Here are the first half 2016 total return and max drawdown numbers for the various quant strategies I track. For explanations of the various quant strategies see the portfolios page. All equity portfolios consist of 25 stocks and were formed at the end of 2015. No changes in the holdings since that time (except for the TAA Bond strategy).
In the table below I list various quant strategies along with their YTD performance and drawdowns. Also, listed are various benchmark indices.
Similar to the results for Q1 2016, overall the first half of 2016 is working quite well for the various quant strategies. The utility strategy is leading the pack with a first half performance. Only the Large stock SHY strategy is underperforming the relevant benchmarks just by a bit. The staples value strategy continues to perform very well in almost every environment. Just like I said last quarter, I have been consistently surprised by this strategy. It’s probably due for a period of underperformance but not yet it seems.
Also, the TAA bond strategy did really well in Q2 2016 bringing first half returns to solid benchmark beating numbers.
More aggressive versions of these strategies are also doing quite well. Ways to get more aggressive with these strategies are to run more concentrated portfolios, re-balance and check the portfolios more often, and in most portfolios the use of trailing stops enhances returns. A good stock and portfolio tool like portfolio123.com lets you do any of these quite easily.
Also, for traders, the quant portfolios are fantastic idea generating lists for potential trades. I use them for this purpose every so often.
In general, a great first half of 2016 for quant strategies and much better than overall stock indexes and also the TAA strategies.
12 Comments
Matt · July 5, 2016 at 1:30 pm
Very impressive! Do you adjust market cap for inflation in your screens and backtests like O’Shaughnessy did? And do you include OTC stocks?
paul.novell@gmail.com · July 5, 2016 at 1:35 pm
I do adjust market cap for inflation but it hasn’t made a real difference in the last 5-10 years. And no, no OTC stocks just like the rules say.
Paul
Tony · July 5, 2016 at 1:56 pm
Hi Paul,
Thanks for the update on these strategies.
What guidelines do you have for trailing stops on these portfolios? I have been using a 20% drop in price on any individual stock as my stop, but I am wondering if you have found this to be too conservative in your backtesting.
Thanks,
Tony
paul.novell@gmail.com · July 9, 2016 at 8:18 am
Hey Tony, I’ve found that the best stop varies by strategy. With more conservative strategies, such as Consumer staples, something around 15% seems to work quite well. With more aggressive or volatile strategies, like the value strategy or trending value, wider stops are a must if not performance suffers. For example, I use 30% for trending value.
Paul
Don Thompson · July 5, 2016 at 2:32 pm
Just implemented Permanent Portfolio in a small IRA and GTAA 13 in a much larger IRA. My full service broker needs to have a document signed because I’m exceeding their recommendations for certain investments. I think he means Gold. I love it. (Yes, eventually moving to TD or Schwab, but for now my wife works at the full service brokerage for the advisor.)
paul.novell@gmail.com · July 9, 2016 at 8:16 am
Good for you Don.
Rich · July 9, 2016 at 8:14 am
Are you presenting this year at the Sun Valley Allen & Co. Conference?
http://www.businessinsider.com/power-couples-at-sun-valley-allen-and-co-conference-2015-7
Will you be discussing Quant. Strategies or Market Timing?
paul.novell@gmail.com · July 9, 2016 at 8:21 am
Hey Rich, that would be a big fat no. I doubt I’m on any of those people’s radars. I’m keeping my eye out for some famous people around town. Wouldn’t mind buying a couple of them a beer. Maybe Elon Musk?
Paul
Matt · July 10, 2016 at 6:54 pm
Paul, curious as to your thoughts on the trend of the trending value strategy over the last 17 years. I ran a rolling backtest in P123: http://i.imgur.com/ltDbW1b.png
Do this concern you at all or am I letting psychology get in the way as O’Shaughnessy warns against?
paul.novell@gmail.com · July 12, 2016 at 8:21 am
Hey Matt, great question. Simple, answer is no, I’m not concerned. It’s been well documented that profits to the momentum factor in particular have been eroding since the late 1990s. See here for example. All factor profits go in and out of favor over time. For example, value in the 90s was atrocious which all changed after the 2000 bear market. Recently, after many years of outstanding performance, Shareholder yield is really starting to underperform. This is why I think it’s critical to have multiple strategies. Something will always be underperforming and outperforming. What you don’t want to do is chase. Just like with simple overall diversification you will always be disappointed with your portfolio in some form or the other.
Paul
Matt · July 12, 2016 at 9:35 am
Thanks Paul. I didn’t realize SHY had been underperforming. Do you have any reading on that?
paul.novell@gmail.com · July 12, 2016 at 10:14 am
Yes. Just like you did with trending value, if you run a rolling backtest of the Large cap SHY strategy I’ve posted on you get a sense of the underperformance. It’s been underperforming since the beginning of 2015 and really started to under perform in April/May 2015. I have a pic but can’t post an image here. Send me an email if you want to see it.
Paul
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