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New White Paper: Lies, Damn Lies, and All-Weather Portfolios

June 22, 2020

 

 

Today we are publishing a white paper that examines the performance outcomes of investment managers during the most common market regimes: the Market Sell-off, the Rebound Market, and the Benign Market. We studied the performance of over 3000 US based mutual fund managers over the last 10+ years to assess manager effectiveness and consistency across these regimes.

At Alpha DNA, we believe that measuring investment results in these market types offers critical insights to a portfolio manager’s ability to navigate these market regimes in the future. We think of these market regimes as market ‘weather’ and a portfolio manager’s ability to inherently ‘weather’ these market events. 

The White paper is titled: Lies, Damn Lies, and All-Weather Portfolios. You can download it from this link

The white paper examines the 3000+ US based Mutual funds and looks at how they performed during these market regimes. So, we have decided to look at our two always hedged strategies and how they have performed in these 3 market regimes also.

 

In these two strategies that are always hedged, we are able to accomplish the following:

1.   Provide significant out-performance during the Market Sell-offs thru profit taking in the hedges

2.   Produce enough alpha to cover the cost of the hedge in the Benign markets so that we can deliver market like returns in those markets

3.   Capture the majority of the upside during the rebound markets despite the cost of the hedge

These strategies have performed quite well when measured against the different market regimes since we launched them. There were 9 distinct market regimes since these strategies launched in 2017 and 2018, respectively.  The Mid-Cap strategy beat the S&P 500 in 6 out of 9 of these periods resulting in excess return to the S&P 500 of over +60% since its inception on January 1, 2018. This is particularly impressive because the mid-small cap universe (defined by Russell 2000) under-performed the S&P 500 by -25% since the inception of the Mid-Small cap strategy. Yet even after the disadvantage of this universe, the returns are still significantly in excess of the S&P 500. 

The Concentrated US Strategy (all large cap) won over the S&P 500 in 5 out of the 9 periods and managed to beat the S&P 500 by +30% since its inception in March 2017. In fact it manages to win in two of the three regimes, only trailing in the rebound regime.

We are probably most proud of our ability to significantly defend our client’s portfolios during the Sell-off regimes while still delivering market out-performance. The Concentrated US Equity Long short managed to off set at LEAST 30% of the max-drawdown in each of the 3 Sell off regimes since its launch in 2017. The Mid-Small Cap was able to accomplish the same outcome in 2 out of the 3 Sell off regimes while still winning in the 3rdsell off regime also. 

This is significant because if you read the white paper, you already know that the managers that tend to beat the S&P 500 did not provide significant off-sets to the Sell-off regime. 

The Mid-small cap strategy actually has managed to out-perform overall during the market rebounds. This strategy has managed to capture at least 80% of every Rebound market while actually winning significantly in one of them.

The Concentrated US Equity Long Short strategy has averaged over 90% of the upside capture during the Rebounds – despite the drag of the hedge. In each Rebound period, the Concentrated US Equity Long Short strategy has captured at least 65% of the upside in the rebound window. 

Want to learn more? If you want to discuss our strategies or this White Paper, reach out to us at wayne.ferbert@alphadnaim.com or 443-288-6444

Disclosures:
Note: Returns are expressed in US Dollars net of fees.
Alpha DNA Investment Management is a registered investment adviser and investment manager that specializes in quant equity strategies. Alpha DNA is a separate accounts manager and all returns expressed herein are solely from the separate accounts business within Alpha DNA. 
 
Alpha DNA claims compliance with the Global Investment Performance Standards (GIPS). To receive a full list of composite descriptions of Alpha DNA and/or a presentation that complies with the GIPS standards, contact Wayne Ferbert at (443)-288-6444 or wayne.ferbert@alphadnaim.com
 
All investments involve the risk of potential investment losses as well as the potential for investment gains. Prior performance is no guarantee of future results and there can be no assurance, and clients should not assume, that future performance of any of the model portfolios will be comparable to past performance. 
 
These results should not be viewed as indicative of the advisor’s skill. The prior performance figures indicated herein represent portfolio performance for only a short time period, and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance presented should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. The actual results for the comparable periods would also have varied from the presented results based upon the timing of contributions and withdrawals from individual client accounts. The performance figures contained herein should be viewed in the context of the various risk/return profiles and asset allocation methodologies utilized by the asset allocation strategists in developing their model portfolios, and should be accompanied or preceded by the model.


ADNA_White_Paper_-_All_Weather_Portfolios.pdf