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Executive Summary

Alpha Convergence is an actively managed, rules-based equity strategy designed to identify and exploit periods of temporary mispricing through the convergence of multiple independent signals. The strategy seeks to generate excess returns while maintaining controlled volatility and minimizing unintended factor concentration.

The investment process combines two investment models, each developed to capture distinct informational and behavioral inefficiencies in public equity markets. Portfolio construction emphasizes independence across positions, equal weighting, and disciplined rebalancing in order to reduce reliance on any single signal, factor, or market environment.

The strategy currently maintains a concentrated portfolio of 22 equities and is benchmarked against the S&P 500 Equal Weight Index (RSP), reflecting its equal-weighted structural design with no sector tilts. Risk is managed through position sizing discipline, diversification across independent signals, and continuous monitoring of correlation dynamics, volatility, and drawdown behavior.

No hypothetical back tests or simulated performance are presented, as such analyses are unlikely to capture the qualitative judgment, model evolution, and macro-economic decision-making embedded in the process.

Live results across 191 trading days have included sharp factor rotations, elevated volatility, a geopolitical structural event (Hormuz), and episodic risk-off conditions including a -8.00% maximum drawdown. While these observations provide useful directional evidence, they do not substitute for the minimum 252-day track record required for full statistical evaluation.

Alpha Convergence is best viewed as an emerging strategy with a clearly articulated process, explicit risk awareness, and a commitment to transparency. Ongoing evaluation will focus on the stability of signal behavior, correlation dynamics, drawdown control, and consistency relative to benchmark over time.

Performance Summary

The following metrics reflect 191 trading days (June 27, 2025 through March 31, 2026), representing 75.8% of the 252-trading day minimum required for institutional validation. All returns are reported gross of advisory fees and net of transaction costs. Gross returns do not reflect the deduction of advisory fees, which will reduce actual investor returns. See Form ADV Part 2A for the applicable fee schedule.

76% COMPLETE
Institutional Validation Progress
191 of 252 trading days
75.8% of minimum required for institutional validation
Total Return
+28.73%
191 days · gross of fees
Sharpe Ratio
2.07
99% CI [1.74 – 2.41]
Information Ratio
3.06
vs RSP · annualized
Beta
0.87
vs RSP · VIX 13–31 period
Win Rate
58.1%
95% CI [50.0% – 66.2%]
Max Drawdown
-8.00%
Hormuz event · VIX 25–31
Annualized Alpha
+28.2%
vs RSP benchmark · observed
Cumulative Alpha
+21.35%
191 days · all regimes
STATISTICAL NOTE

Confidence intervals use standard asymptotic formulas; methodology details and interpretive caveats are provided in the Statistical Appendix. Wide confidence intervals reflect limited sample size (191 of 252 target trading days). Point estimates represent best available data; true population parameters may fall anywhere within stated ranges.

IMPORTANT

The strategy has limited operating history of approximately 191 trading days, representing roughly 75.8% of the 252-trading day minimum required for full institutional validation. Past performance is not indicative of future results. All investments involve risk, including possible loss of principal.

Asymmetric Return Profile

The strategy exhibits favorable asymmetry: capturing 106.7% of benchmark gains while experiencing only 71.2% of benchmark losses. This 1.50:1 capture ratio reflects the quality bias in portfolio construction, which provided downside protection during the elevated-volatility conditions of February and March 2026.

UPSIDE CAPTURE 106.7% DOWNSIDE CAPTURE 71.2% RATIO 1.50:1
IMPORTANT CAUTION

The current asymmetry ratio (1.50:1) should not be extrapolated as a permanent characteristic. It reflects a period that includes both favorable and severely hostile conditions, and has compressed from earlier observations as the March 2026 stress tested downside capture more rigorously. We present it as evidence of defensive characteristics, not a structural guarantee.

Drawdown and Recovery Expectations

The observed maximum drawdown of -8.00% occurred during the Hormuz structural event and tariff uncertainty of March 2026, a period where VIX reached 31.09. This represents the first material stress test of the strategy and the drawdown remained well within the -15% target tolerance, reaching approximately half the limit.

During acute stress (a short-term downward move), we expect downside capture rising to 40-60% as correlations spike and quality factors provide incomplete protection. During sustained bear markets, we expect drawdowns of -15% to -20% with longer recovery periods. The March 2026 experience, where the strategy drew down -8.00% while SPY declined over -10% from its February peak, is consistent with the moderate end of our stress expectations and suggests the defensive protocols functioned as designed.

Why We Do Not Present Long-Term Back Tests

This paper excludes multi-year simulated back tests. Portfolio construction incorporates qualitative assessments that cannot be reliably replicated using historical data. Any long-term simulation would create a misleading impression of precision we cannot honestly represent.

