Invest Without Emotions
A lot of thick blue squares mean that positive correlations are high. Red squares mean negative correlations are high. Whites are the doldrums.
During our discussion on Relative Strength Spread, we saw how the relative performance between winners and losers were compressed in the bear markets of 2011, 2012 and 2013. During these doldrums, most active investment strategies fail to outperform their benchmarks. Since most mutual fund investments span multiple bull and bear markets, it makes sense to have a look at how funds performed in the most recent bear market.
For our analysis, we took funds that had more than 90% allocated in equities and ignored sector and international funds. We then applied the same benchmark, the CNX Midcap Index, to make sure that we had an apples-to-apples comparison. A total of 200 funds were analyzed.
| Fund | IR | IRR |
|---|---|---|
|
-0.99
|
-0.29
|
|
|
-0.48
|
-0.21
|
|
|
-0.44
|
-0.21
|
|
|
-0.43
|
-0.17
|
|
|
-0.28
|
-0.16
|
|
|
-0.11
|
-0.12
|
|
|
-0.00
|
-0.10
|
|
|
0.01
|
-0.09
|
|
|
0.02
|
-0.09
|
|
|
0.07
|
-0.08
|
| Fund | SHARPE | IRR |
|---|---|---|
|
-0.02
|
-0.29
|
|
|
-0.01
|
-0.21
|
|
|
-0.01
|
-0.21
|
|
|
-0.01
|
-0.17
|
|
|
-0.01
|
-0.16
|
|
|
-0.01
|
-0.12
|
|
|
-0.00
|
-0.09
|
|
|
-0.00
|
-0.08
|
|
|
-0.00
|
-0.09
|
|
|
-0.00
|
-0.10
|
| Fund | BETA | IRR |
|---|---|---|
|
1.19
|
-0.29
|
|
|
1.15
|
-0.21
|
|
|
1.07
|
-0.21
|
|
|
0.98
|
-0.17
|
|
|
1.02
|
-0.16
|
|
|
0.84
|
-0.12
|
|
|
0.92
|
-0.10
|
|
|
0.91
|
-0.09
|
|
|
0.92
|
-0.09
|
|
|
0.90
|
-0.08
|
| Fund | BETA BEAR | IRR |
|---|---|---|
|
1.18
|
-0.29
|
|
|
1.13
|
-0.21
|
|
|
1.09
|
-0.21
|
|
|
0.98
|
-0.16
|
|
|
0.95
|
-0.17
|
|
|
0.95
|
-0.09
|
|
|
0.93
|
0.07
|
|
|
0.91
|
0.09
|
|
|
0.91
|
0.04
|
|
|
0.91
|
0.04
|
| Fund | DRAW DEPTH | IRR |
|---|---|---|
|
-48.31
|
-0.29
|
|
|
-45.71
|
-0.21
|
|
|
-41.83
|
-0.21
|
|
|
-37.54
|
-0.16
|
|
|
-36.49
|
0.06
|
|
|
-35.52
|
-0.17
|
|
|
-34.50
|
-0.09
|
|
|
-33.43
|
0.01
|
|
|
-33.33
|
-0.05
|
|
|
-32.50
|
-0.12
|
| Fund | DRAW LENGTH | IRR |
|---|---|---|
|
715.00
|
-0.09
|
|
|
715.00
|
-0.00
|
|
|
715.00
|
-0.06
|
|
|
715.00
|
-0.17
|
|
|
715.00
|
-0.04
|
|
|
715.00
|
-0.03
|
|
|
715.00
|
-0.02
|
|
|
715.00
|
-0.02
|
|
|
715.00
|
-0.12
|
|
|
715.00
|
-0.08
|
| Fund | IR | IRR |
|---|---|---|
|
2.23
|
0.33
|
|
|
1.69
|
0.25
|
|
|
1.66
|
0.30
|
|
|
1.65
|
0.31
|
|
|
1.64
|
0.29
|
|
|
1.61
|
0.32
|
|
|
1.44
|
0.20
|
|
|
1.43
|
0.20
|
|
|
1.41
|
0.24
|
|
|
1.35
|
0.19
|
| Fund | SHARPE | IRR |
|---|---|---|
|
0.04
|
0.36
|
|
|
0.03
|
0.33
|
|
|
0.03
|
0.32
|
|
|
0.03
|
0.31
|
|
|
0.03
|
0.29
|
|
|
0.03
|
0.30
|
|
|
0.03
|
0.30
|
|
|
0.03
|
0.30
|
|
|
0.03
|
0.27
|
|
|
0.03
|
0.18
|
| Fund | BETA | IRR |
|---|---|---|
|
0.50
|
0.36
|
|
|
0.76
|
0.33
|
|
|
0.73
|
0.32
|
|
|
0.69
|
0.31
|
|
|
0.76
|
0.30
|
|
|
0.70
|
0.29
|
|
|
0.73
|
0.25
|
|
|
0.71
|
0.24
|
|
|
0.69
|
0.24
|
|
|
0.68
|
0.22
|
| Fund | BETA BEAR | IRR |
|---|---|---|
|
0.43
|
0.18
|
|
|
0.55
|
0.21
|
|
|
0.55
|
0.07
|
|
|
0.56
|
0.36
|
|
|
0.64
|
0.12
|
|
|
0.65
|
0.17
|
|
|
0.66
|
0.16
|
|
|
0.67
|
0.09
|
|
|
0.68
|
0.19
|
|
|
0.68
|
0.14
|
| Fund | DRAW DEPTH | IRR |
|---|---|---|
|
-12.06
|
0.18
|
|
|
-14.30
|
0.17
|
|
|
-14.33
|
0.18
|
|
|
-16.95
|
0.32
|
|
|
-17.01
|
0.22
|
|
|
-17.30
|
0.20
|
|
|
-17.44
|
0.15
|
|
|
-17.45
|
0.16
|
|
|
-17.66
|
0.17
|
|
|
-17.96
|
0.14
|
| Fund | DRAW LENGTH | IRR |
|---|---|---|
|
113.00
|
0.18
|
|
|
145.00
|
0.17
|
|
|
147.00
|
0.36
|
|
|
172.00
|
0.33
|
|
|
229.00
|
-0.01
|
|
|
232.00
|
0.24
|
|
|
235.00
|
0.32
|
|
|
238.00
|
0.03
|
|
|
258.00
|
0.30
|
|
|
266.00
|
0.20
|
The Birla MNC fund stands out as one having the most points in its favour: low and shallow drawdown, better sharpe and higher returns. The next stand outs were the Axis Long-term equity fund and the Mirae Asset Emerging Bluechip Fund.
