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Fred Piard
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Author of Quantitative Investing (4.7 stars on Amazon), independent quant analyst and investor. Portfolio architect focused on market-neutral and low volatility strategies (ypafi.com). Designer of the Global Household Index and systemic market timing scores (click Learn More below). PhD in... More
My company:
YPAFI.COM
My book:
2 Books With Alpha Inside
View Fred Piard's Instablogs on:
  • Global Household Index: +7.7% Since Launch

    Global Household Index is a 20-stock defensive portfolio investing in recurring consumption sectors using a value-based quantitative model.

    Follow it now.

    The service includes an introduction to the strategy, a user manual, a weekly update of holdings and market risk indicator with a short market outlook, occasional research drafts on portfolio management, answers to your questions.

    Global Household Index from 4/1/2015 to 8/1/2015, in red. Benchmark SPY in blue.

    (click to enlarge)

    You can subscribe here now.

    Aug 01 8:50 AM | Link | Comment!
  • Backtests Of GHI Year By Year

    Someone asked me if I had the year-by-year performance of GHI. I have made a summary in the next table. The appendix gives more details. This is without hedge.

    Year

    GHI return

    SPY return

    Excess return

    1999

    -7.34%

    14.81%

    -22.15%

    2000

    65.32%

    -6.20%

    71.52%

    2001

    17.08%

    -9.16%

    26.24%

    2002

    -5.58%

    -19.92%

    14.34%

    2003

    47.40%

    24.13%

    23.27%

    2004

    24.89%

    8.79%

    16.10%

    2005

    14.17%

    7.68%

    6.49%

    2006

    18.90%

    13.88%

    5.02%

    2007

    0.31%

    4.41%

    -4.10%

    2008

    -3.84%

    -34.31%

    30.47%

    2009

    48.66%

    24.74%

    23.92%

    2010

    9.27%

    14.24%

    -4.97%

    2011

    20.68%

    2.62%

    18.06%

    2012

    23.85%

    17.10%

    6.75%

    2013

    41.40%

    27.77%

    13.63%

    2014

    38.04%

    14.50%

    23.54%

    2015 to 7/28

    14.74%

    1.60%

    13.14%

    Average

    21.64%

    6.28%

    15.37%

    Median

    18.90%

    8.79%

    14.34%

    Some data not shown in the table are important: the deepest drawdown is 34.65%, the longest drawdown is 61 weeks (it is 320 weeks for SPY on the same period). Performances are better with a hedge based on MTS10 and depend on the chosen tactics.

    In summary, annual returns and excess returns look great, but frustrating periods can be on the road. We can overcome them with a long term vision based on the 2 pillars of the strategy:

    • The best companies in recurring consumption will grow because the global middle class will grow.
    • Appropriate ranking factors give a statistical edge to surf the waves of institutional buying.

    Appendix: detailed data and charts

    The equity curve of GHI is in red, SPY is in blue.

    1999

    (click to enlarge)

    2000

    (click to enlarge)

    2001

    (click to enlarge)

    2002

    (click to enlarge)

    2003

    (click to enlarge)

    2004

    (click to enlarge)

    2005

    (click to enlarge)

    2006

    (click to enlarge)

    2007

    (click to enlarge)

    2008

    (click to enlarge)

    2009

    (click to enlarge)

    2010

    (click to enlarge)

    2011

    (click to enlarge)

    2012

    (click to enlarge)

    2013 (out-of-sample after model design)

    (click to enlarge)

    2014

    (click to enlarge)

    2015 to 7/27/2015

    (click to enlarge)

    Jul 28 5:33 PM | Link | Comment!
  • Beating SPY And HFRX Hedge Fund Indices With Zero Market Exposure.

    This is a personal blog post, not a regular SeekingAlpha article submitted to editorial review. This is a follow-up of my portfolio for informational purposes, not investment advice. I am not a Registered Investment Advisor. Past performance is not a guarantee for the future.

    I have designed Ypafi Market Neutral as an all-weather portfolio to stay 100% invested with a zero-sum market exposure. Here are the results for the 6-month period from 12/28/2014 to 6/28/2015. Comments are after the table.

     

    positions

    12/28/2014 to 6/28/2015

    MARKET NEUTRAL PORTFOLIO

      

    Portfolio without hedge

    24 stocks

    7.8%

    100% hedged on margin (short SPY)

    24st+1ETF

    6.1%

    100% hedged without margin (25%long SPXU)

    24st+1ETF

    4.2%

    Components

      

    Consumer Staples Component (Defensive1)

    5 stocks

    5.8%

    Sector Benchmark XLP

     

    -0.5%

    Healthcare Component (Defensive2)

    5 stocks

    31.8%

    Sector Benchmark XLV

     

    10.5%

    Tech Component (Cyclical1)

    5 stocks

    -0.1%

    Sector Benchmark XLK

     

    1.1%

    Industrial Component (Cyclical 2)

    5 stocks

    -4.1%

    Sector Benchmark XLI

     

    -2.8%

    SP500-Growth&Value (all sectors)

    4 stocks

    -3.8%

    Benchmarks

      

    S&P 500 index with dividends (NYSEARCA:SPY)

     

    1.6%

    HFRX Market Neutral Hedge Fund Index (on 6/25)

     

    0.8%

    The first half of the year was an encouraging start for my Market Neutral Portfolio in its hedged and non-hedged versions. Healthcare stocks are responsible for most of the gains, but other sectors may help in subsequent market cycle phases.

    About stops

    Stops are very important for day-traders, my risk management is more focused on position sizing and diversification. I don't provide stop-loss instructions, and apart from very exceptional cases, I don't use stops myself. Backtests on my website (link below) have been run without stops. Backtesting a stop-loss is tricky: the number of events may not be large enough to draw a conclusion with a good confidence interval. My simulations show that stops closer than -20% usually cut the long-term return without necessarily lowering the risk (measured in drawdown and standard deviation). Stops at -20% don't seem to have a negative effect, but I have no proof of a positive effect. In a correction like August/September 2011, stops at -20% may eliminate the best stocks before a rally and let the portfolio recover with lower rank stocks. The worst case with stops is a flash-crash kicking out all positions, followed by a quick reversal with the portfolio in cash. A similar scenario may happen on individual stocks because of HFT or corporate events. Of course, subscribers can use stop tactics they are comfortable with: 20%, technical supports, or any other one.

    Ongoing research and planned improvements

    I have recently introduced the MTS10 timing indicator as a new feature for risk management and dynamic hedge sizing.

    Market Neutral Portfolio is the strategy I am focused on, because it is my own core portfolio. I think its structure can be improved. I have started to test double momentum filters to go in cash for a sub-model when the outlook is bad in a sector. It looks interesting. Ideally, I would like to make the sector selection more adaptive.

    An all-weather portfolio to stay 100% invested with a zero-sum market exposure: http://ypafi.com/YFI_en/market.html

    (in my main account I use it with a 75% hedge since December, so with a 25% exposure).

    Jul 01 4:04 PM | Link | 5 Comments
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