Strategies & Research



 Our white papers and strategy videos dive into the methodology and empirical data around the Sigma401k strategies themselves. We also provide a rich set of links to external research into the general principles of our strategies. This includes videos, academic studies that support and challenge them. Our goal is to allow any potential client to discover the potential benefits and risks associated with these management styles by lifting the curtain - to learn how the sausage is made, so to speak.




Sigma401k uses moving averages to estimate market trend direction.

Stocks tend to "drift" upward over time, but take a random path along the way. There are also periods of downward trend. Our model smooths the daily, weekly and monthly noise of index prices to garner an intermediate term view of markets. The model produces a market trend line slope each day. At the start of each quarter, if the slope is positive, Sigma401k orients portfolios in a more aggressive position. Conversely, portfolios are positioned defensively with a negative trend slope. Our model takes markets as they come and reacts impartially to the data. We believe simple and transparent strategies trump indecipherably complex ones with marginal benefits and high fees.


Trend Strategies Offers Allocation Targets in Up and Downtrends

Each model has a preset maximum and minimum allocation to equities. Maximum (Uptrend) allocations are used when policy recommends a bullish position and Minimum (downtrend) allocation are used when policy recommends a bearish or defensive positions




Momentum is the observation that tradable assets that have outperformed their peers over recent (2-12-month) periods tend to continue outperforming over similar periods.

Backed by data. Momentum premiums can be found in over 200 years of dating back to the Victorian age.

Theory rooted in behavioral finance: Investors let emotions cloud decisions; tend to overreact to bad news and underreact to good news - leads to inefficient trades. A disciplined, rules-based approach minimizes these types of errors.


Research has shown that by holding the stronger performers and readjusting on a regular basis, better risk adjusted returns have been obtained.

There are periods of underperformance, but when compared to other risk factors used by investment professionals (market, size and value), the momentum factor has outperformed based on over 89 years of monthly return data*.

Momentum is ideal for use in 401(k)s, where often the mix of available funds does not allow for more advanced portfolio management strategies (i.e. tracking size or value). Momentum is a relative measure - it can be used to evaluate relative performance within and across many groups, including asset class groups represented in a plan or portfolio.

Momentum, Value and Size: Annulized Returns, Volitility and Sharpe Ratios 1927 - 2016


Sigma401k's use of Momentum

Sigma401k models determine portfolio positions using 17 major equity and alternative asset classes. Our application tracks and ranks intermediate term (2-12 month) returns to determine allocation (or re-allocation) on a quarterly basis. At the beginning of each quarter, the asset classes that have outperformed a broad benchmark (i.e. the Russell 3000) are selected for that quarter; individual equity asset class portfolio weights vary by type (more volatile asset classes like energy are weighted lower, relatively less volatile US large cap funds are weighted more heavily). A client's selected risk tolerance determines overall equity/fixed income weight constraints. The strategy is carried out in a highly disciplined manner in order to minimize behavioral biases.

  • Re-evaluate equity asset class performance quarterly

  • Gain/maintain exposure to funds in best recent performing asset classes, and drop relatively poor performers that are held.

  • Level of min and max equity exposure (stock vs. cash/high quality bond) determined by risk tolerance


Modern Portfolio Theory


One of the most common fundamental investment allocation concepts in portfolio management is called "Modern Portfolio Theory" or MPT. Maybe you ‘ve heard this described in a different way: Diversification.

MPT essentially says invest in uncorrelated assets. Implementing MPT will maximize expected return for a given level of risk the investor is willing to take or minimize volatility for a given level of expected return. As part of constructing an MPT-friendly portfolio, Sigma401k screens and compares each competing asset class in your 401k. Our 12-point screens include monitoring of 1, 3 & 5 year performance, fund risk parameters, fund cost, etc. For any given asset class, the option which scores the highest is selected for the next quarter. Sigma401k reevaluates and rebalances MPT portfolios quarterly. MPT is a good option for investors that prefer to select the right investments and then follow the market VS actively trading.


Many plans have multiple investment options available within a single asset class.

Our job is to help evaluate which options are most appropriate for your portfolio. We use 12 criteria to rank and determine the most suitable option for the following quarter. The parameters may include but are not limited to:

1. Manager Tenure

2. Expense Ratio

3. Year R-Squared

4. 1, 3 & 5 Performance

5 .3 Year Information Ratio

6. 3 Year Sharpe Ratio

7. 3 Year Alpha (best fit)

8. 3 Year Beta (best fit)

9. Investment Net Expense Ratio

ModernPortfolioTheoryIllustrationA01 (1).png

Unlike trend or momentum, the investment selection comparisons were not analyzed to create or compare higher return vs risk metrics.

Rather, these are common and prudent benchmarks are used by investment professionals to compare investment options and select the most appropriate options. We have not determined if one investment option will outperform another. Simply, that adding these basic rankings for investment option selection or replacement has historically proved to be the most diligent course of action.

*Sigma401k generally has no input into the investment options a client will have available in their company plan. Our goal is to select the best options available, consistent with our strategy, to add value. The application would select from both actively managed investment funds and low cost Index funds or ETFs (whatever is available within your plan).


Sigma401k helps get the most opportunity from the market and provides investors confidence in their portfolio, regardless of market conditions.