Quarterly Commentary 3q13

Compared with earlier in the year, the AlphaSector Premium Index was marginally less bullish, with seven or eight of nine sectors invested, as opposed to all nine for most of the first six months of 2013. At various times, healthcare, utilities, and consumer staples were absent from the Index, although the index remained 100% invested in U.S. equities and held no cash.  

It was a seesaw quarter for the U.S. equity markets, up in July, down in August, and up again in September. The S&P 500 finished the quarter with a solid 5.2% gain, although it ended the period 2.5% below its all-time closing high of 1725.52 on September 18. 

Themes driving market movements were familiar. Anxiety and then cautious optimism about future Fed actions, a looming and then avoided war in the Middle East, and the latest in a long series of manufactured fiscal crises in Washington all played their usual roles. 

Indeed, given the steady stream of significant-sounding news, the relative stability of the market was remarkable. Apart from its short-lived foray into record territory in mid-September, the S&P 500 stayed within the relatively narrow band it has inhabited since May. The average daily change in the S&P 500 was only 0.45% during the third quarter, the lowest level since 2006. Implied volatility, as measured by the VIX index, continued its multi-year decline, finishing the third quarter down 1.5%. 

AlphaSector is a quantitative model that uses historical data. As a result, it is not appropriate to make formal projections about the direction of the market. The recent positioning of the Index does provide some potential insight. 

The U.S. equity markets have had a strong run for the year through September, and the Index remains fully invested. While individual equity sectors have been turned “on” or “off,” the overall outlook remains bullish. As noted earlier, one of the more interesting elements of the story is the continued decline in overall volatility, as measured by the VIX. While the general sentiment may have become more complacent, the AlphaSector methodology is designed to remain vigilant for any increase in volatility. 

Past performance is not indicative of future results. This material has been prepared solely for informative purposes. The information contained herein includes information that has been obtained from third party sources and has not been independently verified. It is made available on an "as is" basis without warranty. 

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Investment products that may be based on AlphaSector Indexes are not sponsored by F-Squared, and F-Squared does not make any representation regarding the advisability of investing in them. F-Squared serves as the model provider to RPg Asset Management. There is no guarantee that an investor’s account will achieve its objectives or avoid losses. Inclusion of a mutual fund or an exchange traded fund in an index does not in any way reflect an opinion of F-Squared regarding the investment merits of such a fund, nor should it be interpreted as an offer of such a fund’s securities. None of the mutual funds or exchange traded funds included in an index has given any real or implied endorsement or support to F-Squared or to this index. One cannot invest directly in an index. 

All AlphaSector Indexes represented in this material do not reflect the actual trading of any client account.  No representation is being made that any client will or is likely to achieve results similar to those presented herein. F-Squared Investment Management, LLC or one of its subsidiaries is the source and the owner of all AlphaSector Indexes, and their performance information. 

The AlphaSector U.S. Equity Index (“U.S. Equity”) is designed to provide exposure to the U.S. Equity market, and is constructed as an “asset allocation” overlay onto Exchange Traded Funds (“ETFs”) representing major sectors of the U.S. economy. F-Squared defines the inception date for U.S. Equity, the Premium AlphaSector Index and the AlphaSector Rotation Index as October 1, 2008.

References to Non-AlphaSector Indexes 

The S&P 500 Index is a broad-based unmanaged index of 500 stocks, which is widely recognized as a representative of the equity market in general.

Sources: Morningstar, F-Squared Investments. All rights reserved. 

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