ProfitScore Update – April 2022
To the clients and friends of ProfitScore:
Institutional investors know ProfitScore primarily for our US Treasury work, but few investors know about our expertise in trading US equities. ProfitScore has provided equity research and sub-advised equity programs to the RIA channel for over two decades. In 2014, ProftScore created a third-party calculated Long/Short equity index to formalize our expertise. In October of 2021, this strategy was seeded by a family office, and today we are officially launching this program.
In the following few paragraphs, I will be introducing you to ProfitScore’s Regime-Adaptive Equity Program. Like our US Treasury program, this program places trades based on the “State Of The Market.” We place trades based on two different regimes in our Treasury program – Fear and No Fear. Knowing what market state you are in dramatically increases your chances of success.

The types of trades we place in our equity program are determined by the volatility regime – High Volatility and Low Volatility. Equity markets are mostly efficient but efficiency declines as realized volatility increases and vice versa. Market efficiency and realized volatility are negatively correlated – higher volatility causes equity markets to become less efficient. Additionally, increasing volatility begets greater volatility causing volatility to cluster in intense bursts. Inefficient volatile markets can be a target-rich environment for shorter-term systematic trading programs to generate significant alpha. On 1/6/2022, ProfitScore’s Regime-Adaptive Program switched to a High Volatility state. Below are the results of ProfitScore Regime-Adaptive Equity Index trading during the first quarter of 2022 taking long and short trades on the S&P 500 index.

As of 5/18/2022, we are still in a High Volatility State.
Conversely, when realized volatility is low, markets are mostly efficient. These markets are commonly referred to as bull markets when trend is your friend. When realized volatility is low, trades are placed to dynamically capture persistent price moves. Investment exposures are increased and decreased to dynamically capitalize on enhanced risk/reward opportunities. Low Volatility environments stack the odds in our favor for earning outsized gains in a lower risk environment.
In summary, ProfitScore’s Regime-Adaptive Equity Program places trades based on volatility. When volatility is high, the program trades in a short-term systematic fashion. In this environment, markets wildly overshoot to the upside and downside as markets seek equilibrium. When volatility is low, the program enhances returns by dynamically capturing beta. Exposures are increased and decreased to enhanced returns while carefully minimizing risk. The program trades S&P 500 E-mini futures.
Successfully determining the market regime is critical to successfully trading financial markets. The greater the volatility, the more important it becomes. In the coming months, we will elaborate more on the details of our programs. For more information please reach out and we will happily dive into more details.
Important disclosure information: Past performance of a ProfitScore index is not an indication of future results. You cannot invest directly in any ProfitScore index. The performance of any ProfitScore index does not represent actual fund or portfolio performance. A fund or portfolio may differ significantly from the securities included in an index. A decision to invest in any such fund or portfolio should not be made in reliance on any of the statements discussed above. Inclusion of a security within any ProfitScore index is not a recommendation by ProfitScore to buy, sell, or hold such security, nor is it considered to be investment advice. Index performance does not reflect any management fees, transaction costs, or other expenses that would be incurred by a portfolio or fund, or brokerage commissions on transactions in fund shares. Such fees, expenses, and commissions would reduce returns. ProfitScore receives compensation in connection with licensing rights to its indices. All information relating to any ProfitScore index is impersonal and not tailored to the specific financial circumstances of any person, entity, or group of persons.