Wednesday, 11 May 2022

Historic and recent performance by trading rule

 Another brief post this month; the deadline for the first draft of my latest book is only a couple of months away and I haven't got much free time! But I was asked an excellent question on twitter recently, which was how the various types of trading rule have contributed to my p&l this year. 

TLDR: divergent eg momentum good, skew brilliant, other convergent rules poor.

In fact with my new dynamic optimisation strategy it's actually quite hard to answer that question. For example, it's plausible that I could have made all my money in one particular trading rule in a group of instruments that I don't ever take a position in. Instead, I can tell you what would have been contributed had I been trading a static portfolio without any contract rounding issues. This should be a pretty decent proxy, although generally it will over estimate what I have actually been able to achieve with my relatively modest capital.

[To get technical, it would be impossible to do this100% accurately for a static strategy unless it had (1) very large capital and (2) no buffering or other path dependency in positions]

An important question is whether we look at this performance on a weighted or unweighted basis. Weighted performance for a trading rule is basically the contribution of that performance to our aggregate p&l. The disadvantage of looking at this, is that rules with small forecast weights will be hard to see. 

I have a lot of trading rules! Plotting them all in one go would be (a) messy and (b) kill my computer. Instead I set up sub-strategies, each with a subset of my trading rules, and then plotted the performance of (i) the entire account curve for that subset (which effectively weights the rules within that subset according to the forecast weights for each instrument) - these are the thick black lines, and (ii) the individual trading rules in that subset at the same risk - i.e. unweighted - this allows us to see their performance more clearly.

I've also chucked in some Sharpe ratio figures for the total (in the title of each chart) and for each rule variation (in the legend). Sharpes are a bit wild for just year to date, but there you go. Naturally, everything here is after costs. Finally, note that this data goes up to to the 4th April, so misses some poor performance over the last couple of days (I'm writing this on 10th May).

Anyway enough chat, here's some pictures. First of all, let's look at the year to date. 

Here's my backtested performance YTD after dynamic optimisation,  plus my actual performance. It's reasonably meaningful to do this, since I've run with the same strategy since November.


Looks like I got lucky with executions when the market turned against me in early March.


Now for the figures for each trading rule.

Acceleration: 



Asset trend:


Normalised momentum:


Momentum (EWMAC):


Breakout:



Relative momentum


With the exception of relative momentum, all very good, but also all very similar so not much diversification there.


That's it for the 'divergent' rules, now for the 'convergent'. 
First, Carry:



Relative carry (only one rule variation)


Mean reversion in asset class

Mean reversion in the wings

Skew (absolute):






Skew(relative)

Not such a good performance, apart from skew which was flipping amazing.

So year to date, very much driven by the 'divergent' trading rules.


Out of curiosity, what does live vs backtest look like since I started trading (April 2014)? Remember that prior to November 2021 I was using a rather different strategy, so they are unlikely to match precisely before that date:



Now, as we have the data, let's look at the performance by trading rule group for some other time periods.


Last 10 years:









Notice how correlated these last 3 rules are.







And now for the entire back test
























Thursday, 14 April 2022

Trading and investing performance: year eight

 Eight years! Wow. 

In late 2013 I walked out of an office for the last time where I had been working for AHL, a large systematic futures trading fund. A few months later, in April 2014, I had my own very small systematic futures trading account, and I started doing these performance reviews. And this is my eighth review. Double wow! 


As usual these cover the UK tax year, in this case from April 6th 2021 to April 5th 2022.

TLDR:

Great futures trading, no thanks to 'Black Friday', mostly thanks to the energy crisis. Outperformed AHL, but a little short of the wider index. Poor stock selection and country allocation; better in bonds; good asset allocation. Net-net: 8.2% vs my benchmark +3.8%



Overview of my world


I promised last year I would simplify things, and I have. My investments fall into the following categories:


Investing:

  • 1 UK stocks
  • 2 Various stock ETFs
  • 3 Various bond ETFs
  • 4 A small amount of uninvested cash
Trading:
  • 5 Futures contracts traded by my fully automated trading strategy
  • 6 Cash as trading capital for the above, of which usually around a third is required for initial margin
Excluded from this analysis is:

