iM-BestogaX-5 Investor

• The BestogaX universe of the Russell1000 consists of the so called “Vice” stocks (excluding Gaming stocks), plus the stocks from the GICS-sub-industries: Restaurants, Soft Drinks, and Internet Retail.
• A discussion on the merits of investing in the stocks of the BestogaX universe is available here.
• The iM-BestogaX5-Investor model periodically selects only five of the highest ranked stocks from the Russell1000 BestogaX universe, and holds them for at least one year
• There is no market timing in the buy- and sell rules. The model is rebalanced weekly, resulting in small weight adjustments, and dividends are re-invested when available.
• Backtesting was done on the web-based trading simulation platform Portfolio 123.
  

Historic performance of the iM-BestogaX-5 Investor – not hedged

In the Figure-1 below, the red graph represents the performance of the model and the blue graph shows the performance of the benchmark SPY.

• This model without hedging shows a simulated annualized return of 28.1% from January 2000 to March 2016, and maximum drawdowns would have been -31% during 2002, and -22% in 2008.
• Over the 16-year backtest period there were only 47 trades, 40 of them winners. The average annual turnover was only 62%, with an average holding period of 673 days, which would qualify most returns as long-term capital gains. 

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Return and risk figures for this un-hedged model are shown in the table below.

Historic performance of the iM-BestogaX-5 Investor – always hedged

This version of the model is always hedged short SSO, with a hedge ratio of 30% of current long holdings. In the Figure-2 below, the red graph represents the performance of the model and the blue graph shows the performance of the benchmark SPY. Return is not as high as for the un-hedged version, but maximum drawdown is better.

• This model with permanent hedging shows a simulated annualized return of 22.6% from January 2000 to March 2016, and maximum drawdown would have been -18% in 2002.
• Over the 16-year backtest period there were only 86 trades, 59 of them winners. The average annual turnover was only 77%, which would qualify most returns as long-term capital gains. 

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Return and risk figures for this permanently hedged model are shown in the table below.

Historic performance of the iM-BestogaX-5 Investor – partially hedged

This version of the model is during adverse market conditions hedged short SSO, with a hedge ratio of 40% of current long holdings. The hedge entry- and exit rules come from our Standard Market Timer, and additionally for the hedge exit the 50-day moving average of the S&P500 index must be greater than the 500-day moving average.

In the Figure-3 below, the red graph represents the performance of the model and the blue graph shows the performance of the benchmark SPY. The shaded portions represent periods when the model is hedged.

Return is similar as for the un-hedged version, and maximum drawdown is similar to that of the permanently hedged version.

• This model with partial hedging shows a simulated annualized return of 29.06% from January 2000 to March 2016, and maximum drawdown would have been -17% in 2003.
• Over the 16-year backtest period there were only 81 trades, 70 of them winners. The average annual turnover was only 83%, which would qualify most returns as long-term capital gains.

(click to enlarge)

Return and risk figures for this partially hedged model are shown in the table below.

Disclaimer

All results are presented for informational and educational purposes only and shall not be construed as advice to invest in any assets. Backtesting results should be interpreted in light of differences between simulated performance and actual trading, and an understanding that past performance is no guarantee of future results. All investors should make investment choices based upon their own analysis of the asset, its expected returns and risks, or consult a financial adviser. The designer of this model is not a registered investment adviser.