YK versus YK S&P 500
I don’t devote many blog posts to our own proprietary strategies because I don’t want to turn this into a forum for self-promotion, but there are enough subscribers and managed account investors reading that I hope the rest of you will humor me.
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A number of savvy folks have noted that the S&P 500 leg of our YK Strategy, traded alone, has outperformed the full portfolio.
For the uninitiated, the full YK portfolio trades both S&P 500 (large cap) and Russell 2000 (small cap) leveraged funds. Managed accounts (through Comprehensive Capital) follow this full mixed portfolio. Subscribers receive both the full portfolio and each individual leg as if they were traded alone.
I’m often asked why I don’t trade just the outperforming S&P 500 leg (and why Comprehensive still trades the full portfolio); performance has been superior and it’s easier to execute each day than the full portfolio.
First, the numbers…
Above are (independently-verified) summary stats for the full portfolio vs the S&P 500-only version through 03/2010. I’m only looking at YK(B) here, but would reach the same conclusion with the original YK(A).
From this 30,000 foot view, the S&P 500-only version has edged out the full portfolio. Side note: monthly/quarterly returns have also been much more consistent, particularly over the last nine months.
So why do I trade the full portfolio?
In a nutshell, it’s based on historical analysis.
As readers know I don’t release backtested results for any of our proprietary strategies because it goes against everything I believe folks should be doing to judge the merit of a program. But as the developer I have access to YK’s hypothetical performance going back a very, very long time.
I know that the strategy has gone through periods where the S&P 500 leg outperformed and periods where the Russell 2000 leg outperformed.
Unfortunately it’s been very difficult to predict which is going to outperform next, and in the majority of periods, the combined portfolio has performed better on a risk-adjusted basis than both individual legs.
So you savvy folks who have taken note of YK S&P 500’s historical outperformance are absolutely correct, but based on historical analysis, I think the two legs will balance out over time.
Having said all of that, I’m not militant about that opinion, and I think trading just the S&P 500 leg is also perfectly reasonable.
Note: all obligatory disclaimers re: past returns not necessarily being indicative of future results apply.
Happy Trading,
ms
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Filed under: Random Stuff | 3 Comments
Michael,
When the S&P 500 leg consistently outperforms, is it given a higher weight than usual?
RE to Andras: good question, but no, weighting is based on expected volatility, not recent performance. This paragraph gives the explanation:
“Unfortunately it’s been very difficult to predict which is going to outperform next, and in the majority of periods, the combined portfolio has performed better on a risk-adjusted basis than both individual legs.”
michael
hi Mike
Your YK strategy results look really great. I noticed on the timer track performance chart for the YK that its performance curve has leveled off since about November 2009. I know that there was a relatively quiet period in the mkt for a month or 2 around Nov-Dec 09. I was just wondering whether this leveling off in results was caused by reduced volatility in the indices, or else reduced exposure, etc? Any info appreciated, thx.