  • My house
  • A cash buffer I keep to cover living expenses
I benchmark my investments in the following way:

  • A: UK single stocks 
    • Benchmarked against ISF, a cheap FTSE 100 ETF (FTSE 350 is probably a better benchmark but these ETFs tend to be more expensive).
  • B: Long only stocks investments: All stock ETFs and UK stocks
    • Benchmarked against a cheap global equity fund (VEVE)
  • C: Long only bond investments: All bond ETFs
    • Benchmarked against a cheap global bond fund (AGGG)
  • D: Long only investments: All UK stocks, bond ETFs and stock ETFs
    • Benchmarked against a cheap 80:20 fund. 
  • E: Futures trading: Return from the futures contracts traded by my fully automated system. The denominator of performance here is the notional capital at risk in my account (usually close to, but not exactly the same as the account value).
    • Benchmarks are a similar fund run by my ex employers AHL, and the SG CTA index, adjusted for volatility.
  • F: Everything: Long only investments, plus futures hedge, plus futures trading. I include the value of any cash included in my trading or investment accounts, since if I wasn't trading I could invest this. 
    • For the benchmark I use a cheap 60:40 fund.


If you prefer maths, then the relationship to the first set of categories is:

A = 1
B = 1 + 2 
C = 3
D = B + C = 1 + 2  + 3
E = 5 + 6
F = D + 4 + E = 1 + 2 + 3 + 4  +5 + 6

If you've been following me for a while you can see that I've opted to split out my equities and bonds performance; something I haven't done before. I've also moved stuff around a bit - the 'risk' section is now under the relevant performance category, and there are some more detailed figures on costs and turnover.


Performance contribution


The figures shown are the contribution of each category to my total investment performance:


1) UK equities 1.8%

2) Stock ETFs 2.6%

3) Long only bonds 0.07%

5) Futures trading 3.7%

4 & 6) Cash 0.0%

F) Total +8.2%


Here is another way of putting it:

Long only MTM (mark to market): 1.2%

Stock and ETF dividends: 3.2%

Futures: 3.7%

Now for the same figures as 'internal rates of return', which are effectively for the 'capital' employed in each area. I use the Excel function XIRR. You can't add these up, but they are comparable and account for flows between categories. Benchmarks are also shown.


A) UK equities +9.8% Benchmark +16.6%

B) Long only stocks +6.1%   Benchmark +12%

C) Long only bonds 1.5%  Benchmark -3.0%

D) Long only investments 5.9% Benchmark +7.9%

E) Systematic futures trading  27.0% Benchmarks -4.9% +32.3% (vol matched)

F) Everything +8.2% Benchmark+3.8%


I have colour coded these to give an indication of where the good, bad and unsure are.


UK equities


This portfolio is traded using a system which I've explained before (value bias, with trailing stop of 30%), but which is not automated. Instead I have the stocks set up in a spreadsheet, with alerts reminding me when stop losses occur. If I sell then I download some data to pick the best value share.

The current portfolio looks like this:

