Annual Results of ETF Model From 2006-2011 Summary

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.

Summary Of Results for Intermediate Model Oct 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.

September Results 2011

I have been working on some adjustments of the model where we improve returns considerably with a bit more volatility. The adjustments are due to changing the weighting schemes applied to each ETF strategy to be less dynamic ie the weights are not adjusted daily the idea here is to avoid sharp migrations in the weights on a daily basis. This well also reduce transaction costs. Enclosed find the summary results note that the annual Sharpe Ratio on average is 2.87 which is favorable for a strategy using daily prices.

Summary Of Results for Intermediate Model Aug 2011

Enclosed find the summary performance through the end of Aug 2011. Overall the strategy has performed well since inception in 2005 with a max drawdown of approx 1.7% from high to low. The reason for this is because the strategy carefully weights each particular ETF (proprietary weighting scheme) and may be half in cash at any given time. The average rolling 12 mth sharpe ratio exceeds 3.5. I can provide mthly results but in this table I am producing annual to date.

New Long Positions Established

On August 18th my models went long at the close on the following assets
ETFs EWZ, QQQ, OIH, SPY, EWJ, XLF. As of Aug 22 the system is down just over 6% which compares favorable with both the SP500 and the QQQs which are down 12.84% and 13.4% respectively. The massive EEM ETF faired even worse down over 15.8%. The last time this particular model saw such a down-turn was in 2008 where the downturn was even more pronounced. Remember that the idea was to create a model that has robust returns but avoids some of the major downturns. Now the volatility can be controlled by adjusting the amount of money an investor allocates in the model and the amount allocated to cash. Now that everything is more automated I will be updateing my positions more frequently.

Legal Disclaimer: Note that I am not a registered investment advisor so anyone using my trading signals does so at their own risk. This is not an offer to buy or sell securities

Summary Of Results through Aug 12 for intermediate model

The average annual return since inception in July 2005 is 18% with an average sharpe ratio of 1.87; The average winning month is 3% and the average losing month is 1.5%; Winning months outperform losers 2:1. For 2010 we were up through the end of July but are now flat due to an almost 5% drop in August. This also reduced our rolling sharpe ratio due to the sharpe increase in volatility in early august. However over all this model has been fairly robust since inception and held up well in 2008 relative to market indexes. It has performed well in August on relative terms given the extremely high level of volatility and the problems spreading through the euro-zone as well as the political stale-mate in washington. The table below indicates the summary results

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Current Trading Signals

Below is a list of my current signals for each ETF that I currently follow and the date on which they were received.  Note that I get my signals on the close of a particular day and I follow highly liquid ETFs this makes for a scalable strategy.   The next phase of development is to come up with a tactical asset allocation model based on the ETFs I am tracking, Im not there yet but im giving a lot of thought as to the best way to implement it.  

XLF   Long on 06/01/2011   @ 15.31
EWJ   Long on 06/15/2011   @ 10
EWZ  Long on 06/06/2011   @ 73.01
FXI    Long on 06/01/2011   @ 44.48
SLV   Long on 06/01/2011   @ 35.75
SPY   Long on  06/15/2011  @ 126.39

QQQ, OIH, EEM, GLD are giving no signal at the moment.   I realize that there are a wide range of ETFs that are also fairly liquid but I have focussed my attention on some of the largest ones.   Also I cover a fairly broad spectrum of the markets for example Brazil, the emerging markets block, China, SP500, Nasdaq, Silver, Gold and Japan.   I hope to add a few bond and currency ETFs just to see how my models performs there.    Note these are signals determined based on my Intermediate Mean Reversion Methods. 

Note I should qualify that I am not a registered investment advisor and I am not making any recommendations to buy or sell securities.