Volatility-Resistant Model

A model built to weather any market conditions

The Avalon Volatility-Resistant Model is a new twist on the traditional — but antiquated — 60/40 approach to investing. Rather than holding the entire stock market, this model takes advantage of both U.S.-style rotation as well as international stocks. In similar fashion, the strategy selects among the best fixed-income opportunities by rotating among treasuries and high-yield bonds.

This model is built to protect capital during periods of market weakness. The result is a strategy that has historically provided investors with a significantly lower drawdown and a higher risk-adjusted return making it a suitable strategy for a wide variety of investor needs.

A Quick Introduction to the Volatility-Resistant Model

The most important part of this chart isn’t the total return of the VRM versus the S&P 500 Total Return or the All World Balanced Portfolio, rather it's the low historical losses of the VRM in comparison to both. This is referred to as "MAXIMUM DRAWDOWN," shown in the far right column.

CUMULATIVE MONTHLY RETURNS compares the long-term performance of the VRM vs the S&P 500 Total Return (which includes reinvested dividends and income) as well as the All World Balanced Portfolio.

ANNUAL PERFORMANCE not only shows a history of positive returns since 2007, but also highlights only two years of losses during that time.

It’s important to note that the VRM showed gains during the 2008 market crash when all other benchmarks were significantly underperforming.

The MONTHLY PERFORMANCE breaks down the VRM’s monthly and annual performance since 2007. The key takeaway in this chart is the rightmost column — YEAR — which shows that the VRM has only experienced losses in two years since 2007.

The WINNING MONTHS (%) illustrates that the VRM consistently comes out ahead, winning more than it loses, with over two-thirds (64%) of its trades being winners.

It’s AVG WINNING MONTH gained 2.54% while it’s AVG LOSING MONTH lost 2.02%. This shows that the model is — on average — winning each month.

Sharpe Ratio:
The average return earned in excess of the risk-free rate. A higher Sharpe Ratio is better.

Risk-Free Rate:
Represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time.

Sortino Ratio:
Another measure of risk that takes into account the downside deviation of the asset. A higher Sortino Ratio is better.

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In a RISK/RETURN COMPARISON perfect world, your “dot” (portfolio) would be to the far left and very high – indicating low risk and high returns. But in the real world investors always have some level of risk (standard deviation).

The S&P 500 Total Return (black diamond) is furthest to the right, indicating more risk compared to the VRM (purple dot). The VRM simply has higher returns with significantly less volatility than the major benchmarks.

The DRAWDOWN chart illustrates loss. The VRM’s drawdown is often significantly lower than the S&P 500 Total Return or the All World Balanced Portfolio. The smaller the drawdown, the easier and quicker it is to recover from volatile markets.

Drawdown is the measure from the highest high to the lowest low, or peak to trough, during a specific time period. It is an important measurement of risk.

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Volatility measures the change in the price of an investment.

The higher the volatility, the higher the difference between the high and the low of an investment’s price.

The 12 MONTH ROLLING ROR is the compound rate of return for the last 12 months. The rate of return is the gain or loss on an investment over a specified time period, expressed as a percentage of the investment’s cost.

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The performance results represent hypothetical results for the respective model during the applicable Measurement Period. The results are based on calculation methodologies set forth in the rules of the respective model. Each model’s results reflect performance of a model and do not represent returns that any investor actually attained. Model results are calculated by the retroactive application of historical data and based on assumptions integral to the respective model which may or may not be testable and are subject to losses.

General assumptions include: a user of a model would have been able to purchase the securities recommended by the model and the markets were sufficiently liquid to permit all trading. Changes in these assumptions may have a material impact on the model returns presented on this website. Certain assumptions have been made for modeling purposes and are unlikely to be realized. No representations and warranties are made as to the reasonableness of the assumptions. Model performance is developed with the benefit of hindsight and has inherent limitations. Specifically, model results do not reflect actual trading. Since trades have not actually been executed, model results may have under- or over- compensated for the impact, if any, of certain market factors, such as lack of liquidity, and may not reflect the impact that certain economic or market factors may have had on the decision-making process. Further, modeling allows the security selection methodology to be adjusted until past returns are maximized. Actual performance may differ significantly from model performance.

