This page provides an example of the power of even the simplest DIs to produce amazing returns, without excessive risk, in all market conditions. And this performance comes with no active management required; all trades are based on the objective observations of equity price trends. This eliminates a massive “human-risk” element that is at the root of so much that is wrong with investing today.

How Dynamic Investments Work

Dynamic Investments (DIs) work with groups of low or uncorrelated ETFs (typically from 2-5). These are the DI’s “purchase candidates”. On a periodic basis (e.g. monthly or quarterly) DI sample the price trends of each of these ETFs and purchase, or retain, the one having the strongest price uptrend. This is the ETF that the DI holds until the new review event when the selection process is repeated.

This built-in, automated trading system makes DIs “market-sensitive” and capable of quickly reacting to major market changes in order to capture gains and avoid losses - resulting in higher returns with lower risk than any ETF or mutual fund in use today. Plus, when added as building blocks to MPT portfolios, DIs make them market-sensitive as well and both enhance returns and lower risk.

The Performance of a Simple DI and an MPT Portfolio Comparison

The Table below compares the performance of the simplest possible DI - one that rotates between only a Stock ETF and a Bond ETF on a quarterly basis - with the performance of the ETFs it uses and a generic MPT-based portfolio working with the same ETFs. The backtest is from 2008 - 2022, a period that experienced multiple market corrections/crashes and an unprecedented Bull Market run.

How did the Simple DI produce significantly higher returns with lower risk? It tapped into the powerful predictive power of market trends in a simple and effective manner that no other investment type takes advantage of today. This is the power of Dynamic Investments.

The “Alpha” Dynamic Investment

The Simple DI performance discussed above produced outstanding returns without excessive risk. However, by rotating among 5 carefully selected ETFs - instead of the two used by the Simple DI - the NAOI-designed “Alpha” DI delivered even higher performance for the backtest period. Click the button below to view its returns on a yearly basis. Readers of the NAOI Research Report will learn how the Alpha DI was created, how to use it and how to create DIs for a full spectrum of investing goals.

Providing Absolute Protection from Market Corrections and Crashes

You can see that the Average Annual Returns of the Dynamic Investment were close to double the returns of the MPT portfolio for the backtest period used, and these returns were achieved with almost half the risk as shown by the Sharpe Ratios of each. While there were years when the MPT portfolio did provide higher returns, the trade-off was that the DI did not let its value drop significantly in any economic condition - including the major market crash of 2008-2009. During that period the DI was safely holding Government Bonds (or a Cash Equivalent ETF) while the Stock allocation of the MPT portfolio was losing a significant amount of value.

The returns of the Simple DI shown above are unheard of today. They are the stuff of mysterious hedge funds. But the reasons why these returns are so high are, unlike hedge funds, simple and easy to understand. The DI simply buys uptrending ETFs at a periodic review and avoids, or quickly sells via a Trailing Stop Loss order, ETFs that are trending down. Nothing could be simpler.

Introducing Dynamic Portfolios

Even though a Dynamic Investment, such as those discussed above, can be the only investment an individual owns, the NAOI is NOT suggesting that DIs replace MPT portfolios. The disruption to today’s financial services industry would be just too great. This new approach needs to be introduced gradually to the world of investing. Thus, the NAOI is teaching students to use DIs as building blocks in traditional MPT portfolios to both increase returns and reduce risk. We call DI-enhanced portfolios “Dynamic Portfolios” or DPorts.

Click this link to learn more about DPorts and why the NAOI believes they will be the investment type of choice in the future of investing.