EA Sector
Model Account Performance Report
STRATEGY & PERFORMANCE HIGHLIGHTS
Strategy Overview
Style
Risk Profile
Performance Metrics
Strategy
Benchmark
Dynamic Asset Allocation
Moderate
Annualized Return
Cumulative Return
8.18%
53.11%
7.98%
51.56%
Research Start Date
2.1.2012
Standard Deviation
7.78%
5.29%
Research Results Through
6.30.2017
Period (Years)
5.42
Sharpe Ratio
Max. Drawdown
Model Account Launch
1.19.2012
Max. Drawdown Length (Months)
Model Data Start Date
2.1.2012
Alpha
Minimum Investment
$75,000
Benchmark Equity Fund
Vanguard® S&P 500
Benchmark Bond Fund
Vanguard® Total Bond
Re-Allocation Frequency
45 Days
1.03
1.47
8.44%
4.54%
11
7
2.80%
N/A
Beta
Max. Equity / Min. Bond Allocation
0.67
N/A
67%/33%
67%/33%
3
N/A
Number of Defensive Funds
*Risk Metrics Definitions Available on Page 4
STRATEGY METHODOLOGY
Q3 Asset Management’s Enhanced Allocation (EA) Sector strategy provides active management across a wide range of
investment platforms. The strategy follows a systematic approach that can be thought of as an asset allocation model with the ability to
adapt to changing market conditions. Drawing from years of academic & market research, the strategy embraces the concept of
momentum investing which analyzes and ranks a diverse universe of sector and fixed income funds based on recent performance. The
program invests in the highest ranked securities under the premise that they will continue to be strong performers for the next period.
EA Sector improves upon a momentum investing approach by evaluating the general market conditions prior to investing or reallocating a client’s account. During unfavorable market conditions the strategy will allocate one hundred percent of an investor’s
portfolio to fixed income or money market funds in an effort to preserve capital. During favorable market conditions the strategy
identifies and ranks all available equity and bond funds based on recent performance using a proprietary momentum based algorithm.
Client accounts are then re-allocated into the six top-ranked mutual funds in accordance with the investor’s risk tolerance. Our
research has shown that that the program will be invested in the top-ranked funds approximately 75% of the time and invested entirely
in bonds approximately 25% of the time.
EA Sector allows an investor to participate in rising equity markets, and just as importantly, maintain the ability to preserve capital
during adverse market conditions. The program attempts to provide the investor with superior returns and reduced volatility relative
to a passively managed benchmark. Enhanced Allocation Sector is offered in a conservative, moderate and growth risk profile.
HYPOTHETICAL GROWTH OF $100,000 ● 2.1.2012 - 6.30.2017
$170,000
EA SECTOR ● MODERATE
BENCHMARK
$160,000
$150,000
$140,000
$130,000
$120,000
$110,000
$100,000
$90,000
Model Account data is based on an account held at Trust Company of America (TCA). Performance on other platforms may differ and
could be negatively affected based on a variety of factors. There is no assurance objectives will be realized.