In terms of the worst funds, HSBC Progressive Themes was definitely regressive to your wealth. JM Basic and Sundram SMILE funds also laid a deuce.
Mutual funds are marketed as wealth builders. However, the truth is that most of them struggle. At last count, there were more than 5300 different schemes that you could choose from.
Are you getting the right advise? Get in touch with us if you are looking to invest! Call us or Whatsapp us at +918026650232
The Relative Strength Spread takes all the stocks in the CNX 500 index, sorts them by their relative performance vs. the index and takes the ratio between the median relative performance of the top decile and the bottom decile. When you plot the spread, a rising chart indicates that relative strength leaders are performing better than relative strength laggards.
High Relative Strength Spread environments provide the largest momentum profits – winning trades easily eclipse losing trades.
The 365-day RS-Spread chart clearly demarcates the “Modi-Mania.” The Modi-Mania was manna from heaven for trend-following strategies. However, the post-Modi-Mania phase has seem most momentum algorithms struggle.
A silver-lining is that the 50-day chart shows that we are probably due for a momentum comeback. But it is not uncommon to have prolonged periods of the “doldrums” where momentum is just “average.” It maybe tempting to give up on trend-following strategies during these periods. But just like how we cannot predict momentum crashes, we cannot predict momentum comebacks. So it is important to maintain allocation to momentum strategies.
The Relative Strength Spread index can be useful in explaining momentum profits. However, it is not much of a predictor of future momentum returns. It could also be used to explain the “skill vs. luck” question of returns – just like how a rising tide lifts all boats, a high RS-Spread environment will lift all portfolio returns.
Going forward, we will update the 50-day Relative Strength Spread chart on our weekly Index Update posts.
| MINTs | |
|---|---|
| JCI(IDN) | -2.22% |
| INMEX(MEX) | -0.47% |
| NGSEINDX(NGA) | -1.88% |
| XU030(TUR) | -0.74% |
| BRICS | |
|---|---|
| IBOV(BRA) | -0.84% |
| SHCOMP(CHN) | +8.92% |
| NIFTY(IND) | -3.78% |
| INDEXCF(RUS) | +2.66% |
| TOP40(ZAF) | -0.63% |
| Energy | |
|---|---|
| RBOB Gasoline | -3.14% |
| Brent Crude Oil | -3.70% |
| Ethanol | +0.45% |
| Heating Oil | -4.31% |
| Natural Gas | -1.63% |
| WTI Crude Oil | -2.76% |
| Metals | |
|---|---|
| Copper | -1.09% |
| Gold 100oz | -1.74% |
| Palladium | -3.29% |
| Silver 5000oz | -3.59% |
| Platinum | -1.44% |
| MINTs | |
|---|---|
| USDIDR(IDN) | +0.50% |
| USDMXN(MEX) | +2.09% |
| USDNGN(NGA) | -0.17% |
| USDTRY(TUR) | -0.06% |
| BRICS | |
|---|---|
| USDBRL(BRA) | -1.37% |
| USDCNY(CHN) | +0.09% |
| USDINR(IND) | -0.11% |
| USDRUB(RUS) | +7.20% |
| USDZAR(ZAF) | +3.61% |
| Agricultural | |
|---|---|
| Cattle | +0.36% |
| Cocoa | -0.05% |
| Coffee (Arabica) | +6.25% |
| Coffee (Robusta) | +5.63% |
| Corn | +2.49% |
| Cotton | -0.31% |
| Orange Juice | +2.32% |
| Soybean Meal | -0.36% |
| Soybeans | +0.59% |
| Wheat | +8.48% |
| White Sugar | +0.26% |
| Feeder Cattle | -0.40% |
| Lean Hogs | -2.47% |
| Lumber | +6.70% |
| Sugar #11 | +0.58% |
| Index | Change |
|---|---|
| Markit CDX EM | -0.43% |
| Markit CDX NA HY | -0.19% |
| Markit CDX NA IG | +1.22% |
| Markit iTraxx Asia ex-Japan IG | +0.08% |
| Markit iTraxx Australia | -0.48% |
| Markit iTraxx Europe | +1.11% |
| Markit iTraxx Europe Crossover | +9.04% |
| Markit iTraxx Japan | +2.79% |
| Markit iTraxx SovX Western Europe | -0.09% |
| Markit LCDX (Loan CDS) | -0.02% |
| Markit MCDX (Municipal CDS) | -1.87% |
For a deeper dive into indices, check out our weekly Index Update.