Hammerson PLC (LSE:HMSO) 0.21%

Babcock International Group PLC (LSE:BAB) 2.45%

Greencoat UK Wind (LSE:UKW) 2.60%

Imperial Brands PLC (LSE:IMB) 3.17%

Johnson Matthey PLC (LSE:JMAT) 3.24%

Morgan Advanced Materials PLC (LSE:MGAM) 3.47%

Castings PLC (LSE:CGS) 3.50%

Barratt Developments PLC (LSE:BDEV) 3.53%

Phoenix Group Holdings PLC (LSE:PHNX) 3.64%

Lloyds Banking Group PLC (LSE:LLOY) 3.75%

BT Group PLC (LSE:BT.A) 3.82%

TP ICAP GROUP PLC (LSE:TCAP) 3.96%

Centamin PLC (LSE:CEY) 4.05%

Renewables Infrastructure Grp (LSE:TRIG) 4.24%

Greencore Group PLC 4.33%

Redde Northgate PLC (LSE:REDD) 4.39%

Aviva PLC (LSE:AV.) 4.46%

Rathbones Group Plc 4.49%

Central Asia Metals PLC (LSE:CAML) 4.58%

Morgan Sindall Group PLC (LSE:MGNS) 4.89%

Centrica PLC (LSE:CNA) 5.30%

Direct Line Insurance Group PLC (LSE:DLG) 5.87%

Investec PLC (LSE:INVP) 16.05%


Most of these were bought 'normally', but I bought a double dose of Investec last year as it was a screaming buy at a time when nothing else passed my filters (this was a good decision - see below). All are above their stops except Hammerson, which was the first share I bought coming out of the 2020 COVID market pandemic: too early as it turns out. It completely cratered before I could activate the stop and now I keep it as an out of the money call option on UK property or sentimental reminder of the importance of stops - take your pick.

Here is the performance of every share I held over the year. Percentages are taken from the start of year price, or from when I bought it during the year:

                                         MTM % Divi % TR %

Investec PLC (LSE:INVP)                         138.2% 8.3% 146.5% HELD LEGACY

Morrisons (LSE:MRW)                         62.7% 2.8% 65.5% SOLD LEGACY

Morgan Sindall Group PLC (LSE:MGNS)         33.5% 4.0% 37.4% HELD LEGACY

Babcock International Group PLC (LSE:BAB) 36.5% 0.0% 36.5% HELD LEGACY

Greencoat UK Wind (LSE:UKW)                 20.2% 5.5% 25.7% HELD LEGACY

Rathbones Group Plc                         19.6% 4.2% 23.8% HELD LEGACY

Imperial Brands PLC (LSE:IMB)                 11.5% 9.3% 20.8% HELD LEGACY

BT Group PLC (LSE:BT.A)                         17.8% 1.5% 19.2% HELD LEGACY

Aviva PLC (LSE:AV.)                         7.5% 5.2% 12.7% HELD LEGACY

Lloyds Banking Group PLC (LSE:LLOY)         8.1% 2.9% 11.0% HELD LEGACY

Senior (LSE:SNR)                         10.5% 0.0% 10.5% SOLD LEGACY

Marks And Spencer Group Plc (LSE:MKS)          8.9% 0.0% 8.9% SOLD LEGACY

Central Asia Metals PLC (LSE:CAML)          8.8% 0.0% 8.8% HELD BOUGHT

Redde Northgate PLC (LSE:REDD)                  4.3% 1.5% 5.7% HELD BOUGHT

Johnson Matthey PLC (LSE:JMAT)                  1.1% 0.0% 1.1% HELD BOUGHT

Renewables Infrastructure Grp (LSE:TRIG) -0.5% 1.2% 0.8% HELD BOUGHT

Phoenix Group Holdings PLC (LSE:PHNX)          0.6% 0.0% 0.6% HELD BOUGHT

Centrica PLC (LSE:CNA)                          0.0% 0.0% 0.0% HELD LEGACY

Hammerson PLC (LSE:HMSO)                 -2.5% 1.2% -1.3% HELD LEGACY

Morgan Advanced Materials PLC (LSE:MGAM) -3.5% 2.1% -1.4% HELD LEGACY

Centamin PLC (LSE:CEY)                         -3.9% 0.0% -3.9% HELD BOUGHT

TP ICAP GROUP PLC (LSE:TCAP)                 -6.8% 0.0% -6.8% HELD BOUGHT

Direct Line Insurance Group PLC (LSE:DLG) -14.3% 4.5% -9.8% HELD LEGACY

Royal Mail Plc (LSE:RMG)                 -13.5% 2.1% -11.5% SOLD LEGACY

Synthomer Plc (LSE:SYNT)                 -16.4% 3.7% -12.7% SOLD LEGACY

Barratt Developments PLC (LSE:BDEV)         -12.8% 0.0% -12.8% HELD BOUGHT

Castings PLC (LSE:CGS)                         -17.3% 1.0% -16.3% HELD BOUGHT

Greencore Group PLC                         -18.2% 0.0% -18.2% HELD LEGACY

Crest Nicholson Holdings Plc (LSE:CRST)         -21.0% 1.0% -20.0% SOLD LEGACY

Micro Focus International Plc (LSE:MCRO) -27.6% 3.2% -24.5% SOLD LEGACY

Vesuvius Plc (LSE:VSVS)                         -29.0% 3.8% -25.2% SOLD LEGACY

Currys Plc (LSE:DC.)                         -28.4% 2.8% -25.6% SOLD LEGACY

ITV PLC (LSE:ITV)                         -31.3% 0.0% -31.3% SOLD LEGACY

Go-Ahead group (LSE:GOOG)                 -34.5% 0.0% -34.5% SOLD LEGACY


Let me explain the columns: MTM is mark to market (the % price change since I bought it, or the start of the year), Divi(dend)% is self explanatory, TR is total return - the sum of the first two columns. The next column describes the current state of this position: do I still HOLD or have I SOLD. The final column shows when I obtained the position: at the start of the year (LEGACY) or it's something I subsequently BOUGHT.

Of course there is a bias towards selling shares that have gone down, because of the effect of the stop loss. Morrisons is an obvious exception; I sold it in October because it was being taken over and I didn't want to wait for the cash to arrive - I actually got a small premium above the final takeover price so that was a nice fluke.

I did 21 trades in this portfolio last year for a turnover of around 85%; i.e. my average holding period is probably around 15 months. That is pretty much what I expect to achieve, and I've calibrated my stop loss accordingly. It's certainly quieter than the frantic trading I did in 2020, which covered two of my performance years. Commissions came in at 0.035% of the initial portfolio value, and stamp duty tax was 0.125% plus a few quid in PTM levies. 

Stamp duty is 0.5% on buys only, but some of my shares weren't eligible (not sure why and don't really want to find out). I could avoid this by trading CFDs, but the broker I mainly use for UK shares doesn't offer these, and I'm not sure I could do this within a tax protected wrapper (as I'm actively trading, I want to avoid capital gains tax or having my trades distorted by tax optimisation).I would have paid other taxes on dividends, but generally in this post I ignore taxes.

I don't record slippage data here, but as I'm only trading FTSE 350 stocks it won't be too bad. There were other custody charges but I will account for those later since in most of my accounts I mix UK shares and ETFs (although I've since taken steps to simplify this, so I now have a single UK shares only account).

Over the year I was a net seller of UK stocks to the tune of 6% of the starting value; this was to achieve my required regional weightings (see the next section).

This has traditionally been the best part of my portfolio on a relative basis, but all good things must come to an end, or at least pause for a while. I earned an IRR of 9.8% which would be okay except the benchmark (a UK FTSE 100 tracker, ISF) returned 16.7%. It seems to finally have been the year when the much belagaured UK market actually started to catch up.

Of that sum dividends returned 3.3% - better than the 1% of last year, but still well down from the 4.6% of the year before. Forward expectations for my current portfolio show a further improvement next year, but we shall see.


2016 - 2017 XIRR  29.2%, benchmark  22.7%

2017 - 2018 XIRR  18.3%, benchmark   2.2%

2018 - 2019 XIRR  -2.3%, benchmark   7.6%

2019 - 2020 XIRR -23.1%, benchmark -24.3%

2020 - 2021 XIRR +64.3%, benchmark +24.6%

2021 - 2022 XIRR +9.8%,  benchmark +16.7%


Mean            Me 16.0%  benchmark 8.3%

Sharpe Ratio    Me 0.54   benchmark 0.45       

Geometric mean  Me 12.9%  benchmark 6.8%


Long only Stocks


As already noted this is a new category which consists of all my stock ETFs, plus my UK shares. For consistency, although it's perhaps less meaningful, here's my current portfolio of stock ETFs:

UC07 US Dividend 0.95%

PGIT* Global Infrastructure 1.46%

HMEF EM Normal         1.58%

EQDS Europe Dividend 3.69%

VHYL Global Dividend 4.30%

IAPD Asia Dividend 5.09%

PADV Asia Dividend 7.07%

PAXG Asia Normal         8.38%

IDVY Europe Dividend 9.41%

HDLG US Dividend 12.10%

EUDV Europe Dividend 12.78%

USDV US Dividend 13.10%

SEDY EM Dividend 19.20%


(PGIT is actually a UK investment trust, but I'm treating it as a stock ETF to avoid creating a new category)