Information Advantage

Dual Architecture as Edge Source

Consider how a bank evaluates a loan application: two independent systems examine the same borrower from fundamentally different angles.

Backward-Looking
The Credit Score Model
Looks backward, examining payment history, credit utilization, length of credit relationships, past defaults. Reveals how this borrower has behaved.
Forward-Looking
The Cash Flow Analysis
Looks forward, examining income stability, expense coverage, business trajectory, capacity to service new debt. It answers whether a borrower can repay.

These systems have low correlation by design. When both systems independently approve the same borrower, the loan gets funded.

The Alpha Convergence Parallel

Alpha Convergence applies the same logic to securities selection: two independent analytical systems measuring fundamentally different phenomena.

Correlation as Market Regime Indicator

We monitor correlation between our models weekly as an indicator of how momentum and fundamental signals are aligning. We interpret these movements alongside external indicators like VIX, SPY, and IWM to identify potential regime (market conditions) changes.

The Agreement Filter

Our dual screen requires agreement.

Quantitative Model Alone
Identifies momentum-favored securities. Cannot distinguish sustainable trends from temporary enthusiasm.
Fundamental Model Alone
Identifies business quality and valuation support. Cannot distinguish imminent catalysts from indefinite undervaluation.
Dual-Screen Agreement
Intersection captures securities with market recognition and fundamental support.
THE AGREEMENT FUNNEL
Universe
~1,000+ securities screened
Quant Filter
~100–150 momentum-favored
Agreement
22 high-conviction positions

Information Edge Cycling: The Di Mascio Framework

Di Mascio, Lines, and Naik (2017) studied transaction-level data from 752 institutional portfolios and documented a robust finding: newly purchased stocks earn positive risk-adjusted returns that decay predictably over time. Alpha averages 36 basis points in the first month, follows a power-law decay with a half-life of approximately four months, and reaches zero by month twelve with no subsequent reversal. The shape of this decay has direct implications for portfolio design.

The critical finding is the horizon mismatch: the average institutional manager holds positions for 2.2 years (approximately 554 trading days), which is roughly double the 12-month window in which alpha exists. Once alpha is exhausted, continued holding adds zero marginal return while tying up capital that could be redeployed into fresh signals. Most active managers destroy value not through poor stock selection but through holding positions long past the point where their informational advantage has expired.

Di Mascio Alpha Decay Lifecycle Where AC Harvests vs. Typical Manager 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 0 100 200 300 400 500 AC REBALANCES ON AVERAGE ~50 trading days High marginal alpha zone Steep slope Di Mascio Half-Life ~4 months (84 days) Increasing at decreasing rate Alpha Exhausted Month 12 (252 days) Flat: zero marginal alpha Di Mascio Avg Hold: 2.2 years Zero marginal alpha for 14+ months Trading Days Since Purchase Cumulative Alpha (%) Di Mascio Cumulative Alpha AC Rebalance Window (0-63 days) Curve calibrated to Di Mascio et al. (2017): 36 bps first-month alpha, 4-month half-life, 12-month exhaustion.

Figure 7: Di Mascio Alpha Decay Lifecycle. Curve calibrated to reported parameters: 36 bps first-month alpha, 4-month half-life, 12-month exhaustion. Gray zone marks AC rebalance window.

How AC Addresses the Horizon Mismatch

Alpha Convergence is designed to harvest alpha during the steep portion of the Di Mascio curve and rebalance before marginal alpha declines to the flat zone. The information cycle operates as follows:

RAMP DEPLOY DECAY RESET EDGE CYCLE
1
Edge Identification
At rebalancing, agreement between the models identifies securities where our dual-model information advantage is at maximum. This corresponds to the steep-slope region of the Di Mascio curve where marginal alpha per day is highest.
2
Edge Exploitation
We deploy capital into these high-conviction positions and capture alpha as prices converge toward the fair values identified by our models.
3
Edge Decay
As markets recognize value and prices adjust, our informational advantage diminishes. The cumulative alpha curve flattens as marginal alpha per additional day of holding declines. This is the transition from the steep slope to the flat zone in the Di Mascio framework.
4
Edge Reset
Signal-driven rebalancing harvests gains from positions where the edge has been substantially realized and redeploys capital into fresh opportunities where new dual-model agreement exists. Each rebalance resets the portfolio to the top of a new Di Mascio curve.

Empirical Validation: Periods 2 Through 4

Three mature rebalance cycles provide independent tests of whether AC captures alpha consistent with the Di Mascio lifecycle. Each period represents a fresh portfolio constructed from new dual-model agreement signals, measured against the theoretical alpha an average institutional manager would generate over the same holding window.

