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EGPAR

(Explosive Growth Portfolio Annual Report)

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Return

The return during the inception year was -6.5% which is 21.5 percent units below the 15.0% annual return target. With a volatility target of 20.0% its not a rare outcome although not a very pleasant one. The Alpha, Beta and Risk-Free sources contributed with -0.8%, -5.0% and -0.7% respectively. The benchmark - the US stock market - returned -7.4%.

The Alpha return was 8.8 percent units below its annual target of 8.0%. This equals -0.55 standard deviations based on its 16.0% volatility target. The Beta return was 9.5 percent units below its annual target of 4.5%. This equals -0.79 standard deviations based on its 12.0% volatility target.

The Risk-Free return was 3.1 percent units below the 2.4% inflation which is 3.6 percent units below the 0.5% long-term inflation outperformance expectation.

The benchmark used prior to the 2018 re-inception - the Solar ETF TAN - returned -25.7%, which indicates that the decision to broaden the stock exposure from the solar industry only to cover all sectors of the global economy had a fortunate short-term timing.

Volatility

The annualized daily volatility during the inception year was 21.5% which is 1.5 percent units above the 20.0% long-term target. The Alpha and Beta volatility were 16.5% and 12.6% respectively. The benchmark volatility was 16.9%.

The Alpha volatility was 0.5 percent units above its long-term target of 16.0%. The Beta volatility was 0.6 percent units above its long-term target of 12.0%.

The volatilities, both on component basis and in total, has been very in line with targets. The Beta component is expected vary quite a lot, while the Alpha component is expected to be much more consistent and also to help the total to be more consistent than the Beta component. 

The TAN volatility was 24.8%.

Drawdown

The maximum drawdown recorded during the year was 25.2%. The longest drawdown recorded during the year lasted 150 days. The maximum benchmark drawdown recorded during the year was 20.1%. The longest benchmark drawdown recorded during the year lasted 210 days.

The maximum Alpha drawdown recorded during the year was 13.6%. The longest Alpha drawdown recorded during the year lasted 122 days. The maximum Beta drawdown recorded during the year was 15.2%. The longest Beta drawdown recorded during the year lasted 210 days. 

The Alpha source having shorter and less deep drawdowns relative to its volatility compared to the Beta source is what is expected over the long-term since the Alpha volatility is expected to be more normal than the more, well, volatile Beta volatility. Already during this inception year the Beta source showed its more ugly side of short-term volatility spikes, while the Alpha source showed its expected lack of such ugly behaviour. 

The maximum drawdown of TAN was 34.3% and lasted 224 days.

 

Income Statement

Asset Value Growth: 0.5%

Dividends: 2.4%

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Fees: -2.5%

Interest: -4.5%

Tax: -2.4%

====================

Result: -6.5%

 

This inception year included one-time restructuring charges as asset and capital structure went through a major makeover. All three types of expenses were all massively impacted by this. These charges totalled more than half of the total expenses.

 

Outlook

The total expenses are expected to be cut in half during 2019 as no more restructuring charges are expected. The dividend contribution will likely go down to around 2.0%. The minimum asset value growth required for a positive result in 2019 is therefore around 3%. A positive 2019 result is expected. To reach the 15.0% compounded annual growth rate (CAGR) since inception target an asset value growth of 45% during 2019 will be required. This is not expected as the market recovery time might not be long enough during 2019 depending on when it bottoms. One more year is therefore expected to be needed to reach the CAGR target.

 

Edited by explo

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