Perhaps more useful are the risk exposures by region within this sub-portfolio:

              Start of year      End      Long term   Target

Asia             12%             14%         15%       14%

EM               23%             20%         25%       28%

Europe           23%             17%         20%       18%

UK               30%             29%         25%       28%

US               12%             20%         15%       12%


Start of year and End are self explanatory, whilst Long term is the strategic allocation (see my spreadsheet). After I have snapshotted the year I rebalance the portfolio to the target level shown, taking account of tax and transfers between accounts. 

Turnover on the ETF part of the portfolio was lower as I gradually rebalance according to the rules in my second book Smart Portfolios, and it came in at 30% with commisions of 0.0078%. Again I don't capture slippage here; and I will also of course be paying a management fee on my ETFs, but I try to keep this as low as possible. Incidentally a shout out to one of my brokers, iweb, who are now showing a very clear screen with all the charges you'd pay when you buy an ETF before the trade goes through. 

For the stock portfolio as a whole then then the turnover was 47%, with commissions and taxes coming in at 0.06% (most of that being the pesky taxes on UK shares). Again there are other management charges at the account level, but as I have both stocks and bonds in many accounts (I do try and keep my tax sheltered accounts purely for stock ETFs for reasons explained in Smart Portfolios, but my non tax sheltered accounts have both bonds and stocks).

I was a net buyer of stocks during the year, as will become clear below, to the tune of 12% of the starting value of the portfolio. 

Anyway, the XIRR for this weird stock/ETF hybrid beast is 6.1%, which isn't wonderful - in fact it's significantly less than the benchmark ETF I've chosen (VEVE) which returned 12%. Dividends were 3.9%.

Since the start of 2022 I'm seeing signs that my long run bets on value and the UK, and permanent US underweight, are starting to bear some fruit, so maybe this will look better next year.

No performance history here as this is the first time I've calculated this figure.



Long only Bonds


Another new section, this time with just ETFs. Current portfolio:

SLXX UK Corporate 8.48%

EMCP EM Corporate 9.00%

FAHY US High yield 9.15%

JNKE Europe High yield 10.31%

VSL* Global High yield 15.90%

VDET EM Government 19.80%

SHYG Europe High yield 27.36%


* VSL is actually a UK investment trust, but I'm treating it as a bond ETF to avoid creating a new category

Risk:

              Start of year     End      Long term   Target

Asia             1%               3%         None        5%

EM               44%             40%         25%        27%

Europe           20%             35%         25%        24%

UK               34%              8%         25%        28%

US               2%              13%         25%        16%

Note: in previous years I've classified the 'cash like' ETF XSTR as a bond ETF. This year I've classified it as cash, which makes reporting easier and also makes more sense. The UK starting risk figure above  has been recalculated to reflect this, so won't be comparable with previous years.

Note also that I don't own any Asian bond ETFs or have a long term allocation for them as there weren't any available last time I checked: the exposure shown is a 'look through' from the global bond ETFs I own.

Turnover was high in this portfolio at 178% of the average start and end value; but it's perhaps easier to point out that I was a huge net seller of bonds this year, the portfolio reducing in size by 60% (and that does not include the effect of reclassifying XSTR) which was entirely driven by net selling, not performance. Commissions were 0.044% of average capital.

The XIRR is 1.53%, which sounds mediocre until you remember we are in the middle of a massive bond bear market, and the benchmark AGGG was down -2.97%. My weighting towards  corporate and high yield rather than government bonds helped here. Dividends - or rather coupons - added a massive 4.63%. A weird year when bonds, albeit risky ones, earned me more in dividends than stocks! Although the fact I was a big net seller makes this figure hard to calculate.

Again no performance history here as this is the first time I've calculated this figure.


