Weekly Algorithm Review: 12/31/2022 to 01/06/2023
Algorithm Performance This Week
Variable Sector Neutral: +1.07%
Base Algorithm: +0.61%
Variable Market Neutral: +0.39%
Sector Neutral: +0.32%
Long Term Portfolio: +0.3%
Market Neutral: +0.24%
Overall Market: +0.03%
Before getting into our weekly analysis, I want to preface by saying that we changed the composition of our long term portfolio this week. However, algorithm reports were mistakenly generated using our previous portfolio. This week’s analysis will use the actual algorithm reports we published, but the new LTP. We apologize for any discrepancies this may cause.
Compared to last week, this was much better for us. Our base algorithm exceeded the performance of the long term portfolio by a large margin, and the same occurred with our previous long term portfolio. Regardless of the portfolio we used this week, technical analysis did us a lot of favors.
The new portfolio has also had a great week. With the exception of Tuesday morning, it was beating the overall market every minute of the last week. Major shoutout to Vlad - we’re starting 2023 out very strong.
There isn’t much of interest about our results, so instead I’d like to explore the makeup of our new portfolio.
The biggest change we’ve made to our portfolio is reducing our weight in consumer defensive - by 18 percentage points. Other big changes include an 11 percentage point increase in our Utilities allocation, and dropping tech and financials entirely. We’ve replaced most of the capital they used to occupy with energies.
Relative to the S&P 500, our strategy is different in many of the same key ways. We remain heavy in consumer defensive and healthcare, and are still not holding anything in consumer defensive or real estate.
Looking at our exposures tomorrow, the layout is a bit different from recent reports, but I want to highlight that, with the exception of Utilities, our sector and market exposures have increased across the board. This might seem unintuitive - why would we be more tied to tech’s performance when we now hold no tech stocks?
What it comes down to is that no stock represents just 1 sector. Let’s look at AAPL. Officially, it’s a technology company. But if we saw a consumer discretionary crash - say the whole world decided to save money instead of spend it - AAPL would suffer immensely. For this reason, AAPL has a high beta to the consumer discretionary sector.
In short, we’re able to have higher betas because the tickers we’re holding have higher non-primary betas.
That’s all I have for you this week. Thank you for reading, and best of luck trading.