The model performance is prepared using methodologies established by the rules of the respective model, such as: (i) performance is achieved by a model portfolio to which an investment methodology is applied on a current and on-going basis; (ii) the model selects a set number of investments from multiple asset classes at the beginning of each month (or week, as applicable), each representing a certain percentage of the total investments in the model as defined by the rules of such model; (iii) the model is constructed retroactively for the periods shown; (iv) back-tested performance is derived from the retroactive application of a model with the benefit of hindsight; (v) securities assumed to be held in the model are valued at the closing price as of the last business day of each month (or week, as applicable); (vi) the model is rebalanced as of the last business day of each month (or week, as applicable) after the market close; (vii) new asset classes are purchased the first business day of the next month (or week, as applicable); (viii) cost basis and proceeds for individual hypothetical security purchases and sales in the model are based on the day and time a trade would have been likely entered into and the price is recorded as of the time the decision would likely have been made; (ix) monthly performance is calculated using a holding-period return; (x) annual performance for the model is computed by geometrically linking the monthly performance results for the indicated number of months; (xi) total model performance includes realized and unrealized gains and losses, and dividends, but does not include the effect of interest; (xii) model performance results are shown net of all fees and transaction costs; such fee and transaction costs would lower model performance; (xiii) no cash balance or cash flow is included in the model calculation of performance; and (xiv) the U.S. Dollar is the currency used to express performance.

The proprietary methodology used to determine the underlying securities in a model has not been reviewed by an independent third party. Other calculation methods may produce different results.
For comparison purposes, the model is measured against one or more indexes. It should not be assumed that the benchmark represents a similar investment strategy or asset class to the model. An index is a measure of the market performance of a specific group of securities in a particular market or sector. One cannot invest directly in an index. An index does not have an adviser and does not pay commissions or expenses. If an index had expenses, its performance would be lower.

The All-World 60/40 (AW 60/40) Benchmark

Our custom benchmark of a monthly rebalanced portfolio comprised of 40% IEF – iShares 7-10 year Treasury Bond ETF; 30% EFA – iShares MSCI EAFE ETF; and 30% VTI – Vanguard Total US Stock Market ETF.

The S&P 500 Total Return Index

Tracks both the capital gains of the S&P 500 stocks over time, and assumes that any cash distributions, such as dividends, are reinvested back into the index.

The Bloomberg Barclays US Aggregate Bond Index

A broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency).


Designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada.

The MSCI Emerging Markets Index

Designed to represent the performance of large- and mid-cap securities in 24 Emerging Markets.

The model performance results have inherent limitations, including, but not limited to, the following: (i) it should not be assumed that all users will follow the model as actual user investments are likely to be made with the individual user’s investment objective, risk tolerance and income needs in mind; (ii) model performance does not represent actual trading by specific investors, but is achieved by means of the calculation methodologies described in the model rules; (iii) model performance does not reflect the impact that any or all of the material economic and market factors that might impact a user’s decisions in the management of its own portfolio; (iv) for various reasons, investors may have experienced investment results, either positive and negative, during the Measurement Period that were or may have been materially different from those reflected by the model performance. For example, variances in an investor’s account holdings, investment management fees incurred, the date on which one began using the model, account contributions or withdrawals, wash sales and general market conditions, may have caused the performance of a specific user’s portfolio to vary substantially from the model performance results; and (v) different types of investments and investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or strategy will be either suitable or profitable for any investor.

The model performance does not reflect other earnings, brokerage commissions, ETF expenses and custodian expenses. It is important to note that actual portfolios would likely be charged other fees and transaction costs and performance would be lower. The model results may differ materially from actual results based upon various factors. Past performance may not be indicative of future results. Therefore, no one should assume that future performance will be profitable, equal the performance reflected for any model, equal to the corresponding historical benchmark, or equal to that of another user. The historical index performance results reflect reinvested dividends, but do not reflect the deduction of transaction and custodial charges, or the deduction of a management fee, the incurrence of which would have the effect of decreasing the historical index performance results. The historical index performance results are provided for comparison purposes only to provide general information to assist a user in determining whether the index performance meets its investment objectives. It should not be assumed that portfolios will correspond directly to any such index. Further, the comparative benchmark index may be more or less volatile than the model.

Neither any model performance nor historical index performance results reflect the impact of taxes.

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