Long only investments


This is basically everything except my futures trading account (although to be pendantic, the odd chunks of univested cash I have lying around in my investment accounts won't be included in this section). You already know what is currently in this portfolio, and the regional risk exposures, so that just leaves the macro asset class level exposure. Here it is in cash terms:

              Start of year      End      Long term   Target

Bonds            13%             5%          22%        8%

Stock            87%             95%         78%       92%


And here's risk terms:

              Start of year      End      Long term   Target

Bonds            8%              3%          10%        5%

Stock            92%             97%         90%       95%


What has been happening here is that the sell off in bonds has driven the required allocation lower over the year. Now the needle is starting to move back - mainly due to poorer equity returns - so I'm gradually rebuilding my bond exposure although it's still only going to be half the long term target even after my current bout of rebalancing (which will take me to target).

It seems a bit weird to talk about winners and losers in the context of ETFs, but in the interests of transparancy here are the simple (not XIRR) returns for everything I held during the year in both stock and bond ETFs:

        MTM % Divi % TR %
HDLG Equity US Dividend 16.6% 3.6% 20.1%
USDV Equity US Dividend 16.0% 3.0% 19.0%
VSL* Bond Global High yield 5.4% 11.8% 17.2%
VHYL Equity Global Dividend 14.4% 0.6% 15.0%
PGIT* Equity Global Infrastructure 10.1% 4.4% 14.6%
EQDS Equity Europe Dividend 9.0% 4.8% 13.7%
UC07 Equity US Dividend 10.1% 1.8% 11.9%
JNKE Bond Europe High yield 7.1% 2.8% 9.9%
PAXG Equity Asia Normal         5.0% 3.6% 8.6%
IAPD Equity Asia Dividend -1.3% 5.2% 3.9%
SEMB Bond EM Government 1.4% 0.7% 2.1%
ISXF Bond UK High yield 0.3% 0.0% 0.3%
EMCP Bond EM Corporate -0.8% 0.4% -0.4%
PADV Equity Asia Dividend -5.8% 5.0% -0.8%
FAHY Bond US High yield -4.9% 3.5% -1.5%
SEDY Equity EM Dividend -9.5% 7.8% -1.6%
SHYG Bond Europe High yield -3.5% 1.7% -1.9%
EUDV Equity Europe Dividend -4.9% 2.5% -2.4%
VDET Bond EM Government -9.9% 6.2% -3.7%
IDVY Equity Europe Dividend -9.2% 3.9% -5.3%
HMEF Equity EM Normal         -10.3% 2.0% -8.3%
SLXX Bond UK Corporate -11.0% 1.5% -9.6%

* investment trusts, classified as ETFs

For the sake of completeness, the turnover was 58.7% on this aggregate portfolio and commissions plus taxes were 0.09%. 

You already know it was stocks good (but relatively bad), bonds bad (but relatively good), so how do we end up overall? Pretty good actually, the XIRR on all my long only investments was 5.9% which compares well to my usual benchmark, Vanguard 60:40 which returned 3.8%. However, mostly that is because my average equities allocation of around 92% cash was much higher, and equities outperformed bonds. Exactly 4% of that return was dividends.

Let's have a quick look at some history before discussing the benchmark.

2016 - 2017 XIRR  22.3%, benchmark   17.7%
2017 - 2018 XIRR   1.3%, benchmark   1.3%
2018 - 2019 XIRR   4.0%, benchmark   7.2%
2019 - 2020 XIRR -17.5%, benchmark -10.5%
2020 - 2021 XIRR +34.8%, benchmark +21.5%
2021 - 2022 XIRR  +5.9%, benchmark  +3.8%

Std. dev        Me 18.1%  benchmark 11.6%

I have said this before but it might seem a bit weird to have a 60:40 benchmark, when my long run cash allocation is closer to 80:20. The reason I have done this is because on my overall portfolio including futures trading I expect to hit vol closer to 60:40 due to diversification effects (despite my futures trading being run at 25% vol) - as you will see later, this is broadly correct. And I didn't want to use a different benchmark, because I was lazy. And indeed, the standard deviation differences above clearly show that I am running at a higher vol than 60:40