AC Alpha Harvesting in the Di Mascio Sweet Spot Periods 2-4 0% 1% 2% 3% 4% 5% 6% 7% 0 10 20 30 40 50 60 70 P4: +6.23% (9.7x) Jan-Mar 2026, 19 pos P3: +4.90% (6.8x) Oct 2025-Jan 2026, 18 pos P2: +0.85% (1.9x) Aug-Oct 2025, 21 pos P5 in progress (7 trading days). Di Mascio Theoretical P2: +0.85% in 40d (1.9x) P3: +4.90% in 55d (6.8x) P4: +6.23% in 42d (9.7x) Trading Days Since Rebalance Cumulative Excess Return vs. SPY (%) Excess returns vs. SPY. Data from LUL Master Data (authoritative).

Figure 8: AC Alpha Harvesting vs. Di Mascio Benchmark. P2 (1.9x), P3 (6.8x), and P4 (9.7x) the theoretical institutional alpha over their respective holding windows. P1 excluded as calibration period. P5 in progress.

The progression from P2 (1.9x Di Mascio) through P4 (9.7x) reflects model maturation across successive cycles, not extrapolation of a trend. Future periods may produce results closer to P2 than P4 depending on market conditions. In each case we see how AC is designed to harvest alpha during the high-marginal-return window that Di Mascio documented, and the empirical data across three independent cycles is consistent with that design.

IMPORTANT

The Di Mascio framework describes average institutional behavior across a large sample. Individual manager results vary substantially. AC outperformance relative to the theoretical benchmark reflects both the dual-model signal quality and the rebalance discipline, neither of which guarantees continued outperformance. Past alpha capture does not ensure future results.

Portfolio Construction

We build portfolios with exactly 22 concentrated positions through rigorous correlation management. Each portfolio represents high-conviction positions that benefit from diversification benefits equivalent to 50+ randomly-selected securities based on the academic research presented below.

High-Conviction Diversified Portfolios

Antón, Cohen, and Polk (2021) demonstrated managers’ highest-conviction positions typically outperform the market by 2.8% to 4.5% annually, while positions beyond a manager’s best ideas contribute little or no alpha. The authors concluded, “investors would benefit if managers held more concentrated portfolios.”

Sufficient Diversification for Risk Reduction

Foundational research on equal-weighted portfolio diversification demonstrates risk reduction benefits diminish rapidly beyond approximately 20 securities. Raju and Agarwalla (2021) confirmed that a 20-stock equal-weighted portfolio diversifies away approximately 90% of idiosyncratic risk on average, while the CFA Institute’s “Peak Diversification” study (2021) found that for large-cap equal-weighted portfolios, peak diversification occurs between 15-26 stocks, with minimal incremental benefit beyond this range.

Enhanced Diversification Through Correlation Management

We target:

Inter-Model Correlation
-5% to +5%
Genuinely independent signals.
Inter-Stock Correlation
< 0.30
Genuine risk reduction over factor similarity.
PCA Independent Factors
9–12
Creates natural hedges where single-factor risks offset one another.
Reconstitution
Quarterly
Matches natural decay cycle from our information edge.

Inter-Model Correlation between -5% and +5% for genuinely independent signals.

Academic research on ensemble methods demonstrates that near-zero correlation between predictors—whether slightly positive or negative—maximizes variance reduction while ensuring models address related investment problems (Dietterich (2000); Brown et al. (2005)). Even small negative correlation remains orthogonal and provides additional information about market conditions through model disagreement patterns.

Inter-Stock Correlation <0.30 for genuine risk reduction over factor similarity.

Principal Component Analysis (PCA) Target at 9–12 Independent Factors. Creates natural hedges where single-factor risks offset one another for volatility reduction comparable to long/short strategies without requiring short positions.

Quarterly Reconstitution. Portfolio rebalancing occurs quarterly to align with the Di Mascio alpha decay lifecycle. Di Mascio et al. (2017) documented that alpha on newly purchased securities decays with a 4-month half-life and reaches zero by month 12. Our rebalance cadence harvests alpha during the steep-slope portion of the decay curve and redeploys into fresh signals before marginal alpha diminishes.

Evidence of Alpha Generation: Asymmetric Returns from Uncorrelated Sectors

The strategy’s mean reversion approach generates alpha through asymmetric payoffs harvested across uncorrelated sectors for evidence of genuine security selection rather than factor momentum or sector concentration.

