Update 24-Jul-2018 - I have now included the H2 rebalanced portfolios towards the bottom of this article.

16-Jan-2019 : Just for the archive - I have now published the 2019 results in a separate article which can be found by following this link



Why would one want to use the StockRanks to underperform?

Quite simply to create a short selling portfolio to “hedge” a NAPS style portfolio.

As I have alluded to elsewhere, in particular here, I have for some time been  nervous about a market correction, but do not really think I can judge when one might happen (nor even perhaps recognise when it is happening or when it will end).

Late last year, whilst reading through Ed Croft’s excellent series of articles on the NAPS portfolio, the thought came to me that maybe one could  use a similar approach based on low SRs to create a short selling portfolio to hedge the NAPS. I do not claim this to be a novel thought I’m sure many have had the same idea.

The pen picture I had in my mind was that if NAPS could achieve returns of c. 30% pa in a bull market, perhaps a low SR selection would only achieve perhaps 10% pa. So a 30% gain on NAPS offset by a 10% loss going short on anti-NAPS would give an overall return of 10%pa [(30-10) /2 as twice* the capital is deployed ] in a bull market,  whilst giving substantial protection against a market downturn, by virtue of being market neutral.

A subsequent review of the Stock Ranks Performance suggests I was maybe being a little conservative.

Over 5 years SRs 0-20 rather than rising by 10% pa has in fact fallen by c. 10%pa. Over the same period SRs 80-100 have risen by c. 14% pa (much less than NAPS) so the differential appears to be c. 24% pa , not far away from the 20% in my mental pen picture.

Thus was born the idea for my two Brokefolios (“Broke” being a flimsy pun on the half yearly SNAPS approach) which I constructed at the turn of the year, broadly contemporaneous with Ed’s latest NAPS. I had intended to write this up in January, but unfortunate family circumstances kept me largely away from the market…

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