Normally changing benchmarks is cheating, but in this case it will actually make me look worse, so I hope you will allow it. So here are the restated figures again for Vanguard 80:20 as a benchmark:

2015 - 2016 XIRR   6.1%, benchmark    0.1%
2016 - 2017 XIRR  22.3%, benchmark  25.0%
2017 - 2018 XIRR   1.3%, benchmark   2.9%
2018 - 2019 XIRR   4.0%, benchmark   9.3%
2019 - 2020 XIRR -17.5%, benchmark -10.7%
2020 - 2021 XIRR +34.8%, benchmark +32.6%
2021 - 2022 XIRR  +5.9%, benchmark  +7.9%


Std. dev        Me 18.1%  benchmark 15.6%

Mean            Me 8.5%   benchmark 11.1%

Sharpe Ratio    Me 0.47   benchmark 0.72       

Geometric mean  Me 7.2%  benchmark  10.2%


The risk here still isn't spot on, but it's closer and since 80:20 is my long term target I think this new benchmark makes sense. On this revised basis then I underperformed this year, with 5.9% worse than the Vanguard 80:20 benchmark of 7.9%. This was despite my tactical weightings looking more like 90:10; but as we already know the 90% I put in stocks didn't do so well versus the benchmark. In fact a 90:10 Vanguard would have earned around 9.2%, so clearly my intra asset allocation was a bit rubbish especially in stocks.


Futures trading 

So far it's not going well, but don't worry futures will save the day :-)

Here are some statistics (all as a percentage of initial capital at the start of the year):

MTM: 24.7%
Interest: -0.07%
Fees: -0.09%
Commissions: -0.58%
Margin held, FX gain/loss: 3.1%

Net futures trading: +27.0%


Let's start with the long view:
And what about last year?





Basically I had a fairly jumpy few months where I made a small net gain, then 'Black Friday', a few days in November when I lost bigly, and then of course the acceleration of the last few months. This run up ended on March 9th when there was a modest loss resulting in my risk being cut and many positions being closed. Since then I'm pretty flat.

Which markets did I make profits in?

    codes   pandl
0    Bond  -5.0
1  Metals  -2.0
2  Sector  -0.3
3     Vol   0.6
4      FX   0.9
5  Equity   1.0
6     Ags   5.1
7  OilGas  21.7

These don't add up to the total p&l for reasons I haven't got time to check now, but the general pattern is clear. This really was the year of the energy markets, with a small contribution from the Agricultural markets offset by poor performance in bonds where I struggled to deal with the bear market. This is borne out by the p&l by market list:


           codes  pandl
0           PLAT   -2.7
1            AEX   -2.5
2           BUND   -1.4
3        LEANHOG   -1.3

<SNIP>
67           OAT    1.0
68         SP400    1.2
69           VIX    1.5
70   SP500_micro    1.6
71  NASDAQ_micro    1.6
72   GAS_US_mini    1.6
73           JPY    1.9
74           SMI    2.2
75       SOYBEAN    2.8
76          CORN    2.8
77    BRENT-LAST    4.1
78  CRUDE_W_mini    4.9
79       HEATOIL    5.1
80     GASOILINE    5.7


How about costs? Total slippage was a rather hefty 2.4%, which meant I paid around 3% in total costs. This is more than I normally pay (my backtest says 1%), but I have made quite a few changes to my models this year. My new dynamic trading strategy includes costs in it's optimisation, and I've become more systematic in excluding markets that are too price to trade, so I'm comfortable this will be back under control next year.

My slippage would have been higher but I earned about 0.5% using my simple execution algo which reduced it. 

Well 27% certainly shoots the light out in absolute terms, and beats the pants off the long only benchmarks, but what about on a relative basis?

As I've done in previous years I compare this to two benchmarks, 'Bench2' the SGA CTA index, and a 'Bench1' a fund run by AHL, my ex employers. The former has daily data, but for the latter I have monthly data only, this the figures are April to March. Both benchmarks are normalised so they have the same standard deviation. I redo this normalisation every year, so the figures here won't be exactly comparable to previous years.

