We both listened to The Systematic Investor podcast last week hosted by Niels Kasstrup-Larsen in Switzerland and hit the reverse-replay button a few times to make sure we understood what was said. He shared some recently completed analysis comparing the long-term returns of the S&P 500 from November 1984 through August 2020 versus his performance using a mechanical trend-following system over a wide-range of markets which provides returns uncorrelated to the S&P 500.
A $1,000 investment in the buy-and-hold S&P 500 strategy would have grown to $48,000 during this 36-year period while using a mechanical trending system (he was likely referencing either his own track record or that of Dunn Capital), it would have grown to $68,000.
However, the hard-to-believe part was that he went on to say that if you had allocated the capital 50% to the S&P 500 buy-and-hold strategy and 50% to the mechanical trending system and rebalanced monthly, the amount grew to $102,000 – so the mixed allocation strategy improved results by 30-50% for both strategies. If proven in our applications, this seems like a simple way to significantly improve returns.
While neither of us have used a buy-and-hold or fundamental stock-picking strategy for our investment allocations, we will have to pause and consider adding that dimension to our work as part of an investment portfolio. We also acknowledge that as accounts become significantly larger, the more frequent trading we currently use has limitations due to slippage, impacts from the current bid/ask price spread, etc. So, a strategy with a longer-term horizon and lower trading frequency may also makes sense.
Forte Strategy Update
We executed 8 trades last week for a net loss of 1.7% compared to a gain of 3.8% by the S&P 500. Our YTD net results equal a 4.1% gain compared to a 7.6% YTD gain for the S&P 500. Our YTD max drawdown is 9.5% versus 33.9% for the general market. The account correlation to the SP500 remains low at 0.154. More details about our trading activity can be found by registering on the Collective2 website and searching for Forte Strategy. A running list of these email blogs and general information about Maestro Capital Research can be found at maestrocapitalresearch.com.