Saturday, July 11, 2015

A question/answer about Collective2 Portfolios

I received a question this week about the portfolios I'm running at Collective2 and I presume that more than one person has the same question:

"Going forwards, do you have a preference as to which strategies are performing the best and with the least trades?  [D]o your past studies seem to favor the GF Leaders or the Low Beta?  Is the Low Beta dependent on all 3 of your timers and the GGT just like the leaders strategy?"

I have four "Greenfield" portfolios at Collective 2:

Greenfield Bargains:  https://www.collective2.com/details/95793176
Greenfield Dividends: https://www.collective2.com/details/94780986
Greenfield Leaders: https://www.collective2.com/details/94921209
Greenfield Low Beta:  https://www.collective2.com/details/95702992

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It is hard to compare portfolios because they have different objectives and are subject to different initial conditions as well as market conditions.  This being said, let's look at the portfolios.

Of the four,  Greenfield Dividends has been running the longest, since June 3, 2015.  It is presently up 4.8% YTD, and according to Collective2's  statistics, is currently at 51.2% Annualized Return including trading costs.  I presume that it will continue on it's path but your crystal ball is as good as mine, and one month does not make an annual value.  My expectation is that it will be positive for the year and meet the performance of the S&P in terms of gain, but will outperform in terms of drawdown (e.g. lower volatility).

There have been 39 trades in the account, including the 25 buy-ins, so an additional 7 trades have been bought and 7 trades have been sold according to the system rules.  14 trades over 5 weeks is probably a good number, so 2-3 trades per week may be a good feel for this portfolio.

In comparison, I traded this strategy prior to introduction at C2 from 7/9/2014 to 6/26/2015.  Portfolio sizing was a bit different then (targeting 40 positions, modeled on another portfolio I saw at Seeking Alpha), and about half-way through the year I reduced it to 25.  There were a total of 279 round-trip trades over the course of the year, with 130 being winning and 144 losing (5 were a wash).  This is a 47.4% win loss.  The total return in the portfolio was 6.4%, inclusive of dividends and fees paid to TradeStation.  Dividend yield was 1.774% over this period, and is in a tax-deferred account.  The average win per position was 2.9%, not including dividends, and the average loss per position was -1.4%.  Only in the last 3 months I did restrict buying to when the long/cash ratio was below 50% (-ish) and this improved numbers (I don't have the exact calculation but I do have the trades, and the trend is clear to me).  Also in 2015 I started updating the coefficients more frequently with a new process/computer, and this resulted in my detecting when to get out of a stock much faster.  I also started keeping the portfolio 100% invested about 3 months ago, and this allowed me to ignore the drawdowns and participate on the rebounds.

Over the same period the SPY returned 5.53%, so the dividend portfolio outperformed the SPY by a thin margin.

Of course, the past is no indicator of the future, so beware.

While not an apples-apples comparison, the last year's test has given me the confidence to publish the portfolio at C2, and the results there are independent of my writing.  I will either succeed or not...

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Greenfield Leaders has a great track record, at least prior to listing at Collective2.  For the period 5/5/2014 to 6/9/2015 the portfolio has a 42.3% realized gain.  Volatility is higher though, as these stocks tend to have higher betas.  Note that this period was one of QE2 and where the markets were doing well, so it's hard to say if the performance can be replicated.  Part of the success certainly was money management -- the Greenfield Leaders portfolio moves in and out of the market with active management, so if you're looking for a low maintenance portfolio, this one is NOT going to make you very happy.  There were a total of 129 round-trip trades over the past year, with 61 of them being winners and 66 being loosers, and 2 considered "wash" trades within +/- 1% gain/loss.  The average win/loss are largely moot with this portfolio, as the position sized is determined by captial asset model methods and can vary from something as large as 22.7% to something as small as 0.7%.

At C2 the Greenfield Leaders portfolio has struggled since I started it on 6/10/2015.  It is down -0.4% right now, but is above the S&P500 over the same period by about 0.5%.  It is less than 33% invested, per money management rules, so effectively it's not doing much in the market either way.  The portfolio invests in stocks that are good candidates to move higher.  I have no idea on how it will perform in the future, but obviously, since it costs me money to list at C2, and since I have my personal money in the portfolio (at TradeStation), I think it will take off if the markets take off.  I'm patient.

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Greenfield Low Beta portfolio has done quite well in my pre-C2 trials (with real money).  It tends to be a low volatility model, but this can change if market conditions change (any stock can move to a high-beta condition -- it isn't sold under the existing rules).  Since 5/12/2015 my personal portfolio of these stocks is up 10.8%, and it is only 1/3 invested.  Again, future performance cannot be based on past, so beware.

At C2 the Greenfield Low Beta portfolio is up a minor amount since I started it on July 4th, 2015.  The 2.5% return is solidly outpacing the S&P500, AND, the portfolio is only 1/3 invested.

Note though that this portfolio, like the leaders portfolio, is subject to money management rules so will have frequent trades.  If you're looking for a low-maintenance portfolio, this one probably isn't going to be very satisfying.

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Greenfield Bargains portfolio is another solid performer prior to Collective2, with an annualized gain of 32.4% from 10/16/2014 to 6/9/2015.  This portfolio is fully subjected to money mangement rules, and because many of the stocks are GGT "cash" rated (because they have been beaten down in price), position allocations can be fairly high when a buy signal occurs.  This may fly against your view of "putting all your eggs in many baskets" as I've invested in a few as 4 stocks with this portfolio.  Volatility is high, but again, performance is high (so far).

Money mangement in the Bargains portfolio has been a bit different compared to the others.  For the Bargains portfolio, when I'm holding just a few positions, if the signal says to transition from 100% equity to 66%, I sell 34% in each position, locking in gains.  This means more book keeping, and it drives cost-basis calculations crazy.  this is a complicated portfolio, but I like it for my retirement account where much of the purchases / sells are transparent, so it works for me.

Note that I only have a small portion of my monies in this account right now -- it's sitting at 33% equity (at best) if you look at the GGT signals.

If you're looking for a low maintenance portfolio, this one has a few positions, but you'll need to move quickly so again, you may not be very happy with this one.

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This is all a long way of answering the question as "Greenfield Dividends" probably will provide the best performance for the least amount of work.  Leaders, Low Beta, and Bargains are all subject to the same money management rules, so will be moved in and out of as market conditions dictate.  Bargains probably has the lower position count / higher allocation per stock, so it may be a good alternative relative to the others.  Low Beta *should* be an outperformer, but in the present market conditions, it is not.

As with all my ramblings, you are responsible for your own decisions and I am not.  Please do your homework, and please take ownership for your actions.

Regards,

pgd