PLEASE REVIEW DISCLOSURES INCLUDED IN THIS MODEL ACCOUNT PERFORMANCE REPORT
Copyright© 2017 Q3 Asset Management Corporation
2175 Cole Street Birmingham, MI 48009 ● 248.566.1122 ● [email protected] ● www.q3tactical.com
Page 1
EA Sector
Model Account Performance Report
MONTHLY PERFORMANCE
MODERATE ● 2.1.2012 - 6.30.2017
Year
2012
2013
2014
2015
2016
2017
Jan
-0.4%
2.6%
1.7%
1.4%
1.3%
Feb
1.3%
1.1%
4.2%
-0.8%
0.5%
0.6%
Mar
2.4%
3.2%
-4.2%
-1.2%
1.0%
-1.1%
Apr
0.1%
2.8%
-1.9%
-2.1%
3.5%
0.5%
May
-2.4%
2.6%
3.6%
4.3%
-0.5%
2.5%
Jun
0.6%
-2.1%
2.1%
-0.6%
2.9%
-1.7%
Jul
1.7%
6.0%
-1.4%
1.8%
2.7%
Aug
2.5%
-1.3%
2.9%
-4.4%
-3.4%
Sep
2.4%
3.9%
-2.2%
0.6%
1.9%
Oct
-0.1%
1.0%
3.0%
-0.2%
-3.7%
Nov
1.2%
3.1%
2.9%
1.0%
-2.0%
Dec
0.3%
0.6%
0.0%
-2.6%
-1.4%
EA BMK
10.2% 6.4%
22.2% 15.9%
11.9% 8.4%
-2.9% 0.9%
2.5%
6.8%
2.0%
5.4%
BMK = Benchmark which is composed of 67% Vanguard® S&P 500 Index Fund and 33% Vanguard® Total Bond Index Fund
MUTUAL FUNDS INCLUDED IN PROGRAM
Equity Funds
Biotechnology (FBIOX)
IT Services (FBSOX)
Industrials (FCYIX)
Computers (FDCPX)
Consumer Staples (FDFAX)
Leisure (FDLSX)
Financial Services (FIDSX)
Fidelity Telecom and Utilities(FIUIX)
Natural Resources (FNARX)*
Network & Infrastructure (FNINX)**
Pharmaceuticals (FPHAX)
Utilities Portfolio (FSUTX)
Home Finance (FSVLX)
Wireless (FWRLX)#
Materials (FSDPX)
Energy (FSENX)
Energy Service (FSESX)
Medical Delivery (FSHCX)
Construction & Housing (FSHOX)
Brokerage & Investment (FSLBX)
Environmental (FSLEX)
Medical Equip. & Sys. (FSMEX)
Natural Gas (FSNGX)
Insurance (FSPCX)
Paper & Forest Prod (FSPFX)**
Transportation (FSRFX)
Retailing (FSRPX)
Telecomm (FSTCX)
Invest. Grade Bond (FBNDX)
Short-Term Bond (FSHBX)
Ginnie Mae (FGMNX)
Strategic Income (FSICX)
Money Market (FSLXX)
Inflation-Protected Bond (FINPX)
Intermed. Govt Income (FSTGX)
Intermed. Bond (FTHRX)
Multimedia (FBMPX)
Electronics (FSELX)
Gold (FSAGX)
Air Transportation (FSAIX)
Automotive (FSAVX)
Industrial Equipment (FSCGX)
Chemicals (FSCHX)
Consumer Discretionary (FSCPX)
Software and Comp. Services (FSCSX)
Defense & Aerospace (FSDAX)
Comm. Equip. (FSDCX)
Health Care (FSPHX)
Technology (FSPTX)
Banking (FSRBX)
Bond Funds
Total Bond (FTBFX)
Mortgage Securities (FMSFX)
Government Income (FGOVX)
ADDITIONAL INFORMATION
Results shown are inclusive of maximum advisory fees of 2.5% and assume the account is held at Trust Company of America.
Additional fees may apply on other platforms and may impact performance negatively. * indicates that the fund was removed from
the universe in June of 2016. ** indicates that the fund is closed to new investment. # On 3.31.2017 Fidelity Select Wireless (FWRLX)
was removed. Trade signals and performance results for individual platforms may vary based upon a number of factors including
earlier order entry cut-off requirements. These results do NOT necessarily represent actual trading or client experience, and do not
necessarily reflect the impact of decision making or economic or market factors experienced during the actual management of funds.
The actual return may be lower or higher than the performance quoted. Annual returns are compounded monthly. Performance
between selected dates may be misleading and may not be able to be achieved in the future based upon changing market conditions.
Benchmark results are obtained through Morningstar and reflect the reinvestment of dividends. Such results do not predict or project
the performance of the investment strategy. Benchmark data is rebalanced on a monthly basis, based upon the equity/fixed income
target allocations. Model account performance data begins with the first full month of available data (partial months are not included).
RESULTS DO NOT NECESSARILY REPRESENT ACTUAL CLIENT EXPERIENCE. Current and prospective clients should
not assume that future performance will be similar or profitable. No representation is being made that any client will or is likely to
achieve results similar to those presented herein. Q3AM reserves the right to make enhancements to the strategy's methodology
and/or fund universe, which could negatively impact future performance. Please review Q3’s Form ADV 2 Brochure for additional
information.
