Fundamental Value Indicator

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July 2016

Sometimes you just need to know where we stand.

With the Prosperity Fundamental Value Indicator, you will be able to know where we stand on the economy and whether we are buying riskier assets or if we are making portfolios more conservative. We call this concept advance or protect.

The Prosperity Fundamental Value Indicator (PFVI) is made up of three components: Economic data, technical data, and advisor sentiment. Each of these components contributes to the overall score of PFVI, which can range from 0 to 10. A PFVI score below 5 is in protect mode, a score above 5 is advance.

The Economic data is selected data we pulled from the database of economic data at the St. Louis Federal Reserve. We analyzed over 40 data points to come up with the 9 we felt were most relevant and predictive. Those data points include: University of Michigan Consumer Sentiment, ISM Index, Capacity Utilization, S&P 500 P/E ratio, VIX Index, the Treasury yield curve, P/E and Treasury Cap Rate comparison, 4 week rolling average jobless claims, and weekly rail carloads. Each data point is given a score based on its current value relative to its historical range. Then it is given a weighting in the index which gives the total score for economic data.

The technical data is derived from a service we subscribe to called Dorsey Wright. This service provides technical data based on the shape and momentum of the stock price over time. We believe this service is a valuable tool to use when combined with fundamental research.

Finally, the advisor sentiment is added in to make the PFVI complete. Each member of the investment team gives a 0-10 ranking based on how he or she feels the market will perform over the next 12 months.

All of the data is reported through the PFVI newsletter. Each newsletter describes a new development or change in the data, as well as a perspective from one member of the investment team interpreting the recent data.

The PFVI is a valuable gauge available to our clients so you can always have fresh perspective on economic conditions and know where Prosperity stands on the economy.

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