This Value Equity style focuses on identifying sectors or indices that are undervalued versus their historical norm. Typically, ACI will not invest in the sector or index unless there is 15% or more upside from the current price just to return to the average historical valuation.
When a sector reaches a valuation level in the top quartile or quintile of it’s historical valuation range, ACI will either reduce the position, close it, or lock in gains above the historical average value via option writing. This gives the possibility of income while maintaining investment.
Funds are reinvested in sectors in that are currently undervalued and meet the ACI’s requirement of at least 15%+ appreciation to return to the historical valuation average. ACI prefers 20%+ upside to average historical valuation.
The time frame used for the historical range calculation is approximately 40 quarters. This is a PE10 calculation. Some sectors do not have 40 or more quarters of trackable earnings and valuation history, so ACI requires a minimum 20 quarters for any instrument to be considered for investment.
Instruments used in each market are highly liquid ETF’s, ETNs, UIT’s, etc. with minimum average daily volume requirements to assure excess liquidity. ACI does not ever use margin in managed accounts and no leveraged instruments are used in the value equity style.