PLEASE REVIEW DISCLOSURES INCLUDED IN THIS MODEL ACCOUNT PERFORMANCE REPORT
Copyright© 2017 Q3 Asset Management Corporation
2175 Cole Street Birmingham, MI 48009 ● 248.566.1122 ● [email protected] ● www.q3tactical.com
Page 2
Important Disclosures
Model account performance results do not necessarily represent actual client experience. This presentation is provided for informational purposes
only and there is no assurance objectives will be realized. While model account performance reports may provide general investment information
from sources deemed reliable it is in no way a solicitation to buy or sell any security. Past performance is not indicative of future results. There is risk
of loss with all of Q3’s investment strategies and such strategies may not be suitable for all investors.
Model Performance Disclosure:
Model account data is reflective of an account held at Trust Company of America. Performance on other platforms may vary and could be
negatively affected based upon a number of factors. Results are time-weighted geometrically linked returns. Selection of “model accounts” is based
on the longevity of the account along with identifying those accounts with minimal additions and withdrawals. It’s possible that a model account will
change based on a number of factors including the termination of the model account, withdrawals, and/or a strategy change. For most strategies,
model accounts are representative of an actual account held by one of the principals of Q3AM. In some cases, Q3AM did not necessarily have client
accounts invested in the program over the time frame presented. Additionally, Q3AM may have had a minimal portion of total assets in a particular
model over certain time periods. While it is expected that other accounts would have achieved returns similar to those presented, it is possible that
returns may vary based upon a variety of factors including the size of the account, commissions charged and where the account is held. For example,
if the investor’s Primary Adviser utilizes a share class of mutual funds that pay 12B-1 and/or service fees, performance results would be negatively
affected. Additionally, performance on variable annuities will be negatively impacted by the expenses of the annuity. All data is net of maximum
advisory fees of 2.5% annually but may not include custodial fees, service fees, or 12B-1 fees. In situations where a model account is charged less
than 2.5%, the difference is factored in to simulate a maximum advisory fee. In such a case, the simulated fee would be deducted from the quarter
end month, while actual client advisory fees are pulled shortly thereafter. Depending upon the performance of the model between these two dates,
it’s possible that the model account achieves a slightly better rate of return, however, such differences are expected to be negligible. Model account
performance for taxable accounts would be negatively affected had taxes been deducted. As individual tax rates vary, taxes are not considered in the
results shown.
Additional Information:
Additional fees may apply on other platforms and may impact performance negatively. Trade signals and performance results for individual
platforms may vary based upon a number of factors including earlier order entry cut-off requirements. These results do NOT necessarily represent
actual trading or client experience, and do not reflect the impact of decision making or economic or market factors experienced during the actual
management of funds. The actual return may be lower or higher than the performance quoted. Annual returns are compounded monthly.
Performance between selected dates may be misleading and may not be able to be achieved in the future based upon changing market conditions.
Benchmark results are obtained through Morningstar and reflect the reinvestment of dividends. Such results do not predict or project the
performance of the investment strategy.
RESULTS DO NOT NECESSARILY REPRESENT ACTUAL CLIENT EXPERIENCE. Current and prospective clients should not assume that
future performance will be the similar or profitable. No representation is being made that any client will or is likely to achieve results similar to those
presented herein. Q3AM reserves the right to make enhancements to the strategy's methodology and/or fund universe. Please review Q3’s Form
ADV 2 Brochure for additional information.
Definitions & Additional Disclosures:
Index/Benchmark Performance: For strategies where “Style” is categorized as “Dynamic or Strategic,” the Index/Benchmark is either that of the
Vanguard 500 Fund (Ticker: VFINX), Vanguard Total Bond Fund (Ticker: VBMFX), or a combination of the two, as noted. For strategies where
“Style” is categorized as “Tactical,” the Index/Benchmark is a combination of the Vanguard Market Neutral Fund (Ticker: VMNFX) at 60% and
the Vanguard 500 Fund (Ticker VFINX) at 40%. Strategies that fall into the “Dynamic or Strategic” group utilize a traditional benchmark that
corresponds with the respective risk profile of the strategy. For example, if the strategy’s maximum equity exposure is 67% of the portfolio, the
benchmark will include a 67% allocation to the Vanguard 500 Index, which is designed to track the S&P 500. “Dynamic or Strategic” strategies are
expected to maintain a higher correlation to the market when compared to our “Tactical” programs. Strategies that fall into the “Tactical” group
utilize an alternative benchmark, as these programs focus more so on achieving absolute returns regardless of market conditions. “Tactical”
programs are expected to maintain little to no correlation to the market over the long term. Index/Benchmark data reflects the reinvestment of
dividends. Benchmark data is rebalanced on a monthly basis, based upon the equity/fixed income target allocations.
