Monday, April 23, 2012
The Active ETF OIL model has it data start in July 2002. $1 invested in the active model would now be worth $5.4 vs $2.6 for a long only position representing a significant improvement as a result from an active approach. It out performs the long only approach in six out of ten years often significantly so. Also in years when there were enormous drawdowns in a long only position for example 2008 the model was down 18% vs a down 60.15% for the underlyer. Similarly in 2011 the underlyer is down over 18% and the model is down 11%. The model volatility is half that of the underlying ETF. The OIL Model is currently long and has been so since March 27.
The large scale EEM model is currently neutral. The previous long signal ended on 4/17 close of business. Net net the model has underperformed the long only EEM strategy for 2012. However this model has significantly outperformed the underlier since inception. Since the inception of the model the value of $1 invested in it would be $7.28 on april 20 2012. The value of $1 invested in a long position in the underlyer would be $2.47. As you can see this is significant out performance. There are times of course when the model lags the underlyer. However while it is tempting to assume that because of demand from china that EEM soared throughout this period there were some huge bumps in the road. For example in 2008 when the underlyer was down a whopping 49% due to fall off of global demand for commodities and materials the model soared by following the trend when long and exiting prior to the most major drops.
Friday, March 23, 2012
Japan has been in the doldrums for two decades. If you invested $1MM in the EWJ ETF in July 2002 it would be up to $1.34MM today. On the other hand our timeing model would be worth $3.598MM. The worst year for the model occurred in 2006 down 7.81% when the underlying ETF was up 5%. However in 2008 when EWJ was down 26.95% the model was up 35.17%. The model has 71% winning trades and is considerably less volatile. Overall the Japan Model outperforms the underlier overwhelmingly in the last ten year period. Enclosed find the results. For 2011 the underlier was down 16.5% but the model was up 4.09%. This year the underlier is out paceing the model. This model uses almost ten years of end of day data and so appears fairly robust.
Wednesday, March 21, 2012
Note the goal here is to have a timing model that is not necessarily correlated with the underlying ETF. EEM is the second largest ETF block by size with net assets at just under 41 Billion dollars. As can be seen 2011 was a tough year for the underlyer while our model broke even but in relative terms outperformed. This year has seen some role reversal while we are up 4% the underlyer is up 15.76%. However overall since inception our strategy has significantly outperformed the underlyer and avoided the massive drop that occurred in 2008. Notably in 2008 our model was up almost 30% while the undelyer itself was down 48%. Overall the model returns are much less volatile than the underlying maket and the winning trade ratio is 71%. This is a highly scalable model which is important when allocating capital. Tommorrow we will look at Brazil
Wednesday, January 25, 2012
As can be seen by the table the dynamic ETF model put in a respectable performance on a risk adjusted basis. While it did not perform as well as in 2010 it did well with respect to any reasonable bench marks in a year when most hedge funds lost money or under-performed. Overall the sharpe ratio for the strategy which uses end of day prices as input still has a good annual rolling sharpe ratio of 2.74. For 2011 the sharpe dropped to 1.69 however the Sharpes rolling can move around and we have seen this in other rocky years. Note that one thing that affects the rolling sharpes is whethet there are is more down months in a given year. In 2011 there were three down months and quite a bit of variation in the monthly returns which led to an increase in volatility. However several factors have came into play the main one of course will Europe be as bad as the Lehman crisis will a meltdown in greece lead to the same in the rest of the PIGs and what in turn will be the impact on the global financial system and what exposure to Europe do our own banks have. Will there be another Lehman style collapse in Europe? There are so many uncertainties that one might consider taking up farming. While the US seems to be bouncing back and certainly that is evident in the declines in inventory is distressed real estate markets such as Miami which has benefited from an influx of rich latins. Note that the Real has soared vs the dollar in recent years so that for a Brazil based investor that million dollar condo in South Beach is much more alluring. Overall the strategy has performed well over the last six years and lets see what 2012 brings.
Monday, November 7, 2011
The above presents the summary results for the Intermediate trading model through Oct 2011. The second table shows monthly returns since inception of strategy and the graph compares the monthly returns of the strategy vs the monthly return of the SP500 for comparison. Note that the strategy is much less volatile than SP500 and less subject to tail risk and black swan events. The strategy is highly scalable and can take over 1billion in capital so is ideally suited for a money management firm or hedge fund that has the capacity to scale.