3 Questions on the Adaptive Wealth Strategies U.S. Factor Index

Feb 28, 2019

In this post, we interviewed Patrick Bobbins, Investment Manager at Adaptive Wealth Strategies, about the Adaptive Wealth Strategies U.S. Factor index (AWSUSF), which is tracked by the Global X Adaptive U.S. Factor ETF (AUSF).

1. How has the AWSUSF Index performed since inception?

While its history is short, the AWSUSF Index, which is tracked by the Global X Adaptive U.S. Factor ETF (AUSF), has performed in line with expectations, particularly versus the S&P 500 index.  The drawdown numbers are the ones that we like to look at most.  When the S&P 500 fell by roughly 19% from October to December in 2018, the AWSUSF Index was down only about 15%.  Looking to 2019, through January the S&P 500 was up about 8% and the AWSUSF index is up about 9%, so the index didn’t decline as much as the S&P 500 in Q4, and increased by more in January, showing strong upside/downside capture statistics.

Cumulative Return AUSF Adaptive Wealth US Factor Index

For actual Fund performance, please visit or request a prospectus by calling 1-888-GX-FUND-1 (1.888.493.8631).

2. What are the main drivers of this performance?

The two main drivers were the index’s exposure to the minimum volatility factor and avoidance of the momentum factor. When there is a risk-off event, such as what we saw in the fourth quarter of 2018 (Q4), having exposure to the minimum volatility factor can serve as a ballast to the portfolio.  This is what took place in Q4, as many of the larger S&P 500 index constituents sold off, but minimum volatility stocks, such as those in utilities and consumer staples, fared relatively better.  In addition, the index’s mean-reversion process meant that it was not targeting momentum factor stocks, which began to perform poorly. While one can never perfectly time buys or sells in a portfolio, building a methodology that is disciplined in exiting a factor that recently experienced a large upward run, may be a good place to start.

3. Why is the index in the Minimum Volatility & Value factors?

We think it is always important to remind ourselves of the investment process behind AUSF.  The process is designed around the mean-reversion of the three factors: momentum, minimum volatility, and value.  The best performing factor, will not always be the best performing factor indefinitely and the same goes for the worst performing factor – it will not always be the worst performing factor indefinitely.  So the investment process behind the index is to own two factors that have trailed on a two-year basis, and avoid the factor that has been the leader on a two-year basis.  This not only helps to keep the index diversified, but also it helps to limit some behavioral trends that are common among investors, such as chasing recent high-fliers or holding onto winners for too long.  Alternatively, investors also tend to ignore the losers, thereby creating an opportunity to own cheaper-valued equities.  This process tries to capture the mean reversion of the three factors, which may go against the behavioral grain certain investors possess.  In the fourth quarter of 2018, the momentum factor experienced strong selling pressure and which in our opinion started the mean-reversion process downward.  Since the index had removed momentum early in 2018, it did not experience the same force of selling pressure.

Related ETFs

AUSF: The Global X Adaptive U.S. Factor ETF tracks an index which seeks to outperform traditional cap-weighted indexes by employing a dynamic multi-factor investment strategy that allocates across three factors: minimum volatility, value, and momentum.

Category: Articles

Topics: Multi-Factor

AWS is a department of Carroll Financial Associates, Inc., a Registered Investment Advisor. Registration does not imply a certain level of skill or training. Carroll Financial and AWS are not affiliated with any other named party. Global X Management Company LLC is not affiliated with AWS or Carroll Financial Associates, Inc.

Answers are for informational purposes only. They should not be regarded as investment advice or recommendation of specific securities.

Diversification does not ensure a profit for guarantee against a loss.

Investing involves risk, including the possible loss of principal. There is no guarantee that the Fund will achieve a high degree of correlation to the Underlying Index and therefore achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index. Indices are unmanaged and do not include the effect of fees, expenses or sales charges. One cannot invest directly in an index. Performance of companies in the financial sector may be adversely impacted by many factors, including, among others, government regulations, economic conditions, credit rating downgrades, changes in interest rates, and decreased liquidity in credit markets.  AUSF is non-diversified.

Since the Fund’s shares typically do not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in Shares, the NAV of the Fund is used to calculate market returns.

Carefully consider the Fund’s investment objectives, risks, and charges and expenses before investing. This and other information can be found in the Fund’s summary or full prospectuses, which may be obtained by calling 1-888-GX-FUND-1 (1.888.493.8631), or by visiting Please read the prospectus carefully before investing.

Global X Management Company LLC serves as an advisor to Global X Funds. The Funds are distributed by SEI Investments Distribution Co. (SIDCO), which is not affiliated with Global X Management Company LLC. Global X Funds are not sponsored, endorsed, issued, sold or promoted by Adaptive Wealth Strategies (AWS), nor does AWS make any representations regarding the advisability of investing in the Global X Funds. Neither SIDCO nor Global X is affiliated with AWS.