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STRATEGIC ASSET ALLOCATION

BTS has developed a dynamic alternative approach to Strategic Asset Allocation that is potentially more effective than traditional "buy and hold" portfolio management. Inspiration for the BTS Strategic Asset Allocation Program (SAA) comes from Harry Markowitz's Nobel Prize-winning work on Mean Variance Optimization (MVO) and financial economics. MVO, a cornerstone of Modern Portfolio Theory (MPT), attempts to use historical data to build an "optimized" portfolio according to "risk vs. reward" ratios. MVO assumes that markets are efficient and there is no room for tactical asset allocation.

However, history shows that markets are, in fact, inefficient. Various market segments and sectors do not perform consistently. The chart at right shows the performance of typical market sectors over the ten-year period, 2002 through 2012. Therefore, BTS believes that MVO should only serve as a first step in strategic portfolio construction, not the last.

In an attempt to improve performance and reduce volatility, BTS builds on MPT by combining MVO with both tactical and economic analysis during the portfolio selection and allocation process. The BTS approach factors in short-term market trends and influences that can potentially have big impacts on asset values and returns. While no one can predict with certainty where the market is headed, BTS seeks to improve performance and mitigate risk by concentrating assets in the sectors/funds that are providing the best returns and reducing exposure to those that are not.