After its recent evaluation, the FSM CoreSolution All Cap World 2M PR4050 (FSMCORSOL5-ACW-2M-PR4050) picked up emerging markets exposure..
Monday marked the final evaluation for the monthly stock and fund models on the NDW Models page, and while a number of models had changes, one in particular piqued interest – the FSM CoreSolution All Cap World 2M PR4050 (FSMCORSOL5-ACW-2M-PR4050).
For those not familiar with the All Cap World model, it provides investors with an adaptable core global equity solution. The model will seek to hold the top two scoring ETFs based on NDW’s Fund Score System out of a universe of 26 ETFs. Additionally, the All Cap World model has a defensive cash trigger based upon the percentile rankings of the core S&P 500 Index funds and US Money Market groups on the Asset Class Group Scores page. When the percentile ranking of the US Money Market group moves above the 50th percentile and the core S&P 500 group falls below the 40th percentile, the model will maintain 100% exposure to cash. There are two versions of the All Cap World Model, one that is evaluated monthly (the main focus of today’s piece) and the other is based upon a seasonal quarterly schedule (February, May, August, and November).
For December’s evaluation, the FSM CoreSolution All Cap World 2M PR4050 (FSMCORSOL5-ACW-2M-PR4050) sold the iShares Morningstar Growth ETF (ICLG) and bought the iShares MSCI Emerging Markets ETF (EEM). This marks the first time since 2023 that the monthly All Cap World model has held exposure to international equities and the first time since 2009 (utilizing back-tested data) emerging markets exposure by way of EEM has been maintained. This marks the ninth trade in 2025 for the monthly All Cap World as the model has generally rotated among growth related funds with a brief stint in low volatility in May.
Considering the addition of EEM to the monthly All Cap World model, the table below examines the prior times the model has maintained exposure to EEM, as well as EFA for additional context. Bear in mind, the inception of the All Cap World models are April 2018, so most of the trades shown below are a result of back-testing that dates to the early 1990s. In total, there were seven times that EEM and EFA were held simultaneously, with most of the occurrences happening in the early 90s and the last being in 2007. EEM has been a holding within the strategy a total of 22 times (including back-test), while EFA has been a holding 17 times. Positive performance of the trades for both funds occurred half of the time, but EEM has generally faired better with average and median performance besting EFA’s. A half dozen trades with double digit returns help EEM with the highest return of 72% coming following a year and a half period from late 2004 to early 2006.
While reviewing performance, a hallmark theme of NDW relative strength-based strategy is noticed. Though not every trade shown in the table produced a positive return, the majority did, and the minimum returns for both funds are in the single-digit range. This shows that once the model identifies a trend that is not sustaining, it quickly weeds that fund out. But a trend that maintains and produces a notable return is ultimately what relative strength seeks.
