Backtesting for Validation

 

We believe our clients deserve more than just a promise to simply "do our best" in managing. their investments. 

 

So we subjected our ETF selection hypotheses to extensive back-testing using actual closing price data through a full market cycle...top to bottom and back up again.

 


(click on image to enlarge)

S&P 500 statistics: Yahoo Finance.com

 

In "results-blind" backtesting , we belive our three models performed admirably...even during the steep '07-'09 downturn. While the S&P 500 plummeted by 51.5%1, the worst peformer of our models aided by our "move to money market" signal eased by just -10.64% (9/30/07-2/28/2009, net of fees).

 

This type of performance illustrates the potential power these models offer. By measuring and reacting methodically to trending markets, the monthly reallocation of your holdings may adjust to avoid riding the cycle down or missing opportunities on the way back up.

 

Backtested hypothetical performance results across a 7 year market cycle (9/30/07-9/30/14) would have produced a 310% increase (net of maximum fees) from our Growth model...while the S&P 500 Index gained just 23.61%1 during the same period.

 

The markets may yet deliver more growth before a major downcycle sets in but inevitably, we believe a downturn will occur and when it does, it will be vitally important to protect.

 

While "timing the market" may be impossible,  frequent re-evaluation and reallocation that relies on algorithms rather than emotions, may help shield your portfolio from most of the downturn while still capturing much of the rebound.

 


1 Source: Yahoo Finance.com

Alpha is a measure of the excess return of the portfolio compared to the market as a whole.

Beta is a measure of the volatility of a portfolio compared to the market as a whole

Standard Deviation is a statistical measure of the historical volatility of a portfolio.

Drawdown depicts the percentage drop from the start of the period to the lowest end of month value

Sharpe Ratio is the measure of a portfolio’s return relative to its volatility. The higher the Sharpe ratio, the better a portfolio’s performance has been relative to the risk it has taken on.

Historical data used to produce hypothetical performance resuts assume maximum fees but do not include dividends for either the models or the index.

Client results may differ from model performance results. The models'performance numbers represent backtested results using monthly reallocations. The time period selected was chosen to reflect an entire market cycle. Results were achieved by using actual performance of ETFs  selected based on the model algorithms,not from actual client or firm accounts. Backtesting results evaluate the weighted average price gains of the 4 funds selected each month in equal dollar amounts and are adjusted for maximum fees and maintenance of an .8% cash allocation.No inference should be drawn that individual accounts will achieve similar results. Model performance shown is not indicative of any particular client account. Past performance is no guarantee of future results. The models select exchange traded funds based on price momentum and volatility factors, using a quantitative, rules based approach designed to provide returns that exceed the S&P 500 Index over time. There are risks involved with investing in ETFs, including possible loss of money. Index-based ETFs are not actively managed.  There can be no assurance that identified historical trends will continue. As with all investments, share prices can fall because of weakness in the broad market, a particular industry, or specific holdings. Not all clients of Woodwell Asset Management are invested in these models.

The S&P 500 is an unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. Indices are unmanaged, do not incur fees or expense, cannot be invested into directly and individual investor’s results will vary.