Quantitative Risk Indicator (QRI)
We’ve constructed a systematic approach intended to capitalize on the fundamental market price shifts that often precede bear markets. We call this the Quantitative Risk Indicator (QRI). The QRI focuses on minimizing the impact of equity bear markets. It assesses market conditions on a monthly basis and drives our allocation between equities and Treasuries or cash.
We determine whether market conditions are favorable by using a proprietary algorithm. For the QRI signal to change, data sets must collectively turn either positive or negative across all time intervals.
The QRI is a relatively slow-moving signal designed to react only to extreme risk sentiment. We want to avoid the potential for the whipsaw that may result from a short-term dip.
To reiterate, we are concerned only with the more rare, prolonged periods of extreme decline. With this in mind, we anticipate shifting defensive only a few times per decade, allowing us to focus on offense and achieving the long-term benefits of compounding returns.