This strategy was developed for investors who want to profit in bull and bear markets, as it can shift between both long and short positions, using both stocks and ETFs.
About the Strategy
The Long Short strategy is effectively two strategies in one. The first strategy is a long momentum strategy, which is run on a pool of equity index ETFs. In short, we buy the strongest three ETFs from a pool of 10, if their price momentum is strong enough. If there is insufficient price momentum, this strategy will hold cash. The second strategy is a short momentum strategy, which is run across the constituents of the S&P 500 and Nasdaq 100, in that we go short the weakness 10 stocks across these two indices. Again, the stocks need to be trending down at a strong enough pace to qualify. day and time of trade execution.
The US Long/Short strategy has been developed and tested by simulating the investment performance over historical stock price data. This allows us to gather performance data based on how this strategy would have performed if we had run them during these prior time periods. The statistics in the table below summarise the results of this testing and compare them to the S&P 500.
|US Long/Short Strategy||S&P 500 Accum Index|
|Construction||Ten of the weakest trending stocks from the S&P 500 and Nasdaq 100 plus three of the strongest ETFs in terms of price momentum||Free-float-adjusted market cap weighted, comprising 500 of the largest US stocks|
|Management||Rebalanced once per month on the 1st of the month||Rebalanced four times per year according to market cap and liquidity|
|Annual Average Return*||15.8% per annum, before fees||5.7% per annum, before fees|
|Worst 12-month Return*||-18.9% (May-2015 to May-2016)||-43.3% (Feb-2008 to Feb-2009)|
*As at 31 December 2018, based on 15 years of back-tested data
Minimum Investment Amount and Period
There is no specific minimum investment amount although the minimum brokerage charged by your broker can put a practical limit on the minimum investment size. For example, if your broker charges a minimum of $10 per trade, this would represent a 0.5% charge on a trade size of $2,000 (portfolio size of $10,000 for five stocks). Given an annual portfolio turnover of approximately four times, this would produce an annual brokerage charge of 4%. In this example, with a minimum brokerage charge of $10, we would recommend an investment of no less than $10,000.
Rivkin recommends a time horizon of at least three years for this strategy due to the possibility of a negative return in any given year. Based on the strategy back-testing, the probability of a positive return over any three-year time horizon is 96% and therefore having an investment time horizon of at least this much maximises the probability of a positive investing outcome.
Fees and Charges
Rivkin’s advice product attracts a fixed annual subscription fee that does not depend on the amount invested. Other than this, the only fees and charges relate to those charged by your broker for trading. Under this model, the more funds you invest in our strategies, the lower the annual cost on a percentage basis. This strategy is also offered in a Separately Managed Account version for which you pay a small management fee for us to follow the strategy on your behalf.
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