** Instead of sending a monthly email to QuantPulse Members I’ve decided to try the monthly post method. There is nothing really secret here that I’m giving away here so this post is open to all. The specifics of each quant portfolio, where the real value is, is for members only.
All of the QuantPulse portfolios and books have been updates as of today, October 28, 2018. Also, all the performance figures have been updated. The QuantPulse homepage remains open to the public. To read about the service see this introduction. Now, on to the update. That was quite a month and quite a reversal from finishing at an all time high at the end of September. Here is where the portfolios ended up for the month.
For the 4 week period, the quant portfolios were down -10% for the 10 stock portfolios and -8% for the 25 stock portfolios. Year to date the portfolios are still ahead of the SPY which is a pretty nice result. There is nothing surprising in portfolio results. The aggressive portfolios, like Pure Momo took a beating, while the conservative portfolios, like Staples and Utilities, held up better than the market. As a reminder, you can see in this post where the portfolios finished up at the end of Q3 2018. It’s been a big change in a short period of time. As for the portfolio updates, you’ll notice quite a bit of portfolio turnover in a few of the portfolios. Noting surprising there as many holdings hit their stop loss points.
As for the market, the damage has been swift and deeper than the averages suggest. Here is a sampling of some of the ETF performance that shows the extent of the damage. While the SPY is down about 9% over this period, momentum and smaller cap stocks have done even worse. Currently, the average SP500 stock is down 20% from it’s most recent high and only 30% of the stocks are above the 200 day SMA. If the SPY close the month out at current levels or lower it will be the worst month, outside of recessionary periods, since August 1998.
That begs the question, what about the risk-management portion of the Quant strategies? As a reminder, we use the SPY-COMP indicator, from the Econ Pulse Newsletter, as our basic risk-on risk-off trigger for all of the portfolios. When that indicator triggers to risk-off, the quant portfolios will also trigger to risk-off. For the quant strategies, the safety stop trigger in SPY-COMP, is optional for the quant portfolios. In the past it has reduced returns while reducing drawdowns slightly. So, it depends on your existing portfolio allocations and your personal risk tolerance. I’ll keep track of both options for members.
That’s about it for this update. While this month’s drawdown was unusual in it’s swiftness, it is not without historical precedent. The quant portfolios, which are diversified across the market and factors, have performed as one would expect. This is also reminder of what makes these strategies so difficult for many investors. It is one thing to see historical drawdown stats in a spreadsheet or blog post, it is quite another to live through them. But if you can, and put strategies and tactics in place to help you ride out the whipsaws, in the long term the results are worth it.
Drop me an email if you have any questions.