If there’s something you’d like to know about FormulaFolios that is not on this list please feel welcome to email info [at] formulafolios.com. We’ll compile the most common questions and add them to the list.
What Are FormulaFolios?
How do FormulaFolios Work?
How Many Models Are There?
What Are The Core Concepts of FormulaFolios?
Are There Any Ticket Charges With FormulaFolios?
Are The Performance Numbers Shown Gross or Net of Fees?
What is The Portfolio Turnover Ratio?
Are Stop/Loss Orders Utilized?
Are FormulaFolios Suitable for Taxable Accounts?
Do FormulaFolios Ever Move 100% to Cash?
How Liquid Are FormulaFolios?
How Often Will I Receive Performance Updates?
How Many Holdings Are Held In A Typical FormulaFolio Account?
Are FormulaFolios Customizable For Socially Conscious Investors?
FormulaFolios was created in late 2004 as the brainchild of Jason Wenk. Mr. Wenk was unsatisfied with the fact that nearly 80% of all money managers failed to outperform their benchmarks and often produced less than desirable risk adjusted returns. This in turn created a quandary for his clients; how were they going to preserve their assets regardless of the climate of the market? The research for a new investment strategy then commenced and has been an ongoing process for the last five years.
As a result, FormulaFolios is an Investment strategy unlike any other in the market today, and embodies the idea of being simple, yet sophisticated. Simple because of the concepts it is based on, yet sophisticated because of its advanced step-by step mechanical approach to quantitative analysis.
Today, FormulaFolios continues its research with the same dedication to the preservation and creation of wealth for its clients. Mr. Wenk is still President, Chief Investment Strategist, and has been selected by Reuters in 2007 and 2008 as one of the Top Advisers in the United States. He was also selected as one of the Top Advisers under Age 40 in 2008.
RWA (Retirement Wealth Advisors) FormulaFolios are privately managed investment accounts powered by multi-factor quantitative investment models. By using a rules based, process driven model, emotions are removed from the investment process thus increasing the statistical probability of success FormulaFolios are comprised of individual equities, exchange traded funds, mutual funds and cash equivalents. RWA, Inc.’s proprietary step-by-step mechanical approach to selecting positions is designed to only select positions with an above average probability of returns based on both fundamental and technical indicators. No outside leverage, or short selling is used. The principal objective of the portfolio is to reduce equity market risk and increase portfolio returns.
There are 15 separate and unique investment methodologies used in the composition of FormulaFolios; thus reducing the possibility of model failure and increasing the stability of expected returns. The ultimate goal of FormulaFolios is to outperform market averages on a risk adjusted return basis.
The concepts behind FormulaFolios Proprietary Quantitative Algorithms
| Simple | Sophisticated |
|---|---|
| The concepts behind FormulaFolios | Proprietary Quantitative Algorithms |
| Emotion is removed | Multi-Factor Models |
| Daily Liquidity | Global-Macro Economic Overlay |
| Full Transparency | Omnibus Trading Level |
| Well Diversified | Advanced Position Sizing Mechanisms |
| No Margin, Leverage, or Debt | |
| Privately Managed Accounts |
No. There are no ticket charges, additional monthly account charges, per share fee charges, additional trading fees or hidden expenses. The price we give is inclusive for the money management portion; there will be a separate agreement with FOLIOfn.
All the numbers we report are net of all fees; we calculate this by subtracting a 2.5% annual investment advisory fee from performance. Gross numbers are only used if they are requested by an affiliate of FormulaFolios or in conjunction with a TAMP provider using one of our strategies on their platform.
The turnover ratio will vary in each individual strategy, based on how it was strategically designed to perform inside of an entire allocation. In what we call the traditional side of FormulaFolios ( Large Cap, Mid Cap, Multi Cap, Small Cap, International, and Income ) the turnover is below 100%.
On the tactical side, (Total Return Equity, Total Return Income, Market Rotator, and the Long/Short 2.0) the turnover is much higher because of the absolute return objective and protection in volatile markets. The turnover could be closer to 1000%, but since these strategies are only a portion of an allocation the overall turnover is lowered inside of an allocation significantly.
No, stop/losses are not used. When the research was being developed for our strategies, stop/losses were looked at as a possible tool. What we found is that it is nearly impossible to use them with any degree of accuracy and it increased the frequency of trades, while providing no real increase in return. Therefore, we use two elements to provide protection: an economic overlay we call Recession Probability Analytics (RPA) and sizing positions inside some of the strategies.
Yes. Even though short-term capital gains rates will apply in non-qualified accounts, FormulaFolios are private accounts so there will be no embedded gains, as in the case of mutual funds. We can employ some features at FOLIOFn that may assist in tax reductions, but this will be the sole and individual responsibility of the advisor. Ultimately, our goal is to constantly outperform market averages on a risk adjusted return basis.
In theory it is possible that none of the stocks would qualify and we could sit 100% cash for a short duration of time, although, there is very, very small probability of this ever occurring. A more likely scenario is that we could hold ETF positions that would hedge our investments.
FormulaFolios can be liquidated at any time via FOLIOfn or other custodians and TAMP providers.
The beauty of FormulaFolios is that trades are executed at the omnibus level through FOLIOFn. You will be able to check the performance of any client’s account 24/7 by accessing your account at FOLIOFn. You will also be notified by email each time there is a trade placed inside of your accounts, so you can conveniently be updated of changes to positions.
This varies based on the particular strategy, but they are as follows:
| Strategy | Stocks/ETF's/Bonds | Strategy | Stocks/ETF's/Bonds |
|---|---|---|---|
| Large Cap | 20 | Market Rotator | 1-7 |
| Mid Cap | 40 | FF 2.0 | 0-3 |
| Multi Cap | 20 | Total Return Income | 0-3 |
| Small Cap | 40 | Total Return Equity | 0-4 |
| International | 40 | Income | 0-5 |
Yes. If your client has an objection to a certain social sector or even a particular stock, they can be excluded inside of their allocation with relative ease. There are three different ways to exclude:
| Social Issues | Sector Exclusions | Specific Exclusions |
|---|---|---|
| Alcohol | Consumer Staples | You can Exclude any individual security |
| Genocide | Consumer Discretionary | |
| Gambling | Retail/Wholesale | |
| Military Weapons and Firearms | Medical | |
| Nuclear Power | Auto/Tires/Trucks | |
| Tobacco | Basic Materials | |
| K-1 Stocks | Industrial Products | |
| Construction | ||
| Multi-Sector Conglomerates | ||
| Computer/Technology | ||
| Aerospace | ||
| Oils/Energy | ||
| Finance | ||
| Utilities | ||
| Transportation |