Max. Equity/Min Bond Allocation: Refers to the maximum equity exposure along with the minimum bond exposure a particular strategy and its
intended benchmark may incur. For example, a strategy with a 0% minimum bond allocation is not required to maintain any exposure to bonds,
however a strategy with a 50% minimum bond allocation will always maintain at least 50% exposure to fixed income or money market funds.
Drawdown: Measures the largest negative change in value of an investment, from its highest peak to its lowest valley. Our drawdown figure utilizes
monthly values. Maximum Drawdown Length describes the maximum amount of time, in months, that the strategy was below its highest peak.
Copyright© 2017 Q3 Asset Management Corporation
2175 Cole Street Birmingham, MI 48009 ● 248.566.1122 ● [email protected] ● www.q3tactical.com
Page 3
Important Disclosures
Standard Deviation: Measures the amount of volatility associated with an investment. The higher the figure, the more volatility you should expect. If
an investment has an average annual return of 10% and a standard deviation of 15%, one might conclude the “average range” of the return would
be –5% to 25% (10% +/- 15%). It’s important to note that upside volatility, which is good, is measured in the same way as downside volatility. This
is why it’s important to also look at the “Drawdown” and “Sharpe ratio” when evaluating an investment.
Sharpe Ratio: Also referred to as “risk-adjusted return.” It is calculated by subtracting the risk-free rate of return (13-week T-Bills) from the
annualized rate of return (of the investment), and then dividing this figure by the standard deviation. The higher the number, the better.
Alpha: Measures the difference between the investment’s actual returns and expected performance, given its level of risk (as measured by beta). A
positive alpha indicates the investment has performed better than its beta would predict. In contrast, a negative alpha indicates the investment has
underperformed, given the expectations established by the investment’s beta.
Beta: Measures the volatility of the investment in comparison to the Index. It can be thought of as the tendency of the program’s returns to respond
to swings in the benchmark. A beta of 1 indicates that the strategy should move similar to the benchmark. A positive number less than 1 means the
program should be less volatile than the benchmark. A number greater than 1 means the program should be more volatile than the benchmark. A
negative number means that over time there should be inverse correlation between the program and the benchmark.
Model Account Inception: “Model Account Inception” refers to the date that a model account was first used to generate performance data. In all
cases, model account data is reflective of an account held at Trust Company of America. Performance on other platforms may vary. For MultiStrategy Reports, please reference each individual strategy report for Model Account Inception dates.
For a list of all recommendations made in the preceding twelve months, including trade histories, please contact our office directly. From time to
time a particular fund used in a strategy may become unavailable for future use, in which case a replacement fund may be added. For a list of funds
that have been added or removed from a particular strategy please contact us. The fund universe is subject to change without notice and on certain
platforms may vary based upon availability. Q3AM reserves the right to make enhancements to the strategies methodology at their discretion. Such
enhancements could have a negative impact on future performance of the program. No graph, chart, formula or other device can, in and of itself, be
used to determine which securities to buy or sell, or when to buy or sell such securities, or can assist persons in making those decisions. Material
market or economic conditions such as the “technology bubble” of the late 1990’s and the severe market downturn of 2008 may have a large impact
on performance results. Such results may be impacted negatively and the objective of the strategy may not be realized. Any reference to or use of the
term “registered investment advisor” does not imply that Q3 Asset Management or any person associated with Q3 Asset Management has achieved
a certain level of skill or training. For additional information please see Q3 Asset Management Corporation’s ADV, which is available upon request.
Copyright© 2017 Q3 Asset Management Corporation
2175 Cole Street Birmingham, MI 48009 ● 248.566.1122 ● [email protected] ● www.q3tactical.com
Page 4