Cabana Target Drawdown 13 ETF

Protect

We measure a funds ability to protect against stock market declines by comparing various downside specific risk measures. Max drawdown is the largest decline for the security while the Ulcer Index quantifies both the depth and breath of all drawdowns. We also look at downside volatility and beta, both of which are measured relative to the S&P 500.

Perform

We measure a securities ability to Perform by comparing net annual returns relative to our benchmarks. To measure absolute performance, we use the well-known Sharpe and Sortino ratios but prefer a risk-adjusted ratio such as Jenson's Alpha. Ultimately, performance is the most critical variable in fund selection so we take a much deeper dive into this measure.

Participate

Participate measures the ability of a security to improve the effecient frontier of a stock portfolio. If the letter grade for this fund is an F, the fund does not provide any diversification or participation benefit. The Statistics presented are calculated using an either an optimal mix of TDSD or, if no participation benefit exists, a 60% S&P 500 and 40% TDSD.

TDSD is a tactical/target-risk fund that will reduce or increase exposure to its core holdings based on a proprietary algorithm with the stated objective of limiting downside risk.  The investment objective of the fund is to provide meaningful participation when its benchmark index is appreciating but to limit losses when its benchmark is experiencing a significant decline.  Most investors seek out this fund as they are "more concerned with the return OF their money than the return on their money". The fund is aimed at investors who are either concerned about equity market risk or sequence of return risk.  Investors in TDSD need to consistently monitor their position to make sure the fund's exposure is consistent with your investment objectives.  

Some potential pitfalls with this fund are:

1. May miss best days: Historically, the market's best days come at the bottom of corrections. The major knock on tactical funds is their underperformance when markets rebound.  
2. Algo Adjustments: The manager of TDSD may change the fund's algo and the risk parameters the investor originally expected would no longer be valid.
3. Historical Bias: TDSD, as do other tactical funds, bases its algo on historical events, trends, and market behavior. However, "past performance" is not a guarantee of future performance. Markets change and {node:field_security} may fail to adapt and thus not provide the participation or the protection that was originally intended.
4. Human error: There is always the possibility that the manager fails to execute the strategy properly.
5. Expenses: The fund has a moderate expense load and may be subject to expense layering where the fund buys securities that have additional expenses. Expenses may be mitigated by implementing a similar strategy directly in an individual account.