![]() Total withdrawals and end portfolio value for the trading strategy are 15% and 36% higher, respectively, than what would have been provided by 4% withdrawal rate from a buy-and-hold investment in XLY. ![]() The table below compares the annual withdrawal amounts and portfolio values for the trading strategy, XLY and SPY assuming an initial investment of $100,000 at the beginning of 2009 and annual withdrawals of 4.0% of portfolio value. ![]() Performance comparison with 4% withdrawal rate It is evident from the risk measures that the trading strategy carries less risk than investing in XLY or SPY over the longer term. In the table below are the risk statistics from 2000 to 2020 for the model and XLY relative to the benchmark S&P 500 ( SPY). The model outperformed XLY the backtest shows an annualized return of 22.6% and similar maximum drawdowns. The simulated performance of the trading strategy for the same period is shown in Figure-3. Trading costs of 0.12% of each trade amount were assumed in the simulation.Ĭonsumer discretionary stocks have performed reasonably well since 2009, with XLY showing a 19.3% annualized return for the period to. The model shows an annualized return of 17.4% (XLY produced 9.3%) and a maximum drawdown of -48% (-59% for XLY). A position is sold based on its rank, or if the percentage from highest close since a position was started becomes less than -15%.įigure-2 shows the simulated performance of this strategy from to and also that of the benchmark XLY. Also, the Price to Earnings Ratio (excluding extraordinary items, for trailing 12 months) must be less than 1.25 times that of the average for the stocks of the S&P 500 index.Ī minimum holding period of 4 weeks is specified. Additionally, stocks must have a Non-Manufacturing Altman Z-Score greater than 0.75, a Beneish M-Score less than -1.70 to eliminate companies that are associated with increased probability of manipulations, and a Piotroski F-Score greater than 3. The buy rules require stocks to have a dividend yield greater than 1.0%. The iM-Top5( XLY)Select trading strategy invests periodically in only five equal weighted stocks from the custom universe S&P 500 (DISCRETIONARY) ranked with the “iM: Quality” ranking system described in this article. Trading 5 stocks from the custom universe S&P 500 (DISCRETIONARY) One can therefore expect that the custom universe S&P 500 (DISCRETIONARY) will reasonably accurately reflect the holdings of XLY, and stocks selected by the model should not differ much from what would have been selected from a universe of XLY’s actual historic holdings. In the Figure-1 below, the red graph depicts the performance of the custom universe and the blue graph (partly hidden) the performance of XLY. Backtesting of S&P 500 (DISCRETIONARY) universeĪ backtest from to with all the cap-weighted stocks in the custom universe shows a 96% correlation with the performance of benchmark XLY and almost identical total returns of about 700% over this period. The current holdings of XLY (61 stocks) include 50 stocks from S&P 500 (DISCRETIONARY) custom universe which currently consists of 56 stocks. RBICS(CYCLICALS) or (RBICS(GENMERCH) & FRank(“MktCap”)>50 or RBICS(HOSPITALITY,) & FRank(“MktCap”)>15 or RBICS(COMMEQUIP) & FRank(“MktCap”)>95 or RBICS(PERSONALCARERETAIL) & FRank(“MktCap”)>70) and !Ticker(“AAPL”) A close match to the holding of XLY can be obtained with the FactSet Reverse Business Industry Classifications System and a Portfolio 123 rule having the following syntax: Since historic holdings of XLY are not published, a custom universe “S&P 500 (DISCRETIONARY)” was constructed from the S&P 500 stocks. The analysis was performed on the on-line portfolio simulation platform Portfolio 123. Emulating the Consumer Discretionary Select Sector SPDR Fund ( XLY) Similarly, the consumer discretionary stocks of the S&P 500 can be profitably traded to provide better returns than the Consumer Discretionary Select Sector SPDR Fund ( NYSEARCA: XLY). Previous articles described profitable trading strategies with the stocks of the Technology Select Sector SPDR Fund ( XLK) ( article-1), the Consumer Staples Select Sector SPDR Fund ( XLP) ( article-2), the Healthcare Select Sector SPDR Fund ( XLV) ( article-3), the Industrial Select Sector SPDR Fund ( XLI) ( article-4), the Utility Select Sector SPDR Fund ( XLU) ( article-5), and the Materials Select Sector SPDR Fund ( XLB) ( article-6).
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