| Decile | Mkt. Cap. | Adv/Decl |
|---|---|---|
| 1 (micro) | -6.46% | 61/68 |
| 2 | -4.39% | 51/78 |
| 3 | -7.87% | 53/76 |
| 4 | -5.49% | 48/81 |
| 5 | -3.90% | 56/73 |
| 6 | -5.88% | 54/75 |
| 7 | -3.66% | 58/71 |
| 8 | -3.13% | 53/76 |
| 9 | -3.46% | 60/69 |
| 10 (mega) | -2.78% | 63/66 |
| INFRABEES | +0.14% |
| GOLDBEES | -0.63% |
| CPSEETF | -2.14% |
| JUNIORBEES | -2.45% |
| NIFTYBEES | -3.27% |
| BANKBEES | -6.22% |
| PSUBNKBEES | -7.48% |
| Sub Index | Change in YTM | Total Return(%) |
|---|---|---|
| GSEC TB | +0.33 | +0.06% |
| GSEC SUB 1-3 | +0.37 | -0.38% |
| GSEC SUB 3-8 | +0.20 | -0.95% |
| GSEC SUB 8 | -0.06 | +0.40% |
| Tactical CNX 100 | +0.00% |
| Auto and Consumer Goods Quality to Price | -1.86% |
| Balance Sheet Strength | -2.86% |
| Media, Health, IT, Telecom, Services, Pharma Quality To Price | -3.11% |
| PPFAS Long Term Value | -3.49% |
| Next Trillion | -3.55% |
| Financial Strength Value | -3.64% |
| CNX 100 Enterprise Yield | -3.73% |
| Textile, Metals, Chemicals, Paper and Energy Quality to Price | -3.95% |
| Magic Formula | -3.95% |
| Low Volatility | -4.07% |
| The RBI Restricted List | -4.85% |
| ASK Life | -5.16% |
| Quality to Price | -5.56% |
| Momentum | -6.57% |
| High Beta | -8.95% |
| ADAG stocks | -10.28% |
Thanks to smartphones and the Internet, our options are unlimited, whether it’s a retail item or a romantic possibility. We have all become maximizers.
While we may think we know what we want, we’re often wrong.
Source: Modern Romance
We run our proprietary momentum scoring algorithm on indices just like we do on stocks. You can use the momentum scores of sub-indices to get a sense for which sectors have the wind on their backs and those that are facing headwinds.
Traders can pick their longs in sectors with high short-term momentum and their shorts in sectors with low momentum. Investors can use the longer lookback scores to position themselves using our re-factored index Themes.
You can see how the momentum algorithm has performed on individual stocks here.
Here are the best and the worst sub-indices:
50-day performance, from March 24, 2015 through June 05, 2015:
| Index | Signal | % From Peak | Day of Peak |
|---|---|---|---|
| CNX AUTO | SHORT |
11.07
|
2015-Jan-27
|
| CNX BANK | SHORT |
14.62
|
2015-Jan-27
|
| CNX ENERGY | SHORT |
29.22
|
2008-Jan-14
|
| CNX FMCG | SHORT |
13.62
|
2015-Feb-25
|
| CNX INFRA | SHORT |
49.05
|
2008-Jan-09
|
| CNX IT | SHORT |
88.18
|
2000-Feb-21
|
| CNX MEDIA | SHORT |
27.38
|
2008-Jan-04
|
| CNX METAL | SHORT |
57.85
|
2008-Jan-04
|
| CNX MNC | SHORT |
6.54
|
2015-Mar-12
|
| CNX NIFTY | SHORT |
9.80
|
2015-Mar-03
|
| CNX PHARMA | SHORT |
15.29
|
2015-Apr-08
|
| CNX PSE | SHORT |
25.24
|
2008-Jan-04
|
| CNX REALTY | SHORT |
90.30
|
2008-Jan-14
|