Sunday, August 28, 2016

Portfolio Performance Recap - Aug 26, 2016

Market continued its sideways action, without making any substantial break in either direction. August has been such a slow month that so far, with 3 trading days left in August, the gains have been 0.0% in SP500.

Now that Jackson Hole is out of the way, we should see some serious market action. However, given that we are approaching a holiday weekend, its likely to remain quite for another few days.

Although there are many thing to discuss, ranging from market turn window to synchronized movement across asset classes, and from mixed signals from sentiment indicators to Fed's interest rate decision, let's first review the performance of the proprietary model.

Following chart shows how the portfolio has performed in 2017 since the start of the year.

The portfolio is up 24% while SP500 is up 7.7%. Although the gains are very substantial i.e. +16.3% out-performance to SP500 after dividends, the best features are beyond numeric gains.

These gains were realized at a time when the global markets were in complete turmoil. First few months of the year saw the worst start to a year in the last century. at that time, everyone was concerned about Chinese hard landing, oil crash and Fed's increase in interest rates. But even during such times, persistent allocation of the portfolio resulted in amazing gains with very less volatility.

This portfolio has a current weighted Beta of 0.35, which means that its almost uncorrelated to the market. And therefore, these uncorrelated returns have a substantial component of Alpha.

Interesting Observations:
  1. Back test data suggests that the maximum draw-down has been ~10%. So far the portfolio has declined around ~5% since the top. Therefore, downside is limited, until unless market dynamics totally change
  2. portfolio has in-built risk-mitigation strategies. And therefore, its likely that the portfolio will readjust itself before the next significant move, so that it can benefit from market movement
  3. SP500 has been flat YTD (0.0%), while portfolio has declined -2.4%. This shows that portfolio is risking much less to keep close to SP500 and will make-up the difference, as soon as the true direction of the market is revealed.
  4. Aggressive portfolio is up ~44% in 2017. Although it has declined in August, it is now setting-up for a big break to the upside.
  1. Long-term gains require persistent strategy without portfolio moves
  2. Short-term strategic positioning can help in improving Alpha and returns for investors
  3. Market and financial media are best at confusing the majority of investors. For example, even when internals/fundamentals are strong, we will continue to see a lot of negativity from the market's so-called pundits
  4. Worst decision one can make with his/her investment is to follow the pundits on a daily basis and make a decision based on their advise, which is based on day's/week's market action
  5. One should always follow a proven thesis and rule of large numbers / probability will improve returns over time

A proprietary algorithm that classifies market conditions i.e. Bull market or Bear market. Currently, this model is suggesting a longer-term up-trend for the US Stock Market. For Subscription click below:


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