Market Neutral Portfolio
Market neutral investing without short-selling
An investment strategy is
market-neutral if it seeks to erase a market
risk. YPAFI Market Neutral Portfolio is designed to manage a capital
$50k without fearing a market crash. It is based on the idea that a
diversified portfolio holding defensive and cyclical companies with
very strong fundamental factors has a high probability to beat the
indices in all market conditions. It holds 25 stocks and a leveraged
inverse ETF. There is no short selling, leveraging is optional.
The portfolio is diversified in various dimensions: number of companies, ranking logics, sectors. It holds 25 stocks, at least 10 in defensive sectors and 10 in cyclical sectors. More than half of them are in the S&P 500 index, the other ones are in the Russell 3000 and filtered on liquidity. Stocks are selected using five models, four of which are sector-oriented. The 5th model is the SP500 Growth&Value model of YPAFI Growth Portfolio.
The Market Neutral Portfolio is a DIY hedge fund, with a scalable hedge for various goals and risk profiles. The next table shows simulated performances from 01/02/1999 to 11/29/2014 with various hedging strategies using the 3x leveraged inverse S&P 500 ETF SPXU. Data for SPXU are synthetic before the inception date. Rebalancing is weekly and a 0.3% rate is accounted for trading costs. If leverage is used, stocks are held on capital and SPXU on margin. The maximum drawdown depth is calculated on rebalancing day. It may be slightly deeper intra-week.
|Hedge||Leverage||Annual Return||Drawdown Depth||Drawdown Length||Kelly ratio|
|Half Timed||no||20%||-10%||48 weeks||36%|
|Half Timed||1.33||28%||-13%||49 weeks||36%|
100% = full
hedge (market neutral), for $3 in stocks, $1 in SPXU.
75% = 75% hedge. For $4 in stocks, $1 in SPXU.
50% = 50% hedge. For $6 in stocks, $1 in SPXU.
Timed = 100% hedge when the market timing signal is bearish. Else, the hedge is in cash.
HalfTimed = one half of the hedging position is permanent, the other half is timed.
The next table shows simulated returns year by year with a different calculation method. The capital invested is constant at each weekly rebalancing, gains are not compounded. A week beginning on year X is fully accounted in year X. All versions are without leverage.
16-year simulation without hedge: no timing, no hedge.
AnRet: annualized return; MDD: max drawdown intra-week; Sharpe, Sortino: risk adjusted performance ratios; Kelly: probabilistic robustness ratio; MDL: max drawdown length; Vol: volatility; Cor: correlation with SPY; Ord: average orders/week (replacing 1 stock = 2 orders)
This is probably the only market neutral service compatible with an IRA account. At this time we have identified two other market neutral services.
|Editor||Updates/year||Positions (long/short)||IRA compatible||Scalable hedge||Price|
YPAFI Market Neutral Portfolio: 87 USD / month*
*Recurring billing by Paypal or credit card. You can stop it at any time.
Information sent by email before the 1st trading day opening of every week. It contains stocks that we buy, sell and hold the same day. It also contains the hedging indicators, other useful market timing indicators and a market outlook. This is a follow-up of our portfolio for informational purposes. It is not a recommendation to buy or sell securities. We provide an opinion about the market. Every subscriber is free to use it in any way for individual purpose, except disseminating included information. You are responsible for your investments. Investing is risky. Past performance is never a guarantee for the future. We are not a RIA and cannot provide personal advice. If you have a doubt, please consult a registered advisor.
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