## Multi-Factor Index Strategies

From these single factor index strategies, we developed two multi-factor rotation strategies: an all cap multi-factor strategy and a large cap multi-factor strategy. The driving principle in the rotation model is the relative price-to-sales ratio. We agree with the previously mentioned white paper that relative strength based on the price-to-sales ratio best systematically and idiosyncratically positions an investor’s exposure. We believe it is most prudent to align the investor’s portfolio using principles, such as balanced exposure, that position the investor for long-term success.

The rotation is based on each indices’ current price-to-sales ratio relative to its historical moving average. If the current price-to-sales ratio is one standard deviation above the historical average, we assign the index an underweight. We assign the index an overweight if the current price-to-sales ratio is one standard deviation below the historical average. If the current price-to-sales ratio falls within the mean (i.e.: between one standard deviation below and above the historical average), then we assign the index an equal weight. The strategy is a fully invested strategy; therefore, we prorate any excess weight, amongst the four indices. This is what we mean when we say we manage to a normal channel of price-to-sales.