The market action of the past two months reminds us of August 2019 when our Collective2 Forte Strategy suffered its worst month of returns along with the biggest drawdown. When the month ended, we recorded a 10.8% loss with a 21.0% drawdown while the market only dropped a net of 1.7%. The sell-off wasn’t that bad by historical comparisons, but the trade war news headlines and spurious presidential tweets created wild gyrations in the market which are known to cause trend-following trading systems to lose money.
Reeling from the poor results, we paused trading activity and overhauled our model mechanics. Several layers of volatility-based parameters were added and the settings were optimized over a 10-year lookback period. Extensive portfolio analysis was performed to reduce the S&P 500 correlations and properly size the positions to help mitigate the chance for a drawdown greater than 15%. We also limited the basket of securities to only include the major, high volume markets and the VIX index leveraged ETFs.
The new 3rd Generation models were implemented in early October 2019. The results so far are encouraging with a gain of 18.3% and drawdown of 9.5% compared to the S&P 500 gain of 9.8% and drawdown of 33.9% during the same 13-month period. We also went through a series of smaller-scale innovations over the past few months and continue to perform R&D work on an ongoing basis to further improve the results.
Forte Strategy Update
We executed 7 trades last week for a net gain of 4.5% compared to a loss of 5.6% by the S&P 500. Our YTD net results equal a 6.9% gain compared to a 1.2% YTD gain for the S&P 500. The account correlation to the general market dropped slightly and remains low at 0.144.
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.