Asymmetry Profile

Across 191 trading days, the daily return profile is consistent with a positive daily edge:

The strategy generates a mean daily return of +13.6 bp versus +4.0 bp for RSP and +3.5 bp for SPY, a persistent daily edge of roughly +10 bp. The 58.1% win rate combined with comparable magnitudes on winning and losing days (+71.3 bp vs -66.5 bp) produces compounding alpha through frequency rather than magnitude. This is consistent with a strategy that wins slightly more often than it loses, with each win and loss roughly symmetric in size, allowing the win rate to drive cumulative outperformance.

Sector Diversity of Winners

More important than asymmetry, positive positions have come from all eleven GICS sectors, consistent with security-specific selection rather than sector concentration. The distribution is uneven: six sectors produced average returns above 10%, while the remaining five contributed modestly (below 10%), suggesting the alpha source is concentrated in the top half of sectors rather than uniformly distributed:

MU +86%
XOM +39%
NEM +31%
PAHC +28%
INGR +27%
ERIC +23%
BMY +23%

The top individual winners, MU (+86%), XOM (+39%), NEM (+31%), PAHC (+28%), INGR (+27%), ERIC (+23%), and BMY (+23%) span seven different sectors with minimal correlation to each other, reinforcing the thesis that alpha derives from security-specific insights rather than factor bets.

Implications for Alpha Attribution

The combination of consistent win rates, favorable asymmetry, and sector-diverse winners is consistent with a low-correlation, dual-model ensemble capturing informational advantages. Unlike factor-based approaches that concentrate returns in correlated positions, our alpha comes from:

Independent signal generation across analytically orthogonal models;

Security-specific catalyst identification rather than sector rotation; and

Systematic risk management that truncates losses while allowing winners to compound.

Crisis Management Framework

Precedents

Although Alpha Convergence launched in June 2025, Life UnLocked Partners has navigated significant market dislocations for existing clients using protocols that inform our current approach. These responses demonstrate our risk management philosophy in practice.

2022 Down Market Response

During the 2022 market decline, we executed a defensive reallocation for client portfolios:

Defensive Shift: Reallocated equity exposure to volatility-impaired, bond-like instruments (primarily fixed-to-floating rate preferred securities) to preserve capital while maintaining income generation.

Damage Path Assessment: Waited for clear damage paths to establish before seeking re-entry opportunities while earning significant alpha.

Adjacent Opportunity Focus: Sought recovery positions “three degrees from the damage path” — companies that benefit from dislocation without direct exposure to damaged sectors.

April 2025 Tariffs

The April 2025 tariff-driven volatility event prompted a defensive reallocation to preferred securities and a complete reengineering of the fundamental model into the current Alpha Convergence architecture. Controlled client rotation to the enhanced strategy followed on August 18, 2025, after strong early validation results.

March 2026 Hormuz Structural Event

The Hormuz conflict escalation in March 2026 provided the first live execution of Alpha Convergence crisis protocols during the strategy's validation period:

Structural Event Warning: On March 19, our Storm Center identified conditions consistent with a low-grade structural event in oil and oil-related industries if unresolved that day. Unlike fear events (8-15 day duration, ride through), structural events require defensive action due to their potential for sustained impact (20+ days).

Phase 1 Defensive Reallocation: On March 20, we executed a 10% reallocation from equities to a short-term government bond fund (SCHO), reducing portfolio equity exposure. This was executed specifically to shield against weekend risk as the conflict dynamics were shifting from restrained engagement to active capacity destruction.

P5 Rebalance: On March 23 and consistent with our crisis protocols, we fully rebalanced into a P5 portfolio targeting positions three degrees from private credit/tariff exposure while accepting mild oil exposure as unavoidable.

Post-Reallocation Performance (March 20-31, 8 trading days): AC declined -0.29% versus SPY -1.44% and RSP -0.72%, preserving +1.15% versus SPY and +0.44% versus RSP during a period where VIX ranged from 25.36 to 31.09. The P5 portfolio alone (March 23-31, 7 days) returned +1.98% versus SPY +0.28% and RSP +0.76%.

This sequence is consistent with the crisis framework operating as designed: early identification of structural risk, pre-emptive defensive shift, portfolio reconstruction with deliberate distance from the damage path, and preservation of capital relative to benchmarks during the stress period.

The “Three Degrees from Damage Path” Framework

Our recovery positioning philosophy avoids both the risks of bottom-fishing in damaged securities and the opportunity cost of complete sector avoidance. Instead, we seek adjacent beneficiaries:

AVOID
1ST DEGREE · AVOID
Companies directly damaged by the dislocation. Uncertain recovery timelines and potential permanent impairment.
2ND DEGREE · CAUTION
Direct suppliers and customers. Secondary effects but often recover.
3RD DEGREE · TARGET
Stock declined more from fear than fundamental change.
FEAR > FUNDAMENTAL

This framework provides asymmetric exposure: participation in sector recovery without direct exposure to damaged balance sheets or uncertain restructuring outcomes once our model correlations return to more reliable levels.

