Risk Model

We have our own proprietary risk model to measure and control the risks common to ETFs and CEFs. We use four broad risk factors:

  • Stock market risk (MKT), as measured by the S&P 500 Index
  • Interest rate risk (LTB), as measured by the 10 Year Treasury Benchmark Index
  • Currency risk (DLR), as measured by the U.S. Dollar Index
  • Commodity risk (OIL), as measured by the West Texas Intermediate Crude Oil Index

We measure the historical sensitivity of each fund to these four risk factors. This not only helps us to control the amount of risk in our portfolios, but it also helps us to separate a fund’s total return into risk-related return and residual return. Residual return, or return not due to risk sensitivity, is what we want to emphasize in our portfolios.