2017 Performance Review

2017 was a very unique year with respect to market performance. SP500 was up for every month of the year, a very unusual occurrence. When one combines this amazing performance with extremely low volatility, it gave us a Sharpe Ratio of more than 3.5. To be honest, if one can get a Sharpe Ratio of 3.5 from an asset class like SP500, one should never invest anywhere else. 

However, the problem is that the historical Sharpe Ratio of the US stock market from 1928 to 2016 is 0.4. This means that last year's performance was an anomaly and will likely not be repeated in the near future. Therefore, one needs to prepare for more volatile, low performance markets over the next few years. 

In 2017 SP500 returned 21.8% with dividends, even with many uncertainties like geo-politics, environmental upheavals, and rising interest rates. SP500 defied gravity as if there was no resistance, bemusing many market watchers who continuously expected a pause. In sort, 2017 was a difficult period for many logical investors as they continued to absorb a lot of headline risk. 

During this interesting year, both of our proprietary strategies performed very well. Since the very beginning, our goal is not just to beat SP500 but to generate value for investors in following 4 ways:

1. Consistent / Absolute returns comparable to major stock market indices
2. Uncorrelated performance - Deliver Alpha under different market condition
3. Differentiate by deploying techniques not used by mainstream investment gurus
4. Provide a unique market perspective

Performance Summary (excludes fees)

Market Recap

2017 started with an overbought market, which continued to rally into March followed by a 1.5 month sideways movement. At the time, many reasons were given for this decline including overbought market, high valuations, sentiment, potential for unfulfilled presidential promises and geo-political turmoil. However, market resumed its rally with Q2 earnings in April. 

Market rally continued in May through early June. At the same time, we saw excessive optimism from famous investors calling tech stocks extremely cheap. As Fed raised rates in June market took a brief breather. This pause was accompanied by calls of '3 hops and a tumble' on Fed rates' influence on the markets. But with earning in July, market resumed it's ascent. 

Q3 was unique as it introduced a lot of geo-political uncertainty ranging from North Korean missile tests to failed attempts to pass Health Care bill. While markets rallied during the early part of the earnings season, they went sideways for most of August and September. The real fireworks came in October, when things started looking optimistic for the tax reform bill and North Korean tensions waned. However, the show was stolen by Bitcoin's stratospheric rally, and media coverage of the crypto-currencies.

   

With this backdrop of events, everyone should ask themselves if their portfolio is positioned to absorb increased volatility because it will eventually come. And not only absorb volatility but to take advantage from it. 

In order to properly and profitably navigate through markets where extreme gyrations and news driven moves are the norm, one needs to maintain composure. Our strategies don't depend on market news, rather take into account underlying market tones to make investment decisions. This reduces transaction cost, dampens volatility, moves taxes to long-term bucket and generate consistent results for long-term benefits.

Portfolio Strategies

We currently have two live strategies, and are working on 3 more strategies in Beta phase. Goal for both of these strategies is to generate absolute, uncorrelated returns: 

• Conservative (EPSB): Suitable for retirement accounts and risk-averse investors

• Aggressive (AEPSB): Suitable for risk taking investors, with longer-term invest goals

Although past performance doesn't guarantee future results, 2017 performance was very good for both strategies. June was the first negative month after 6 positive months and September was the second negative month, providing a much needed correction to avoid over-heating. These two months were the only negative months of the year, and have set us up for a sharp rally into the new year. 

Note: Following strategy performance numbers do not include fees.

Conservative Strategy: 17.3% vs 21.8% for SP500 (w/ dividends)

In 2017 conservative strategy performance similar to SP500 in % terms but had a negligible correlation with SP500 monthly returns. This low correlation is also evident from performance since inception data. R-sq correlation coefficient is 0.07 with respect to SP500. 

Aggressive Strategy: 44.0% vs 21.8% for SP500 (with dividends)

Aggressive strategy significantly outperformed SP500 in 2017. And the R-sq correlation coefficient is 0.03. In other words, our performance was independent of SP500's performance. 

Conclusion

The best aspect of these strategies is that they enable the investor to concentrate on the work that is more important in life than losing sleep over investments through daily news because we do the research and invest using proprietary algorithms.

These strategies are open for investment. Please feel free to contact via subscription.ust@gmail.com for details. These strategies are being implemented via managed account setup through a Registered Investment Adviser. As a result, you keep control over your assets. 

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