEO

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