This Strategy Is Hitting A Sharpe Of 3 YTD

Harry Long profile picture
Harry Long
4.16K Followers

Summary

  • Our strategy indices continue to trounce the market.
  • Our Ultra-Low Volatility index is a great example.
  • It combines a high Sharpe ratio with a smooth ride.

The ZOMMA Ultra-Low Volatility Index has just hit another new all-time high on Friday. The index is far less volatile than the SPY, and the results are stunning. The index has absolutely crushed the S&P 500 and has far lower drawdowns.

It's important that investors understand that an index doesn't need to be a collection of 500 large companies. It can be an index of ETPs chosen for their risk/reward, correlation, diversification, or dividend attributes. At ZOMMA, we call this a strategy index. The evidence shows that quantitative systematic strategy indices can dramatically outperform traditional market-cap weighted passive indices.

There is a very interesting dynamic happening in the financial markets. As Bill Ackman has so convincingly shown, stock-picking is getting increasingly difficult. Traditional discretionary macro trading has also been a minefield for institutional investors. Michael Novogratz of Fortress is a great example of the difficulties faced by many macro discretionary firms.

Ironically, however, elegant portfolio-level approaches to harvesting robust quantitative effects have been doing quite well, as my index firm has convincingly proven for years.

Here is the average investor's basic decision: in an uncertain economy, should the investor focus on earnings momentum, or should the investor focus on robust quantitative factors? I would argue that the correct answer, not only theoretically, but also empirically, is that investors should focus on robust quantitative factors.

Second, most investors should focus on harvesting advantageous quantitative effects within a highly diversified, multi-asset class framework. ZOMMA has created such a framework, our Ultra-Low Volatility index.

ZOMMA's macro view is that unique intellectual property, based upon science rather than artistry, will drive investment performance in the future. Evidence-based strategy indices will eclipse hedge funds and traditional active management due to their transparency, liquidity, and low costs.

Our Ultra-Low Volatility indices perform well because of the

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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