Risk · known limits
Where it should struggle, and what it has not yet faced
A short record is only useful if its boundaries are stated. The same transparency that shows our numbers shows our limits. Most managers avoid this conversation; we start it.
The limits
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Expectation
Soft spots, by design
The edge works against a quality baseline. When the market rewards quality itself, or when correlations rush toward one in a sell-off, the dispersion the strategy harvests shrinks. We expect thin or negative alpha there. It is a trade-off of the design, not a calibration error.
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Observed
Not yet tested: a VIX 40+ crisis
Conditions like March 2020 or October 2008 have not occurred in the live record. The crisis protocols rest on the firm’s own history, not on this model’s validation.
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Observed
Partly tested: mega-cap dominance
A long stretch in which the cap-weighted S&P 500 runs far ahead of the equal-weight index would be a headwind for an equal-weight book. The 2023–2024 rally in the largest names came before inception.
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Design
No back tests
A back test applies today’s rules to companies as they used to be, scoring each on an average of its past self, and it cannot replay the judgments made in real time. We show live results with their confidence intervals and let the record lengthen.
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Observed
How the record is built
Daily equity-sleeve returns of the Alpha Convergence Flagship strategy, reconciled to a tracking account at Schwab. Net figures deduct a 2% model fee*, not the fees actually billed. The record is not independently verified, and the firm does not claim GIPS compliance.
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Design
Taxes and turnover
Turnover runs 200–400% and holdings last up to 90 calendar days, so gains are mostly short-term. The strategy suits tax-deferred accounts best; taxable investors should weigh the after-tax result.
* Net figures deduct a 2% model fee, the highest fee we charge. Our fees range from 1% to 2% a year, depending on the size of the account. The full schedule is in Form ADV Part 2A.
Where it is likely to lag
We are dispersion investors
When names move differently, selection has something to separate; when they move in lockstep, it does not. Every case below is the same story told another way.
- Narrow, mega-cap-led leadership, where an equal-weight book can trail the cap-weighted index.
- Pure Beta stress, sharpest in a risk-off sell-off: correlations converge, selection goes quiet, and at the extreme the lower-beta cushion itself compresses. This is the documented, by-design soft spot.
- Low-volatility, low-dispersion drift, where stocks move in lockstep and there is little to separate.
- Extreme stress. Like every strategy that carries market exposure, we do not expect excess returns while VIX stays above 30, the level at which our published VIX threshold calls for a closer look, until markets return to normal operation.
Backstage tour
See it running live
A live screen-share of FlightDeck with Mark Tennenbaum, CIO: the command center driven in real time, how today’s market is classified and what the book does about it, and the record with the tests behind it.