Product Development: Is the Backtest Trustworthy?

Part one of a series of articles on product development

“I have never seen a bad backtest” is an often stated criticism of backtesting that has a high degree of truth to it – many strategies launch with strong backtests yet do not pan out as intended.

In truth, a well-designed backtest is a key tool among a number of tools that should be used for financial product manufacturers and asset managers to develop and vet investment strategies. Yet, many backtests have critical flaws inherent within them. Today, I will explore some of the general flaws frequently found in poorly designed backtests, as well as methods which a prospective investor can use to “kick the tires” on a backtest to separate the well designed from the flawed.



The Difference Between Beta and Delta and Why We Care

Check out our webinar on Beta vs. Delta.

Beta is one of the classic measurements within the financial industry. It is one of the first measurements shown on Yahoo Finance, right under the bid-ask and earnings estimate. Participants use it as a general gauge of market-related risk associated with an investment. As a reminder, an investment with a Beta of 0.8 is generally supposed to participate in 80% of a market move. So if the market increases 10% the investment should move up 8% and in a down 10% environment it should move down 8%. If only it was so simple…

Beta is so well known that most people have not reviewed the basics of its calculation in a while, nor do they remember its drawbacks – let’s do some Beta 101!

Beta is essentially the slope of the best fit line between the investment being studied (one axis of the graph) and the market (the other axis of the graph).

Delta Beta Chart New 1A Delta Beta Chart New 1B



Market upheaval can be gut wrenching. The market can experience 5% and 10% declines with surprising frequency, with a typical bounce back relatively quickly. But once in a while you get a 2008 event where the market just continues to go down.  Unfortunately, there is no way to identify which of those two market conditions an investor is in until after the fact.

These conflicting emotions certainly play into the documented reality that investors tend to exit markets at the wrong time – selling when they should be buying and vice versa.

Fortunately, there are solutions.  A tangible floor on losses can go a long way to mitigating these realities – allowing for investor participation in the market with a safety net below.



Jefferson National and Exceed Investments Partner to Launch VIT

We are pleased to announce a partnership between Jefferson National, innovator of the industry’s leading tax advantaged investing platform for RIAs and fee-based advisors, and Exceed Investments, a pioneer in defined outcome investing. The alliance will combine the benefits of Jefferson National’s unique Investment-Only Variable Annuity (IOVA) with Exceed’s investment method of providing market exposure with defined, preset protection levels. Jefferson National will issue our first co-branded Variable Insurance Trust (VIT) in early 2016.

To learn more about the Jefferson National and Exceed Investments partnership, click here for the press release.


Define YOUR Outcome – Our new tagline explained


Investors generally fear the unknown. Unfortunately, traditional market exposure is full of unknowns – market corrections occur without warning, with no telling how deep a drop or how long it will last. Exceed Investments offers a solution to this uncertainty – a controlled market exposure that mitigates downward surprises, titled defined outcome investing.

Defined outcome strategies use preset protection and return levels to shape a risk / reward exposure to a benchmark like the S&P 500. The strategy is proactive, rather than reactive – protection and return levels are set ahead of time, rather than in reaction to a particular market move.

Historically, these powerful strategies were only available to institutions and high net worth individuals through costly and illiquid instruments offered by banks.  Exceed Investments is changing the investment landscape through providing the first accessible, transparent and liquid defined outcome strategies. Our strategies provide a defined, shaped exposure to the market within such traditional products as indexes, SMAs, and mutual funds. Our customers benefit from a controlled investment experience shaped to their preferred risk / reward exposure.