Hormuz Application (March 2026): First-degree positions (tanker operators and producers with direct Strait of Hormuz throughput exposure) were excluded from the P5 portfolio. Second-degree positions (refiners and petrochemical companies dependent on crude flows through the Strait) were treated with caution. Third-degree targets (companies with mild energy input sensitivity whose prices declined from broad risk-off sentiment rather than operational disruption) formed the core of the rebalanced portfolio. The P5 portfolio accepted mild oil exposure as structurally unavoidable while maintaining deliberate distance from the primary damage path.

Defensive Repositioning Triggers

Our risk management framework includes quantified triggers for defensive repositioning. These thresholds inform, but do not mechanically determine, allocation decisions:

Storm Center Warnings
PB/AO
Our proprietary system combines market data with historical daily patterns from our Pure Beta/Alpha Opportunity framework (under peer review at the Journal of Portfolio Management since February 4, 2026) to understand where we likely are with respect to market stress.
VIX Threshold
30+ / 40+
VIX sustained above 30 for more than 5 trading days triggers closer monitoring of equity allocation. VIX above 40 triggers immediate defensive assessment because our information advantage decays at accelerated rates when VIX is elevated.
Drawdown Threshold
-10% / -20%
Portfolio drawdown approaching -10% triggers evaluation of defensive reallocation. The -20% maximum drawdown target represents our risk tolerance limit before reallocation.
Correlation Warning
<-0.1 / >0.1
Inter-model correlation falling below -0.1 (currently indicating extreme market stress) or rising above 0.1 (models losing independence) triggers enhanced monitoring and potential position review.
Defensive Allocation
35–60%
When triggered, we may recommend an equity allocation shift from standard positioning (approximately 65%) to enhanced defensive positioning (35-60%), with the balance allocated to appropriate fixed income securities.
IMPORTANT

These triggers inform discretionary decisions rather than mandate automatic actions. Market conditions require human judgment to distinguish temporary volatility from genuine regime change. Our “4-week material change rule” requiring four consecutive weeks of material economic changes in one direction avoids overreaction to transient market noise or fear spikes while capturing genuine regime shifts with an estimated 80% confidence.

Regime Performance Analysis

Stress-Test Periods

Alpha Convergence launched June 27, 2025 after our model was ready for testing and extended to all clients on August 18th. What followed was an unexpected and welcome stress test: 82% of regime-classified days were hostile to the strategy's quality/value orientation. The period encompassed:

Speculative Rally conditions (small cap speculation outperforming quality);

Risk-Off Selloff conditions (broad market decline); and

Momentum-led recovery (sentiment-driven broad rally)

Market Regime Timeline

Markets have cycled through several distinct regimes, each presenting a different challenge for a quality-focused strategy. Regimes are classified using a sigma-band framework applied to the rolling 5-day IWM-RSP spread, providing endogenous thresholds that adapt to observed factor dynamics.

Severe TR · 22d
Momentum TR · 43d
Choppy · 43d
Risk-Off · 45d
9d
Rally · 25d
HOSTILE · 153 DAYS (82%) FAVORABLE · 34 DAYS (18%)

Performance by Factor Regime

RegimeTypeDaysAC ReturnRSP ReturnAlphaWin RateIR (Ann)
Severe Trash RallyHostile22+15.00%+8.40%+6.59%72.7%8.65
Momentum/Trash RallyHostile43+26.75%+21.05%+5.70%53.5%2.72
Choppy/Range-BoundHostile43-6.27%-12.58%+6.31%55.8%4.46
Risk-Off/Quality FlightHostile45-24.37%-21.84%-2.53%57.8%-1.70
Quality RallyFavorable9+3.01%+1.72%+1.29%55.6%4.67
Broad Market RallyFavorable25+17.00%+15.14%+1.86%52.0%1.55
Total Hostile153+13.67%
Total Favorable34+3.40%

Performance by VIX Regime

Alpha was positive across all four VIX regimes, demonstrating that the alpha source is not dependent on any particular volatility environment.

VIX RegimeDaysAC ReturnRSP ReturnAlphaWin RateIR (Ann)
Low Vol (<15)28+11.51%+7.92%+3.59%67.9%4.48
Normal Vol (15-20)119+29.99%+14.74%+15.25%55.5%2.75
Elevated Vol (20-25)30-8.35%-8.49%+0.13%53.3%0.13
High Vol (>25)14-3.10%-5.24%+2.14%57.1%3.64

Preliminary Regime Conclusions

Speculative Rally Resilience: During 65 days when small cap speculation dominated quality factors, Alpha Convergence generated +14.54% cumulative alpha with a 60.0% win rate. A quality-focused strategy generating alpha during hostile factor conditions is consistent with the dual-model architecture identifying securities with sufficient momentum to resist factor headwinds.

