Model Capital Management LLC is an investment firm based in Boston. We specialize exclusively in tactical asset allocation (TAA):
- We provide research reports containing our Tactical ETF-based strategies to Registered Investment Advisors
- We sub-advise portfolios for RIA and other firms interested in implementing Tactical strategies for their clients
Investment Beliefs
We have a set investment beliefs that are grounded in well-known investment theory. These beliefs are:
- Investors who are satisfied with index return can achieve it quite easily – especially in this age of exchange-traded funds (ETFs). In order to justify their fees, managers must outperform the index, after costs.
- There are only two ways of outperforming an index:
- Actively allocating to different securities than those included in the index – security selection (and its versions such as sector and country selection)
- Actively managing allocations to indices over time – TAA.
- Research has shown that about 90% of return and risk for a typical balanced (stock-and-bond) portfolio comes from asset allocation. To maximize our chances of delivering good performance, we would rather focus on the 90% than on the remaining 10%. In the 90%, most of return variability comes from equities.
- Investing involves decisions about future returns and risks. Active management means forecasting! Forecasting must be explicit, in order to allow for a systematic process. As prerequisite for tactical management, we must forecast returns for major markets.
Investment Strategy
At Model Capital we intend to deliver to our clients an added return vs. index by executing our TAA management strategy. Our advice is limited only to the area of TAA.
As foundation for TAA, we first forecast returns for major equity markets, using fundamental information, and quantitative approach to process it. Based on these return and risk forecasts, we construct the recommended index portfolios out of public indices available to investors.
At any point in time, we allocate the strategy portfolios to the index(es) where the best return-risk opportunity is presented, based on our model forecasts. Over the years of developing and testing our forecasting models, we achieved significant forecasting accuracy, which allows us to act with conviction. We typically allocate 100% of a portfolio to stocks, if strong return is expected on stocks. Conversely, if our models forecast stocks to underperform, we typically allocate 100% of the portfolio to bonds – see more on the methodology here.
To implement our recommended tactical portfolios, we use exclusively broad index-based financial instruments, such as ETFs. This ensures diversification, liquidity, and low portfolio and operating costs. We do not analyze or recommend individual securities.
Our research clients can implement the strategy themselves by following our Tactical ETF-based portfolio recommendations – see report example 
, while our advisory clients benefit from our experience, systematic process and efficient implementation.
