ALTS's Index: 5Step Process
The Morningstar Diversified Alternatives Index follows a fivestep process to build and dynamically adjust the allocation to address market conditions.
Step 1: Risk and Return Assumptions Estimate the expected risk and return of each type of alternative and their correlations to stocks, bonds and one another. This is done using a combination of historical data and current market information. 

Step 2: Strategic Asset Allocation Weights Determine the optimal weight for each alternative in the index, considering how the final portfolio of alternatives would perform within a larger portfolio consisting of stocks and bonds. The maximum allocation to any particular ETF is 30%. 

Step 3: Dynamic Asset Allocation—Momentum Overlay Apply overweights or underweights to each alternative based on momentum signals—market events and investor reactions—observed over the prior 12 months. Use a rigorous riskmanagement process to ensure the final index weights don't stray too far from the strategic weights. 

Step 4: Portfolio Construction Build a portfolio using seven ProShares ETFs representing the types of alternatives selected, applying the strategic weights and momentum overlays determined in steps 2 and 3. 

Step 5: Monitor Review and adjust the strategic weights annually based on updated risk and return assumptions and rebalance the portfolio monthly based on momentum signals. 