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Market Neutral Portfolio 

Market neutral investing without short-selling

An investment strategy is market-neutral if it seeks to erase a market risk. Ypa Market Neutral Portfolio is designed to manage a capital over $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 24 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 24 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 Ypa Growth Portfolio.

The Market Neutral newsletter 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
no no 28% -36% 103 weeks 24%
100% no 15% -9% 54 weeks 30%
100% 1.33 21% -11% 54 weeks 30%
75% no 17% -11% 49 weeks 33%
75% 1.25 23% -14% 50 weeks 33%
50% no 20% -17% 51 weeks 34%
50% 1.167 24% -19% 51 weeks 34%
Timed no 25% -15% 50 weeks 34%
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.

Hedge 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Avg
no 41.2 33.4 33.5 23 49 20.6 21.2 18.3 3.2 -4.4 59.9 13.2 20 26.2 37 26.5 26.4
100% 18.4 29.4 30.6 36.4 23.6 11 10.2 5.7 8 18.6 29.3 -3.3 9.7 7.9 9.4 9 15.9
75% 22.9 30.2 31.2 33.8 28.8 12.9 12.4 9.1 1.9 14 36.7 0.8 11.8 11.4 14.9 12 17.8
Timed 33.9 33.6 30.6 34.2 46.2 15.4 14.8 13.7 5.7 18.5 48.9 7.8 12.6 18.5 28 19.9 23.9
Half Timed 26.2 31.5 30.6 35.3 34.9 13.2 12.5 10.3 3.6 18.5 39.8 2.7 11.1 13.1 18.7 14.2 19.8

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)

AnRet MDD Sharpe Sortino Kelly MDL Vol Cor Ord
28% -40% 1.4 2 24% 23 mths 17% 0.8 4

market neutral

Competitors:
Ypa Market Neutral is probably the only market neutral newsletter compatible with an IRA account. At this time we have identified two other market neutral newsletters.

Editor Updates/year Positions (long/short) IRA compatible Scalable hedge Price
InsideAlpha 52 24 (12/12) no no €650/3months
ValuEngine 12 32 (16/16) no no $50/month
YpaFinance 52 25 (25/0) yes yes $87/month

Ypa Market Neutral Newsletter: 87 USD / month*



*Recurring billing by Paypal or credit card. You can stop it at any time.

Description:

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.

Contact and support: ypa.finance@gmail.com


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