Downside Protection: During choppy, range-bound markets spanning 43 days, RSP declined -12.58% while Alpha Convergence declined only -6.27%, producing +6.31% alpha with a 4.46 Information Ratio. This is consistent with the strategy's ability to limit losses during directionless markets.

VIX Regime Consistency: Across VIX regimes, the strategy produced positive alpha in all four categories: Low Vol (+3.59%, 28 days), Normal Vol (+15.25%, 119 days), Elevated Vol (+0.13%, 30 days), and High Vol (+2.14%, 14 days). The uniformity across volatility environments suggests the alpha source is not dependent on any particular VIX regime.

Risk-Off Underperformance: During 45 days of risk-off and quality-flight conditions, Alpha Convergence declined -24.37% versus RSP -21.84%, producing -2.53% negative alpha. This is the one regime where the strategy trailed its benchmark. The result is consistent with what we expect during acute correlation spikes: when broad selling compresses cross-sectional dispersion, the dual-model information advantage narrows. This regime warrants continued monitoring as the most likely source of future underperformance.

Cumulative Alpha: +21.35% alpha vs. RSP across 191 days of varied market conditions. This represents an annualized information ratio of 3.06.

Hostile Regime Alpha
+13.67%
153 days · 82% of period
Risk-Off Alpha
-2.53%
45 days · sole negative regime
High Vol Alpha
+2.14%
14 days · VIX > 25 · IR 3.64
Cumulative Alpha
+21.35%
191 days · all regimes

Regimes Not Yet Fully Tested

Quality Rally
9 DAYS OBSERVED
Where quality factors are naturally rewarded (RSP outperforming IWM). Produced +1.29% alpha but the sample is too small for reliable inference.
VIX > 30 Crisis
LIMITED EXPOSURE
VIX reached 31.09 during the validation period, providing limited exposure to true crisis conditions. VIX 40+ environments (as seen in March 2020 or October 2008) remain untested. The Hormuz structural event provides a meaningful stress test short of a full crisis.
Mega Cap Dominance
NOT TESTED
Extended periods where SPY significantly outperforms RSP (concentration in largest names) would create headwinds for our equal-weight construction. The “Magnificent 7” rally of 2023-2024 was largely complete before inception.

We seek continued stress testing although current evidence suggests resilient characteristics by generating alpha precisely when conditions are most hostile. We also caution against extrapolating this pattern to untested regimes until we have live data.

Implementation

Benchmark
RSP
Equal Weight S&P 500. Mirrors our equal-weight construction; avoids factor tilts unlike QUAL or multi-factor benchmarks; widely-recognized investable alternative. We avoid SPY due to concentration distortions.
Capacity
$1–3B
$5B min cap, $50M min volume; $45M/position at $1B AUM = <1 day’s volume; 5-10 day quarterly execution.
Frictional Costs
Minimal
Zero commissions; costs limited to bid-ask spreads (1-3 bp per side for positions meeting our $5B cap / $50M volume floor), foreign dividend withholding taxes, and custodian-assessed ADR fees on a minority of positions (typically 3-5 of 22).
Turnover
200–400%
Quarterly rebalancing with substantial position replacement. At current AUM, position sizes represent a small fraction of daily volume and market impact is negligible.
Tax
Short-term gains
The quarterly rebalance cadence generates predominantly short-term capital gains. Investors in taxable accounts should evaluate the after-tax impact of the strategy's holding period.

Conclusion

Alpha Convergence is a deliberately transparent, live-data-driven strategy. Its advantage emerges from structurally independent models, controlled volatility, and disciplined rebalancing. The core insight: two analytically independent screens measuring genuinely different phenomena provide more reliable signal when they agree than either screen alone.

Contact

Life UnLocked Partners / LUL Asset Management
Mark Tennenbaum, Chief Investment Officer
[email protected]

Statistical Appendix: Hypothesis Testing

The following tests evaluate whether observed metrics are statistically distinguishable from zero. All tests use 191 trading days (June 27, 2025 through March 31, 2026). n = 191.

MetricHypothesisTestResult
Excess ReturnH₀: α=0t-testp < 0.05
Information RatioH₀: IR=0Lo (2002)p < 0.01
Win RateH₀: rate=50%Binomialp < 0.05
Sharpe RatioH₀: SR=0Lo (2002)p < 0.01

Interpretive Notes

Sharpe and Information Ratio standard errors follow Lo (2002), "The Statistics of Sharpe Ratios," Financial Analysts Journal. The approximation SE = sqrt((1 + ratio^2/2)/n) is standard but assumes iid returns. Daily financial returns violate this assumption through autocorrelation, volatility clustering, and non-normal tails. The reported t-statistics and p-values should be understood as indicative rather than exact.

