We use MacroRisk Analytics to evaluate current macroeconomic trends and identify investments to reduce our clients' overall portfolio risk. The MacroRisk Portfolio Analysis shows how a portfolio is expected to perform relative to current macroeconomic trends.

The basic parts of the MacroRisk Portfolio Analysis report include:

• MacroRisk Factors - In 1999, MacroRisk Analytics analyzed hundreds of economic factors to identify significant indicators. Eighteen factors were found to explain over 90% of the price variation for more than 20,000 stocks, funds and indices.

The following 18 MacroRisk Factors are used to develop the Economic Status graph and evaluate portfolios and individual investments.

FTSE 100
Gold Index
Corporate Bond (BAA) Yield
Consumer Price Index
Short Term Govt. Bond Yield
Intermediate Term Govt. Bond Yield
Long Term Govt. Bond Yield
Tokyo Stock Exchange Index
Euro Exchange Rate
Agricultural Exports
Housing Starts
Monetary Base
M2 Money Supply
Corporate Cash Flow
Unemployment Rate
Auto Sales
New Durable Goods Orders
Energy Prices

• Economic Status Graph - This graph shows a snapshot of this week's economy. Each of the 18 MacroRisk Factors has a corresponding bar on the graph; these bars signal whether the value of each factor is higher or lower than normal. If the bar sits on top of the line, the value is higher than average, if the bar hangs down from the line, the value is lower than average.

In general, MacroRisk Factors change slowly from week to week. Occasionally, a few may change far more than they have in the recent past; these kinds of economic shifts generally lead to changes in price for certain investments. Specifically, significant changes in a MacroRisk Factor tend to lead to price changes in investments with high Eta Measures for that factor. For instance, if the Unemployment Rate increases dramatically, investments with a highly positive Eta Measure for Unemployment Rate will tend to increase in price, while investments with a highly negative Eta Measure for Unemployment Rate will tend to decrease in price.

On the graph, MacroRisk Factors that are inside the green zone are behaving normally. These are colored blue. (In technical language, blue MacroRisk Factors are within two standard deviations of their average value computed from the previous year of data with a three-month lag.)

If a Factor goes up or down significantly, the bar crosses the green boundary line and turns red. Red MacroRisk Factors are significant and investments with high corresponding Eta Measures may be impacted by these changes.

• Eta Measures - Each portfolio or investment has 18 Eta Measures (one for each of the MacroRisk Factors). Each shows the sensitivity of the portfolio or investment to each of the MacroRisk Factors.

Positive Eta Measures indicate a positive relationship. As the MacroRisk Factor goes up (more positive), so does the portfolio or investment value (and vice-versa). Negative Eta Measures indicate an inverse relationship. As the MacroRisk Factor goes up (more positive), the portfolio or investment value goes down (and vice-versa).

• Composite MacroRisk Index (CMRI) - The Composite MacroRisk Index is the sum of the portfolio or investment's significant Eta Measures. This is an indicator of economic risk level of the portfolio or investment.

Composite MacroRisk Index: 62

For reference, most money market funds have a CMRI lower than 30; most mutual funds are between 30 and 200; the S&P 500 varies between 50 and 100; individual stocks vary from 30 to over 2,000. The majority of individual investments we use in our portfolios are under 450. Most portfolios we use have a CMRI of 250 or less.

• Economic Climate Rating (Stars) - This rating takes into account the portfolio or investment's Eta Measures, current Economic Status and price information.

Economic Climate Rating: 3

A rating or 4 or 5 stars indicates that economic conditions are favorable for the portfolio or investment. A rating of 1 or 2 stars indicates that economic conditions are unfavorable for the portfolio or investment. It is not uncommon for a balanced portfolio to have a neutral or 3 star rating.

• Economy's Influence (R²) - This is the percentage of the portfolio or investment value that can be explained by economic factors.

Economy's Influence (R²): 1.0

R² is greater than 95% for more than 90% of the 25,000 investments screened. This means that less than 5% of a portfolio or investment's intrinsic value is explained by company specific factors.

• Beta+ Analysis (Advanced CAPM) - These are ratios and statistics from Capital Asset Pricing Model (CAPM). This is the portfolio modeling and analysis used by the majority of investors. They can be used to determine how your portfolio compares to benchmarks.