Summary
- Objective: aggressive growth
- Type: momentum strategy
- Invests in: individual stocks, bond ETFs
- Rebalancing schedule: weekly
- Taxation: 90% short-term capital gains
- Minimum account size: $30,000
TuringTrader’s Stocks on the Loose aims to continuously beat the S&P 500 while at the same time offering lower volatility and lower drawdowns. The strategy is a proprietary expansion upon Clenow’s Stocks on the Move, featuring a momentum approach combined with fixed-fraction position-sizing and managed bonds as a risk-off investment. With its weekly rebalancing schedule, Stocks on the Loose has only moderate maintenance requirements and appeals to investors seeking to outperform the market at lower risk.
Performance
This table shows the portfolio’s key performance metrics over the course of the simulation:
The following chart shows the portfolio’s historical performance and drawdowns, compared to their benchmark, throughout the simulation:
This chart shows the portfolio’s annual returns:
The following charts show the Monte-Carlo simulation of returns and drawdowns, the portfolios 12-months rolling returns, and how the portfolio is tracking to its benchmark:
Asset Allocation
The portfolio last required rebalancing after the exchanges closed on @last-rebal@. Due to fluctuations in asset prices, the exact allocations vary daily, even when no rebalancing occurred. The current asset allocation is as follows:
Sign up for our FREE Basic membership to see the asset allocation.
Sign up for our FREE 14-day trial to see the asset allocation.
Strategy Rules
The operation of Stocks on the Loose can be summarized as follows:
- trade all S&P 100 stocks, plus U.S. treasuries as a risk-off asset
- rebalance once per week (on Wednesdays)
- disqualify stocks trading below their 100-day moving average
- disqualify stocks that made any single-day moves exceeding 10% in the past 90 days
- rank stocks by their volatility-adjusted momentum, calculated as the product of slope and R2 of a 90-day logarithmic regression
- only open new positions, if TuringTrader’s Market Vane indicates bullish conditions
- use fixed-fractional position sizing, based on the 20-day average trading range
- ensure healthy position sizes by limiting total portfolio risk, capping the maximum allocation to a single stock, and scaling back exposure with increasing market volatility
- invest any unused capital in TuringTrader’s Buoy portfolio
Most of these rules are taken verbatim from Clenow’s Stocks on the Move strategy. We recommend reading Clenow’s book to understand the strategy’s rationale better.
Expanding upon Clenow’s work, we improved the money management to remedy the following issues: concentration in too few assets, taking excessive total portfolio risk, and holding idle cash. These proprietary changes lead to a much more even-keeled behavior and significantly higher returns.
Diversification
Stocks on the Loose typically allocates 70% to 100% of its capital towards a set of 3 to 5 stocks. In more turbulent times, the strategy rotates into a managed bond portfolio.
With this allocation, the portfolio bears significant concentration risk, in addition to the market risk. Nonetheless, the portfolio’s beta is around 0.3, thanks to the strategy’s timely active management.
Returns & Volatility
Over the entire economic cycle, Stocks on the Loose outperforms the S&P 500 by a wide margin. Further, the portfolio beats the S&P 500 in many years, even outside of recessions.
This behavior results in more predictable returns and lower drawdowns. The Monte-Carlo simulation confirms these claims.
Account & Tax Considerations
Stocks on the Loose trades frequently and regularly triggers taxable events. Investors should expect almost all capital gains to be short-term. Therefore, the strategy works best in tax-deferred accounts.
Because the strategy holds up to 6 high-flying and potentially expensive stocks simultaneously, it requires an account holding no less than $30,000 to function as intended.