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

An Index Leveraging Value and Risk Control

Identifying Value and Reducing Risk

The Shiller Barclays CAPE® US Sector Risk Controlled 10% USD Total Return Index (the 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 longterm returns. Two core principles are applied for sector selection and allocation:

    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.
    Risk of loss increases when there are more rapid movements in the market. When the market is moving rapidly — up or down — there is a greater chance of short-term loss. Risk control helps by reducing 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


Identifying Value and Risk Control Helped Create 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 provided 33% higher annualized returns than the S&P 500® Price Index with 55% less volatility.


Hypothetical Assumptions: Represents the hypothetical growth of $100 invested in the Shiller Barclays CAPE® US Index and S&P 500® Price Index from 12/31/02 to 12/31/17. It is not possible to invest directly in an index. Ask your insurance professional for more information on the historical performance of BCA Elevate, including the impact of the strategy rider charge and any optional rider charges. The Index was established on 2/3/14, and any performance shown before this date is back-tested by applying the index strategy to historical financial data. Back-tested performance is hypothetical and provided for informational purposes only. Past performance is not an indicator or guarantee of future results.

Daily Risk Control Helps Provide Smoother Returns

Rapid movement in the market, or volatility, can create greater potential risk to longterm 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 Total Return Index and a cash account.

The Index seeks to maintain a 10% daily 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

When the market experiences more stable growth, the Index will allocate more to the equity market sectors

Shiller Barclays CAPE<sup>®</sup> US Sector Risk Controlled Index

When the market is experiencing larger short-term swings, the Index will allocate more to cash