Finding Value in U.S. Markets

Shiller Barclays CAPE® US Sector Risk Controlled 10% USD Total Return Index

A New Approach to Proven Investment Practices

The Shiller Barclays CAPE® US Sector Risk Controlled 10% USD Total Return Index is a rules-based equity index. A rules-based approach removes emotions, decisions and the need to time the market. The Index applies well-established principles for asset selection and allocation with a goal of providing positive long-term returns.

Each month, a defined set of rules is used to invest in four market sectors of the U.S. economy. Each day, the Index has the ability to allocate a portion to cash and a portion to the Shiller Barclays CAPE® US Sector Total Return Index based on the demonstrated stability of the equity market to help reduce potential risk and increase potential long-term returns. Two core principles are applied for sector selection and allocation:

  • Value Investing
    Value investing is a well-known and recognized investment style dating back to the 1930s. Value investors actively seek to buy assets when the price is low and sell when the price is high.
  • Strategic Re-Allocation
    Rapid changes in the market can be a sign of increased overall risk. When the market is moving rapidly — up or down — there is a greater chance of short-term loss. Strategic re-allocations reduce exposure to equities when the market is unstable.

The CAPE® ratio is a tool developed by Professor Shiller to identify assets that appear to be undervalued. The CAPE® ratio compares the current price to the average earnings over 10 years, adjusting for inflation. A lower CAPE® ratio is considered to be an indicator that an asset is undervalued. The Shiller Barclays CAPE® US Sector Total Return Index relies on a modified version of the classic CAPE® ratio called the Relative CAPE® Indicator.

Key Terms and Resources

CAPE® RATIO – A statistical tool used to identify potential values, the CAPE® Ratio compares the current price to the average earnings over 10 years, adjusted for inflation.

MARKET SECTORS – Types of companies grouped based on the goods or services they produce, such as Health Care or Energy.

MOMENTUM – An indicator of a positive or negative trend in an asset’s price movement over time. Momentum is calculated by comparing the market sector’s current price to the price of the sector 12 months prior.

RELATIVE CAPE® INDICATOR – Measures the current CAPE® ratio compared to its rolling 20-year average. The Relative CAPE® Indicator helps the Index avoid repeatedly selecting sectors with low ratios and exclude sectors with high ratios without considering inherent, long-term differences that cause some sectors to consistently trade at higher or lower classic CAPE® ratios than others over time.

Market Sector Selection Based on Principles for Identifying Value

A monthly sector selection seeks to identify values. To identify potentially undervalued market sectors, the 11 market sectors of the U.S. economy are evaluated to identify the five that appear to be most undervalued. An additional screen then eliminates one market sector with the least price momentum over the prior 12 months. Equal allocations are made in the remaining four sectors.

The 11 market sectors represented in the Shiller Barclays CAPE® US Sector Total Return Index are: Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrial, Materials, Real Estate, Information Technology, Communication Services and Utilities.1

Monthly Re-Allocation Process

Strategic Re-Allocation Helps Provide Smoother Returns

Rapid movement in the market, or volatility, can create greater potential risk to long-term returns. The Index attempts to reduce the impact of short-term volatility in the equity market sectors through daily re-allocations between the equity sectors selected by the Shiller Barclays CAPE® US Sector Total Return Index and a cash account.

The Index seeks to maintain a 10% annualized volatility target. If volatility falls below the target, the allocation to the equity market sectors is increased up to a maximum of 150%. If volatility is greater than the target, allocations to the equity market sectors may be reduced. Allocations below 100% to the equity market sectors will be reallocated to a cash account.2

An Opportunity for Positive Long-Term Returns

Well-established principles of identifying value and risk control have historically provided positive returns that outpace the broader market. The graph below illustrates actual and back-tested performance of the Index. The Index would have applied value investing and strategic re-allocation methodologies to provide a 10.11% compound annual return.

Shiller Barclays CAPE® US Index Performance


*Hypothetical Assumptions: $100 invested in the Shiller Barclay’s CAPE® Index from 12/31/02 to 12/31/19. The Shiller Barclay’s CAPE® Index was established on 2/3/14. Performance shown before this date for the Shiller Barclay’s CAPE® Index is back-tested by applying the index strategy, which was designed with the benefit of hindsight, to historical financial data. Back-tested performance is hypothetical and has been provided for informational purposes only. Past performance is not indicative of nor does it guarantee future performance or results. The foregoing performance information does not include any relevant costs, participation rates and charges associated with the BCA suite of FIA or any other financial product linked to the Shiller Barclay’s CAPE® Index. For more information on the BCA suite of FIAs and performance with the Shiller Barclay’s CAPE® Index, ask your insurance professional for an illustration.

The Shiller Barclays CAPE US Index is available with all BCA 2.0 FIAs and Athene Velocity. Rates and product availability will vary by state and results may be higher or lower. See your insurance professional for detailed information.