The Information Ratio of 3.06 is characteristic of early-stage strategies with favorable sequencing. IRs of this magnitude almost always compress toward the 1.0 to 1.5 range over full market cycles as the strategy encounters a broader distribution of market conditions. We expect compression as the track record extends and present the current figure as a point-in-time observation, not a long-run expectation.

The Win Rate 95% confidence interval of [50.0%, 66.2%] includes 50.0% at its lower bound. At the 95% level, we cannot exclude the possibility that the true win rate is indistinguishable from a coin flip. The 191-day sample provides directional evidence of a positive win rate but does not yet meet the threshold for high-confidence inference. The 252-day target will narrow this interval.

All hypothesis tests assume returns are drawn from a stationary process. To the extent that the strategy's signal quality, market conditions, or portfolio composition have changed materially during the observation period, the assumption of stationarity is approximate. Formal tests for structural breaks are deferred until the 252-day threshold is reached.

All four metrics are statistically significant at the 5% level under standard asymptotic assumptions, with Sharpe and Information Ratio significant at 1%. These results are directionally supportive but should be interpreted with appropriate caution given the limited sample size, non-iid return dynamics, and the expected compression of early-stage performance ratios. Full validation requires completion of the 252-day minimum observation period.

Important Disclosures and Disclaimers
CONFIDENTIAL AND INSTITUTIONAL

This appendix accompanies the Alpha Convergence Institutional White Paper and is intended solely for institutional investors, consultants, and qualified counterparties. It may not be reproduced, redistributed, or used for any public or retail purpose. Unauthorized use is strictly prohibited.

NON-RELIANCE

This white paper describes a general equity investment strategy and is for informational and educational purposes only. It is not individualized investment advice and should not be relied upon as a recommendation to buy or sell any security or to adopt any investment approach. The information presented does not consider the financial circumstances, risk tolerance, or objectives of any specific investor.

NOT AN OFFER OR SOLICITATION

The material herein does not constitute an offer to sell or a solicitation of an offer to purchase any security, investment product, or advisory service. Any advisory services are offered only through the adviser’s Form ADV, advisory contract, and required disclosure documents.

LIMITED OPERATING HISTORY

The Alpha Convergence Equity Strategy commenced operations on June 27, 2025 and has a limited operating history of 191 trading days as of the reporting date, representing 75.8% of the 252-trading day minimum considered adequate for preliminary statistical validation. Metrics derived from this period carry wide confidence intervals.

EQUITY STRATEGY RISKS

The strategy discussed involves investments in equity securities, which are subject to significant risks. Equity values may decline due to company-specific events, market volatility, changes in interest rates, geopolitical developments, earnings revisions, and sector or style rotations. Equity securities generally experience greater price volatility than fixed income instruments. Growth, value, small-cap, mid-cap, or thematic exposures may add additional layers of risk.

MARKET AND SECTOR CONCENTRATION

If the strategy emphasizes specific sectors, factors, or themes, performance may be significantly affected by events that impact those areas. Concentrated exposures can increase volatility and may result in higher risk of loss.

INDIVIDUAL SECURITY SELECTION

Security selection within an equity strategy depends on research, valuation assumptions, financial data, and subjective judgment. There is no guarantee that selected securities will perform as expected. Company fundamentals, competitive conditions, and management quality can change rapidly and materially impact performance.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS

Historical performance results, whether actual or hypothetical, do not guarantee future results. Equity markets may experience periods of extreme volatility and loss. Investors may lose all or a substantial portion of their investment.

FORWARD-LOOKING STATEMENTS AND PROJECTIONS

Any forward-looking statements, forecasts, or expectations represent the adviser’s judgment at the time of publication. These statements involve known and unknown risks and uncertainties. Actual results may differ materially from any projections or hypothetical outcomes included in this document.

USE OF MODELS AND QUANTITATIVE TOOLS

The strategy uses quantitative screens, factor models, ensemble techniques, ranking systems, and proprietary analytical tools. These tools rely on historical relationships that may not persist. Data errors, structural changes in markets, changes in factor premia, or methodological limitations may adversely impact model outputs. Models may perform inconsistently across different market cycles, volatility regimes, or liquidity environments.

FUNDAMENTAL RESEARCH LIMITATIONS

To the extent the strategy incorporates fundamental analysis, such analysis relies on public filings, third-party data, management commentary, and economic indicators that may be outdated, inaccurate, or incomplete. The adviser makes no warranty regarding the accuracy or completeness of information obtained from external sources.

