This model trades in highly liquid large-cap stocks selected from those considered to be minimum volatility stocks of the S&P 500 Index. It produced a simulated survivorship bias free average annual return of about 36% from Jan-2000 to end of Dec-2014.
Minimum volatility stocks should provide exposure to the stock market with potentially less risk, seeking to benefit from what is known as the low-volatility anomaly. Consequently, they should show reduced losses during declining markets, but should also show lower gains during rising markets. However, our backtests show that better returns than the broader market can be obtained under all market conditions by selecting 8 of the highest ranked stocks of a universe made up from minimum volatility stocks of the S&P 500.
Demonstrating the effect of hedging by using various percentages of the long portfolio value. The simulation is for the period Jan-2-2000 to April-1-2014.
Using our three ETF models, Best(SPY-SH), Best1(Select SPDR) and Best(SSO-TLT) equal weighted in a combination model, we demonstrate that the combo would have produced high annualized returns of 34.3% with a low drawdown of -12.9% and low volatility. Additionally, due to the very high liquidity of its component ETFs, the combo could support a huge portfolio size.
This model switches between SSO (ProShares Ultra two times daily S&P500 ETF) and TLT (iShares 20 Plus Year Treasury Bond ETF) depending on market direction. Using a web-based trading simulation platform and only market timing buy and sell rules in the algorithm, then this model would have produced an average annual return of about 38% from January 2000 to end of December 2013.
This model invests in highly liquid large-cap stocks selected from those making up the Russell 1000 Index which represents the large-cap segment of the U.S. equity universe. When adverse stock market conditions exist the model reduces the size of the stock holdings by 50% and buys the -1x leveraged ProShares Short S&P500 ETF (SH). It produced a simulated survivorship bias free average annual return of about 53% from Jan-2000 to end of Nov-2013.
The iM-Best1(Sector SPDR) model periodically selects only one of the nine Select Sector SPDR® ETFs that divide the S&P500 into 9 sectors. During adverse market conditions it switches to SH, or partly to cash. This model would have produced an average annualized return of about 31.4% from January 2000 to end of September 2013.
Using the investment periods determined for the US market with the iM-Best(SPY-SH) Market Timing System, we calculated performance figures for 9 major country indices. The system, if followed, would have improved returns from all markets. From January 2000 to August 2013 with market timing, the best performing index in local currency was IBOVESPA – Brazil, and in US-dollars the DAX – Germany, closely followed by Brazil.
The Best8+ algorithm has been improved to achieve a CAGR of 60.27% to outperforming the the S&P 500 with dividends (SPY) 522 times, that is for an investment over a period from January 2, 1999 to May 31, 2013.
Tagged with: Best8+
Posted in blogs
Trading stock selected from the pool S&P1500 using the revised survivorship bias free Best10 portfolio management system would have generated returns of 49.2% for the period January 1999 to May 2013 and without draw-down protection 45.5%; both a multiple of the 3.8% that the SPY (the ETF tracking the S&P 500) produced over the same period.