One of the realities of trend following is that you never know which trades are going to work out. In the case of our Systematic RS International portfolio, a stock has to meet certain relative strength-based criteria for us to add it to the portfolio. Specifically, we take a universe of ADR’s from both developed and emerging markets and rank them by their relative strength. Our purchases are made from the top quartile of our ranks and we sell the stocks once they fall out of the top half of our ranks. In other words, we buy stocks that have demonstrated favorable relative strength and then hold them for as long as they remain strong.
We have been employing this process in our Systematic RS International account since its inception on March 31, 2006. The result of 9 plus years worth of relative strength-driven trading is shown below:
Performance is price return only, not inclusive of dividends or transaction costs. 3/31/06-11/12/15
There are a couple things that stand out to me from the scatter chart above which shows the number of days a trade was held and its accompanying return.
- More than half of the trades (55%) were held for less than one year. These are the stocks that had strong momentum when we bought them, but they did not sustain it and were often sold at a loss.
- As we have seen with many of our other relative strength strategies, it is a much smaller number of trades that were held for multiple years. Our longest holding was held for just over five years.
- The trade where we made the most money was up over 600% and was held for over 2 years.
It is probably startling for some to see just how many trades don’t work out! Big multi-year winners are not a common phenomenon. This underscores just how important it is cut out the losers from the portfolio and move on. While looking at the profile of all the trading activity may not be a thing of beauty, the net results of this trend following approach has been something we are very proud of.
Results since inception are shown below:
As of 10/31/15
Since inception, the Systematic RS International portfolio has outperformed the MSCI EAFE by 6.17% annually on a net basis.
Among the firms where this SMA portfolio is available:
- Raymond James
- Stifel Nicolaus
- TD Ameritrade
- Charles Schwab
Please contact andy@dorseywright or call 626-535-0630 to receive a fact sheet or to find out about availability at your firm.
Click here for important disclosures. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Performance shown in the scatter chart are based on the day that the security was added and removed from our model. Actual trading of accounts may have happened a day after and may have resulted in a different gain/loss.
