Introducing
EVO
An Evolutionary Money Management System
Potomac Advisors Inc.
Presented by Rich Paul
Hello!
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Today’s Agenda
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Who I am, What I do & How I do it
30-years of registered, investment advisory experience.
My performance
GIPS compliant, and GIPS and Theta Research verified track record.
INTRODUCING
Rich Paul
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Career Highlights:
• 25 year tenure as an electrical engineer/weapons system analyst.
• 30 year tenure as a registered investment advisor.
• Founder of Potomac Fund Management, CEO from 1987 - 2003.
• Co-founding member of NAAIM - authored NAAIM’s first performance
measurement standards while serving as Chairman of the committee.
• Co-authored landmark JPM article: “Market Timing Works, Where it Matters
Most… In the Real World.”
EVO1 Historical Performance:
21.86%
3 yr
p e r f o r m a n c e
( g r o s s - n o t
18.55%
18.51%
$1000M
$1000M
7 yr
10 yr
c a l c u l a t i o n s f r o m J u n e 1 ,
i n c l u d i n g a d v i s o r y f e e s )
17.25%
Inception
2 0 0 2
t h r o u g h
J u l y
3 1 s t ,
2 0 1 6
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A B O U T
U S
E V O :
A N
E V O L U T I O N A R Y
M O N E Y
M A N A G E M E N T
S Y S T E M
ev·o·lu·tion-ary (ĕv′ə-lo͞o′shə-nĕr′ē):
A gradual process in which
something changes into a different and usually
more complex or better form.
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A B O U T
T
T
E
S
U S
H E K E Y
O
V O ’ S
T R A T E G Y
“Academic research indicates that
when multiple trading systems are aggregated the
noise and errors will tend to diversify away, while
the signal remains,
and is stronger.”
ABOUT
EVO
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How signals are created
EVO is a mechanical system, by which all signals are generated based on algorithmic rules using technical
analysis. This eliminates all subjective biases and emotion from trading decisions.
Select from a
Universe of
120+ Individual
Trading Systems
Creates
Thousands of
Combinations
Validated
Combinations are
included in a
Single EVO
Composite
New Combinations
Continually
Evaluated for
Inclusion
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A B O U T
E V O
E V O ’ S
S Y S T E M
P R O F I L E
• Evolved from a composite of 8 to over 20+ multiple trading systems
• Trading systems are divided into long-term filters & short-term triggers.
• Buy / Sell / Short / Hold decisions plus protective stops
• EVO 1 trades are executed in Rydex S&P 500 index funds
• Long Positions: Rydex Nova Fund, an S&P 500 1.5X Leveraged mutual fund
• Short Positons: Rydex Inverse S&P 500 Fund = Inverse 1.0X S&P 500:
• Trades ~20 round trips per year (1 RT = 1 buy & 1 sell. Projection is based on
current model)
• “ All In,” i.e., 100% invested on each trade
Performance
“a posse ad esse”
=
ABOUT
EVO
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EVO’s evolution: June 2002 – March 2015
EVO1
THE ORIGINAL EVO1
As EVO evolved from 8 to 18 systems, we see performance
improve with little change to risk & volatility.
By using forward-testing, we can see how the original 8 system
would have performed if never changed.
Forward-tested
ANNUALIZED
RATE OF
RETURN
MAX
DRAWDOWN
ULCER
INDEX
13.22%
Actual Results
VS
17.30%
-23.90%
-26.20%
6.20%
5.40%
P E R F O R M A N C E
1 0
14+ Year Performance Results
J u n e
1 ,
2 0 0 2
t h r o u g h
J u l y
3 1 ,
2 0 1 6 .
( g r o s s
Metric
o f
f e e s )
EVO1
S&P 500
% of Time Invested Long
51.1%
100%
% of Time Invested Short
0.4%
N/A
# Winning Trades
90
N/A
# Losing Trades
57
N/A
% of Winning Trades
61.2%
N/A
Average Gain of Winning Trades
4.07%
N/A
Average Loss of of Losing Trades
-2.33%
N/A
Ratio Avg. Winning Trade to Avg. Losing Trade
1.75
N/A
P E R F O R M A N C E
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Historical Performance
J u n e
1 ,
2 0 0 2
t h r o u g h
J u l y
3 1 ,
2 0 1 6 .
