Monday, 30 April 2012

Risk measures for the previous XIU post

Here are some risk measures for the XIU trading strategies presented in my last post. I considered three investing strategies: buy and hold, a MA(10) trend following strategy, a seasonal switch.The MA(10) trend following strategy produces the highest average annual return (6.85%) and the second largest standard deviation. Based on Sharpe ratios, the MA(10) trend following strategy is preferred. The seasonal strategy has the lowest downside risk while buy and hold has the highest downside risk. Downside risk is measured by semistandard deviations with a benchmark of 0.

b&h ma10 seasonal
mean 3.76 6.85 6.00
stdev 15.79 10.62 10.12
sharpe 0.08 0.63 0.56
downside 11.76 7.30 6.83

Sunday, 29 April 2012

Sell in May? The Case of XIU

As April comes to a close, it is time once again to think about seasonal portfolio strategies. In one of my previous posts, I showed how a seasonal portfolio strategy applied to the TSX provides higher returns and lower risk than a buy and hold strategy.Here is a chart showing how three simple investment strategies for the XIU ETF  compare. The XIU is the most widely traded ETF in Canada and forms the basis of many investment portfolios. The returns are calculated from total returns (price returns plus dividends) over the period July 2000 to March of 2012. The MA(10) switch portfolio uses a moving average trend following strategy by comparing monthly closing prices with a moving average of length ten. Buy or hold the XIU when the monthly close of the TSX is above the 10 month moving average and sell the XIU and invest in 3 month T bills if the monthly close falls below the 10 month moving average. The seasonal switch portfolio invests in the XIU during the 6 month period November to April and then at the end of April the portfolio is sold and the money held in 3 month Treasury bills. The chart shows how a $100 investment made in July of 2000 has performed.The MA(10) switching strategy outperforms the seasonal switch portfolio which in turn outperforms buy and hold.