Merrill Lynch RPM IndexTM
Modern Index Construction Designed to Reduce Risk and Leverage Positive Momentum
Modern Index Construction Seeking Broad Diversification
The RPM Index is designed to leverage principles used by the largest financial institutions—including diversification, positive momentum and risk control — to help generate consistent returns in good and bad market environments. Diversification starts with a group of global asset classes across equities, fixed income and real assets:1
- Domestic Equities
- International Equities
- Emerging Markets Equities
- Real Estate
The RPM Index applies a rules-based approach to eliminate emotion, bias and the need to time the markets. The asset classes are rebalanced each month with an aim to reduce risk and correlation while leveraging positive short-term momentum. The result is an index that seeks to provide a broader level of diversification.
Key Terms and Resources
CORRELATION – The price relationship between two asset classes. Asset classes with high correlation tend to move in the same direction. Asset classes with low correlation tend to move independently.
MOMENTUM – The tendency for assets with demonstrated short-term performance, positive or negative, to continue to perform. The RPM Index removes asset classes that have negative 12-month momentum.
RISK – Rapid price changes up or down increase the risk of short-term losses. Each month, the RPM Index is designed to allocate more to asset classes exhibiting lower risk and less to asset classes exhibiting higher risk. Daily risk control is applied, which seeks to further reduce risk.
A Monthly Rebalancing Process Leveraging Positive Momentum
The RPM Index evaluates and rebalances the six asset classes based on risk, correlation and momentum over the previous 12 months. The monthly rebalancing process is designed to help the RPM Index in capitalizing on short-term changes in the asset classes and provide the potential for more consistent performance.
The RPM Index also applies a daily risk control designed to help minimize the impact of rapid up or down movements in the asset classes. Allocations can be made daily between the monthly allocation described above and a cash account which may help further reduce risk.
Designed to Provide Consistent Returns Throughout Market Cycles
Over the last 14 years, the RPM Index would have produced 22%* higher returns than the S&P 500® Price Index with only one-third of the volatility, as demonstrated by the relatively consistent movement of the green line below.
*Hypothetical Assumptions: $100 invested in the Merrill Lynch RPM Index™ and the S&P 500® Price Index from 3/28/02 to 11/30/16. The RPM Index was established on 3/1/16. Performance shown before this date for the RPM 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. The S&P 500® Price Index results are actual performance for the full period. Past performance is not indicative of nor does it guarantee future performance. The foregoing performance information does not include any relevant costs and fees associated with the BCA Elevate or any other financial product linked to the Merrill Lynch RPM Index or S&P 500® Price Index. For more information on BCA Elevate and performance with the RPM Index, ask your insurance professional for an illustration.