How did the *Blue Plate Specials* Fund do?

I promised the stats on my *Blue Plate Specials* Fund and although I’m a bit tardy in the posting, I want you to know that my ancient but trusty abacus has been working overtime. Slogging through sixty days worth of data takes a bit of time–besides making my fingers numb.

Enough back-pedaling. On to the numbers. But first, a recap of what I’m writing about.

This fund was based on a larger fund that I constructed to accommodate $30M-$50M with the stipulation that only equities trading on the US exchanges were to be used. High return was the principal mandate to be achieved at minimal risk. (I know, duh.)

The *Blue Plate Specials* fund is the result, stripped down to the basics so that the serious investor with sizable investment monies or the smaller fund manager might be able to follow the blueprint. But even the average home investor can modify the results of this very illustrative exercise and mold it to her or his own use.

The original fund was always hedged—in up markets as well as down. Due to budget concerns, I did not hedge this fund but I it appears that I should have. We’ll discuss this later.

The fund’s basic structure is still the same: Eleven running portfolios composed of ten stocks (in bull markets) and five stocks (in bear markets). Each portfolio is held for eleven days. Why exactly eleven days? Because, via extensive back and forward testing, it was found to be the optimal number of days to achieve maximum profit. (For complete details, please see 4/21/10 blog.)

Okay, on to the results show. Drum-roll, please!

Fund set-up
Sixty portfolios were evaluated. The first portfolio was initiated on 7/26/10 and the last one on 10/29/10. (No portfolios were initiated between 8/13 and 8/20 due to a death in the immediate family.)

Only stocks trading on the major US exchanges were included. No closed-end funds, ETFs, or ETNs were considered as this was designed to be a stocks only fund. We’ll see if better results could have been achieved using these other vehicles.

No dividends or commissions were included in the analysis.

Fund stats
Portfolio stats are shown in the table below. Fund performance is compared with the S&P 500, the usual benchmark for a variety of mid to large cap stocks.


In considering the stats, there are a few important things to note:

There were no portfolios generated 8/12-8/20 due to personal issues (death in the immediate family). This will skew the comparison of the fund with the SPX, for better or worse.

The risk of this type of equity fund is defined by the standard deviation of the returns. The table value shows the result of the fund period only. Because each portfolio is compounded according to the returns of the previous day’s closed out portfolio, trying to annualize the risk would be meaningless.

The same measure applies to the Sharpe ratio, a typical (though controversial) measure of portfolio performance. At least a year’s worth of data (in my opinion) is needed to deduce even a roughly accurate value.

However, the return can be annualized (though I would take the calculated value with a big grain of salt) by looking at the average daily return. By doing it this way, we’re comparing apples to apples using the initial value of each portfolio and comparing it with that portfolio’s final value. Performing this type of calculation leads to an average daily return (over all 60 days) of 0.13% giving an average annual return (assuming 250 trading days) of 32%.

A note on commissions: As I mentioned previously, this fund was designed for large investment amounts where commissions wouldn’t make a big dent into profit. That said, it’s not geared towards smaller amounts (less than several million) as the sheer amount of trading will eat into profits—that is, unless you have a really, really low-priced broker. (This was meant as an institutional vehicle, anyway, but I’m presenting here as a learning tool for everyone.)

There’s more analysis to follow but I don’t want to bog my readers down with too much head-spinning information. In an upcoming blog (to follow soon, I promise!) we’ll look at the timeline of the fund via the evolution of the S&P500 as well as what I would do differently had I to do it again. We’ll also look at the what-if scenario: ETF’s or stocks? Or both? Or other vehicles?

I guarantee this will all be stuff you can use and I promise it won’t be too academic.

Okay. Maybe a little, just to make ol’ Dr. Kris happy.

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