( g r o s s
YTD
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002*
EVO1
10.10%
12.18%
23.61%
50.90%
24.78%
5.24%
-0.08%
20.05%
19.88%
19.17%
15.59%
-1.04%
19.10%
35.49%
-0.34%
S&P500
7.66%
1.38%
13.69%
32.39%
16.00%
2.11%
15.06%
26.46%
-37.00%
5.49%
15.79%
4.91%
10.88%
28.68%
-16.69%
f e e s )
Summary Statistics
Calendar Year Returns (* = partial year)
Year
o f
+/+2.44%
+10.80%
+9.92%
+18.51%
+8.78%
+3.13%
-15.14%
-6.41%
+56.88%
+13.68%
-0.20%
-5.95%
+8.22%
+6.81%
+16.35%
Metric
EVO1
S&P 500
Annualized Rate of Return
17.25%
7.31%
Cumulative Return
854%
172%
Standard Deviation (mo.)
4.14%
4.20%
Loss Standard Deviation (mo.)
2.81%
3.71%
Sortino Ratio RF (Citi 3 mo. TB)
1.93
0.58
Calmar Ratio
0.72
0.14
Maximum Drawdown
-23.9%
-51.0%
Up Capture vs. Market
89.8%
100%
Down Capture vs. Market
37.0%
100%
Alpha Vs. Market
13.9%
0%
Beta vs. Market
0.39
1.00
R-Squared vs. Market
0.15
1.00
YOUR
MONEY
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Growth of a Hypothetical $100,000 Investment
• Consistent performance, nearly positive absolute returns
P E R O M A N C E
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• Maximum calendar year loss only -1%
• Strategy was up +20% in 2008: S&P down -37%
R
P
S
R
E
E
T
E
A L - T I M E
R F O R M A N C E ;
E L A R
S U L T S
• Program outperformed S&P 500 TR by 10% with half the risk
• System evolution produced continuously improving results
• Actual results better than the if original composite were used
• Current model projects better than the actual results (based on backtests)
• Over a recent 10-year period, the program beat every single actively managed
mutual fund, ETF, and all but one index (on a gross of fees basis)
• 292 signals (146 round trips) over 14 years demonstrate statistically significant
results
CLOSING
THOUGHTS
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The EVO competitive advantage
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Real-time
All results are actual. No hypotheticals
or back-tested results.
History
EVO went live May 31, 2002, over 14
years ago.
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Verified
GIPS verified track record through June
2014. Theta Research provides ongoing
verification.
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Stellar
Superior performance, beats on risk and
return.
Consistency
The only strategy ranked in the top four in
performance in all seven time periods from
one to 10 years as tracked by Theta
Research. (July 2016)
Ranking Highlights:
• Three #1 rankings
• Three #2 rankings
• Ranked #1 or #2 on a risk adjusted basis
for all time periods from three to 10 years.
(Theta’s Ulcers Performance Index)
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Thank You!
The EVO Strategy is offered through
Potomac Advisors Inc.
REGISTERED INVESTMENT ADVISOR
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GIPS VERIFICATION
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Potomac Advisors Performance Disclosure
EVO composite performance is based on actual accounts and comprises all accounts in the composite. Composite
returns are time-weighted total returns that reflect the reinvestment of dividends and capital gain distributions. Composite
returns are net of the underlying mutual fund management fees and other fund (administrative) expenses. No redemption
or 12(b)1 (fund marketing) fees were charged for these composites. Composite returns are shown gross of fees, thus no
adjustment for fees has been made, neither for income taxes. Performance for other composites in other investment
programs offered may differ materially (more or less) from the performance of this composite. The volatility of the market
indices may materially differ (more or less) from that of this composite. Benchmark returns such as the S&P 500 are total
returns and reflect the reinvestment of dividends. It should not be assumed that future recommendations will be profitable
or equal past performance. The investment return and principal value of an investment will fluctuate so that an investor's
shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower
or higher than the performance quoted. This material is for informational purposes only and does not constitute an offer to
sell or a solicitation of an offer to buy any security. Such offers can only be made where lawful under applicable law.
This presentation is for use by investment professionals only. It is not intended to be distributed to the public
and such use is prohibited. It is intended to demonstrate to advisers the performance of the manager, not the
actual performance after fees which may different for licensees of the EVO system.