On this basis I returned 27% versus 38.3% for SG CTA and a loss of -4.9% for AHL. It's clearly been an excellent year for trend following, especially in the last few months; the underperformance of AHL is somewhat puzzling but they had a pretty poor January which meant that a good March didn't really get them back in the game.

My historic figures here are only for futures trading (including FX margin mark to market) - remember I used to have an equity hedge component as well. 

     My futures Bench1 Bench2
2014 – 2015 58.2% 65.9% 50.7%
2015 – 2016 23.2% -8.2% -1.6%
2016 – 2017    -14.0% -5.8%  -25.5%
2017 – 2018     -3.7%  7.0% -4.4%
2018 – 2019  5.2%  7.6%  0.8%
2019 – 2020 39.7% 21.3%  9.3%
2020 – 2021  0.4%  0.7% 12.7%
2021 – 2022 27.0% -4.9% 38.3%

Correlation      1.0     0.73    0.80

Mean         17.0% 10.5% 10.0%

Sharpe ratio 0.70  0.43  0.41

Geometric mean 14.8%  8.5%  7.7%


Of course I don't charge fees so perhaps the comparison is slightly unfair, but I'm still pretty happy with that. On a long run basis I'm outperforming both Bench1 (which did very well prior to this year) and Bench2 (which has done particularly well in the last couple of years). 

It's worth noting that my daily and monthly Sharpe Ratios are better than those shown above; this is characteristic of positive skewed assets.


Everything

Well all that remains is to add up the futures and long only performance, and see what the aggregate scorecard is. The denominator here will be the total value of all the securities and investable cash I have, including both cash for futures margin and any temporarily univested cash in other accounts. I do exclude some cash I hold as a buffer, since that can't be invested. 

The bottom line is 8.2% vs the Vanguard 60:40 benchmark of +3.8%. Dividends were 3.2% (less than the 4% before since the capital base is larger, including the dividend cash). Here's the history:

2015 - 2016 XIRR 14.4%, benchmark   0.1%
2016 - 2017 XIRR 18.2%, benchmark  19.3%
2017 - 2018 XIRR  0.6%, benchmark   1.3%
2018 - 2019 XIRR  4.4%, benchmark   7.2%
2019 - 2020 XIRR -6.6%, benchmark -10.5%
2020 - 2021 XIRR 27.9%, benchmark  21.0%
2021 - 2022 XIRR  8.2%, benchmark   3.8%

Std. dev        Me 11.7%  benchmark 10.9%

Mean            Me 9.1%   benchmark 5.9%

Sharpe Ratio    Me 0.78   benchmark 0.54       

Geometric mean  Me 8.6%  benchmark  5.4%


Note: My historic figures include the 'equity hedge' part of my portfolio which I used to have prior to this year. 

As you can see the standard deviations above are fairly close, so it seems appropriate to continue using Vanguard 60:40 as the benchmark for this part of my portfolio. The correlation - with only six observations - is 0.96. I have had three years of underperformance, followed by three years of outperformance. I'm ahead, but probably not enough to be statistically significant. Of course the latter three years span the whole COVID crisis plus Ukraine; I don't know if that is important.


Summary

It's worth briefly reviewing my plans from last year:


 I've brought some more rigour to my methodology (in the form of the model portfolio) and also done some cleaning and tidying to simplify things (removing the equity hedge).

 UK stockpicking has obviously done well, but I have no interest in substantially increasing the size of my book here, that's now up to 25 names and is also a fraction over it's tactical target allocation. 

There are 24 names listed above, although I just bought another post the end of year so that's going well. The allocation has been fairly constant.

I'm happy with my new model portfolio based approach to managing my ETF exposure; now much more formally in line with the sort of thing outlined in Smart Portfolios, and only a few minutes of work every month to keep updated. 

I'm currently in the middle of a massive refactoring of my pysystemtrade research code; once completed I hope to research and implement some new futures trading systems. Watch this space!


For this year, as I've already mentioned, I am doing some more cleaning up by making one account a pure UK stock picking account. On the futures side I'm hoping to implement some of the new trading strategies I have been researching as part of my new book, which I'm going to go back to writing once I press 'pubish'.