MODEL-BASED STRATEGY AND ENSEMBLE RISKS

The ensemble architecture relies on maintaining low inter-model correlation in the -0.05–0.05 range, a characteristic that may not persist in future markets. Correlations typically rise during periods of market stress, diminishing diversification benefits. Ensemble agreement filters may not prevent false positives or false negatives during regime transitions.

CONCENTRATION STRUCTURE AND PORTFOLIO COMPOSITION RISK

The strategy holds exactly 22 equal-weighted securities across all 11 GICS sectors. This approach, while diversified across sectors, may still exhibit meaningful position-level and sector-level risk. Concentrated portfolios may experience higher levels of volatility and larger drawdowns than more diversified strategies.

BETA AND MARKET EXPOSURE

The observed beta of 0.87 reflects behavior during a period that included both moderate and elevated volatility (VIX 13–31). Beta can rise during periods of stress, reducing downside protection. The strategy is not market neutral and will generally participate in broad market movements.

BENCHMARK COMPARISON

Comparisons to equity benchmarks are provided for informational purposes only. Benchmarks may not reflect the risk profile, sector exposures, factor tilts, or investment constraints of the strategy. Benchmarks cannot be invested in directly. Outperformance relative to a benchmark is not guaranteed.

Benchmark data is provided solely for informational comparison. The Invesco S&P 500 Equal Weight ETF (RSP) is unmanaged, cannot be invested in directly, and does not reflect advisory fees, platform fees, transaction costs, or expenses. The strategy’s holdings, risk characteristics, factor exposures, and concentration differ materially from the benchmark. Outperformance relative to a benchmark is not guaranteed.

TRADING, EXECUTION, AND LIQUIDITY RISKS

Execution quality, bid-ask spreads, market impact, and liquidity constraints can materially affect returns in an equity strategy. Securities with lower liquidity may experience wider spreads or may be difficult to sell during adverse market conditions. Trading activity may increase taxable events for taxable accounts.

CUSTODY AND PLATFORM CONSIDERATIONS

Assets are held at an independent qualified custodian. Trading and operational processes are subject to custodian policies, market conditions, and platform limitations. SMA and TAMP operational features, such as rebalancing frequency and drift thresholds, may influence performance outcomes.

FEES AND EXPENSE IMPACT

Advisory fees, platform fees, custodial fees, and transaction costs reduce net returns. Investors should review the adviser’s Form ADV Part 2A and fee schedule for complete details. The strategy’s performance may differ significantly between gross and net of fees.

TAX CONSIDERATIONS

Equity strategies can generate taxable capital gains, dividends, wash sale limitations, and other tax consequences. This document is not intended to provide tax advice. Investors should consult a qualified tax professional regarding their individual situation.

HYPOTHETICAL AND BACK-TESTED RESULTS

If back-tested or hypothetical equity performance is provided, such results are subject to limitations. They are generated with the benefit of hindsight, do not reflect actual trading, may understate the effect of market stress, and cannot account for all economic and market conditions. Hypothetical performance does not reflect actual investor experience.

NO ASSURANCE OF SUITABILITY

The described equity strategy may not be suitable for all investors. Prospective clients should perform their own independent review and consider their objectives, time horizon, liquidity needs, and financial circumstances. The adviser will provide individualized advice only after entering into an advisory agreement and obtaining necessary information from the investor.

DATA SOURCES AND STATISTICAL CALCULATIONS

All performance, risk metrics, statistical tests, and visualizations are based on internal systems or third-party data believed to be reliable. Independent verification has not been performed. Methodologies may differ from other industry-standard calculations. Academic citations are provided for context and do not imply endorsement.

VARIABILITY IN CLIENT ACCOUNTS

Individual account performance may differ substantially from composite or model results due to timing of contributions and withdrawals; tax considerations; restrictions on securities; execution timing and price variance; custodial or platform constraints; account size; tracking error; and differing fee structures.

Actual investor outcomes may be higher or lower than the performance figures shown.

REGULATORY STATUS

The adviser is a California-registered investment advisor. Registration does not imply any level of skill or training. Investors should review the adviser’s Form ADV for important information about business practices, disciplinary history, and conflicts of interest.

SUBJECT TO CHANGE

The equity strategy, methodology, assumptions, security selection process, and portfolio construction techniques are subject to change without notice. Market environments evolve and may require adjustments to the strategy’s implementation.

NO WARRANTY

All information contained herein is provided “as is.” The adviser makes no warranties, express or implied, regarding accuracy, completeness, timeliness, or suitability. All information is subject to change.