Monday, July 4, 2016

Performance Evaluation - July 1 , 2016

As we approach the mid-year mark, its a good time to reflect on the performance of our proprietary model based portfolio and the markets.

Last six months were one of the most eventful months that I remember in the markets. The year started with a bang, with the world markets anxious about free fall in oil prices and the associated bond market issues. Some were equating market behavior to Lehman brothers. But then the market came roaring back and many market participants were caught off-guard.

All of this happened at a time when a unique U.S. presidential race was going-on in full-steam. As the race for nomination winded down with some clarity, markets started getting anxious about potential Fed rate hike. Such eventful 5 months cam to a climax with the surprise Brexit vote. A vote which resulted in a precipitous market decline for 2 days, followed by sharp reversal last week.

After all was said and done, the SP500 (including dividends) gained 4%. Although this is an impressive performance under uncertain circumstances, it required investors to endure a lot of massive market gyrations. Investors also had to believe in the ability of the market to rally, in front of daunting economic and geo-political odds.

On the other hand, our proprietary model was up ~23% in the past 6 months. These returns were amassed through strategic positioning, pro-active risk management and statistical analysis based portfolio allocation.

Portfolio allocation might change over the next few weeks, as new market data comes out. But overall, the model portfolio has handsomely beaten the market in 2016. A aggressive version of this portfolio, utilizing leverage and exotic asset classes, is up ~50%. We will share results of the leverage portfolio after more data points are gathered.

The portfolio utilizes an algorithm that fuses together multiple market analysis strategies to define optimum portfolio allocation by assets. One of the key proprietary model is "Market Classification Algorithm." We will share the importance of Market Classification Algorithm in the next blog post. 

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