"𝘐𝘵'𝘴 𝘯𝘰𝘵 𝘸𝘩𝘦𝘵𝘩𝘦𝘳 𝘺𝘰𝘶'𝘳𝘦 𝘳𝘪𝘨𝘩𝘵 𝘰𝘳 𝘸𝘳𝘰𝘯𝘨 𝘵𝘩𝘢𝘵'𝘴 𝘪𝘮𝘱𝘰𝘳𝘵𝘢𝘯𝘵, 𝘣𝘶𝘵 𝘩𝘰𝘸 𝘮𝘶𝘤𝘩 𝘮𝘰𝘯𝘦𝘺 𝘺𝘰𝘶 𝘮𝘢𝘬𝘦 𝘸𝘩𝘦𝘯 𝘺𝘰𝘶'𝘳𝘦 𝘳𝘪𝘨𝘩𝘵 𝘢𝘯𝘥 𝘩𝘰𝘸 𝘮𝘶𝘤𝘩 𝘺𝘰𝘶 𝘭𝘰𝘴𝘦 𝘸𝘩𝘦𝘯 𝘺𝘰𝘶'𝘳𝘦 𝘸𝘳𝘰𝘯𝘨." — George Soros For our investors, 𝘄𝗲 𝗼𝗳𝗳𝗲𝗿 𝗮 𝗽𝗿𝗼𝗱𝘂𝗰𝘁 𝗯𝗮𝘀𝗲𝗱 𝗼𝗻 𝗤𝘂𝗮𝗹𝗶𝘁𝘆 𝗮𝗻𝗱 𝗣𝗿𝗼𝗳𝗶𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗳𝗮𝗰𝘁𝗼𝗿𝘀 combined with a macro timing element that was less susceptible to significant drawdowns in previous major recessions. The choice of the universe (S&P 500) is based on the fact that U.S stocks generate a higher average annual return than other international markets. Thanks to the strict rule of law, innovation power, and world dominance, we believe U.S. companies will continue outperforming the rest of the world. 𝗧𝗵𝗲 𝗽𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝗶𝘀 𝗰𝗼𝗻𝘀𝘁𝗿𝘂𝗰𝘁𝗲𝗱 𝘂𝘀𝗶𝗻𝗴 𝘁𝗵𝗿𝗲𝗲 𝗺𝗮𝗷𝗼𝗿 𝗲𝗹𝗲𝗺𝗲𝗻𝘁𝘀 𝘁𝗵𝗮𝘁 𝗮𝗿𝗲 𝗲𝘅𝗵𝗶𝗯𝗶𝘁𝗲𝗱 𝗵𝗶𝗴𝗵𝗲𝗿 𝗿𝗶𝘀𝗸-𝗮𝗱𝗷𝘂𝘀𝘁𝗲𝗱 𝗿𝗲𝘁𝘂𝗿𝗻𝘀 𝗼𝘃𝗲𝗿 𝘁𝗵𝗲 𝗹𝗼𝗻𝗴-𝘁𝗲𝗿𝗺 𝗽𝗲𝗿𝗶𝗼𝗱: ➤ Robustness of the businesses' profitability and their momentum ➤ A long-Short premium of the quality factor ➤ Macro timing of financial conditions and credit impulse Since 1985, during the last eight worst drawdowns of the S&P 500 in crisis periods, the robust business profitability factor vs. weak has shown an average total return of 29.1% while the index was down 46.2%, underlying the importance of having higher-margin businesses in the portfolio during major recessions. Additionally, during the same period, companies with solid quality characteristics delivered an even higher average total return of 43.3%. To balance the long-short duration of those two factors macro timing model of financial conditions is introduced to cover the periods where drawdowns minimization properties are needed the most. 𝗧𝗵𝗲 𝗺𝗲𝘁𝗵𝗼𝗱𝗼𝗹𝗼𝗴𝘆 𝗼𝗳 𝘁𝗵𝗲 𝗽𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝗳𝗼𝗹𝗹𝗼𝘄𝘀 𝗳𝗼𝘂𝗿 𝗽𝗿𝗶𝗺𝗮𝗿𝘆 𝘀𝘁𝗲𝗽𝘀: ➊ First, the baskets of long and short candidates are created using a proprietary fundamental filter. Only the top 20% and the worst 20% of the universe survive the first step. ➋ Secondly, a more detailed analysis is taking place, where companies' growth prospects, fair value, valuation, balance sheet quality, short interest, and other factors determine whether the company can proceed to the next stage. On average, only 56 companies survive stage 2 to get into the final long and short candidate lists. The model composition is updated annually when the full annual financial results are in the system. ➌ In stage 3, the macro climate and broad financial conditions are assessed to identify the turning points in the valuation multiple expansion/contraction cycle. The signal is essential in long-short weights adjustment but is not the sole contributor to decision-making. Various nowcasting models work in an ensemble for higher forecast accuracy to produce the final probabilistic outcome. ➍ In the final stage, complementary to stage 3, factors optimization is introduced to reflect the macroeconomic conditions and factors' performance properly. Candidates that have better or worse factor tilt are selected or replaced. New companies are added or removed using risk bands that foster better risk/reward entry and exit points to accommodate the rebalancing. The stochastic volatility process is the primary engine for producing probable maximum and minimum prices. The strategy is rule-based and does not have a discretionary element or narrative-driven decision-making. Only companies that satisfy all the steps constitute the final portfolio. We know that the market isn’t all sunshine and rainbows. The pendulum of market sentiment swings in both directions, usually to the extremes that force bull markets to converge to bear markets and vice versa. For example, in the 20th century, markets were in a bear phase for 28 years, and in the last 90 years, we have been in a bear market 35% of the time. Even if investors bought the lowest point of the dot com bubble burst, they would be at the same place after seven years. On average, bull markets are more common and have a longer duration, translating to an 8% average yearly return. But bear markets are vicious and much more potent in erasing returns and questioning the resilience of even the most patient investors. 𝗪𝗲 𝗯𝗲𝗹𝗶𝗲𝘃𝗲 𝗶𝗻𝗰𝗼𝗿𝗽𝗼𝗿𝗮𝘁𝗶𝗻𝗴 𝘁𝗵𝗲 𝘀𝘆𝘀𝘁𝗲𝗺𝗮𝘁𝗶𝗰 𝗮𝗽𝗽𝗿𝗼𝗮𝗰𝗵 𝘄𝗶𝘁𝗵 𝗮 𝘁𝗶𝗺𝗶𝗻𝗴 𝗲𝗹𝗲𝗺𝗲𝗻𝘁 𝗰𝗮𝗻 𝗴𝗶𝘃𝗲 𝗶𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀 𝗺𝗼𝗿𝗲 𝗯𝘂𝗳𝗳𝗲𝗿 𝘁𝗼 𝘄𝗶𝘁𝗵𝘀𝘁𝗮𝗻𝗱 𝗽𝗿𝗼𝗹𝗼𝗻𝗴𝗲𝗱 𝗯𝗲𝗮𝗿 𝗺𝗮𝗿𝗸𝗲𝘁𝘀 𝗮𝗻𝗱 𝗶𝗻𝗰𝗿𝗲𝗮𝘀𝗲 𝗿𝗲𝘁𝘂𝗿𝗻𝘀 𝘀𝘂𝘀𝘁𝗮𝗶𝗻𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗼𝘃𝗲𝗿 𝘁𝗵𝗲 𝗹𝗼𝗻𝗴 𝘁𝗲𝗿𝗺.