Independent Backtest by a Responsible BOH Subscriber before Trading Philippine Stocks
Updated: Mar 30, 2018
One thing we’ve been very transparent about is our stock selection process. We use models to rank stocks and pick the potential winners in the stock market. We optimize our model portfolios to cater to members with different risk tolerance. And we deploy fully invested model portfolios and re-balance them every three weeks without considering market timing. Since we launched our BOH Momentum and Low Volatility portfolios, both have generated superior returns and outperformed the PCOMP Index.
As a responsible investor, you should never take our word for it. You should always backtest results before trading Philippine stocks and see if the results were because of some lucky pick or something else. This is what one enterprising new subscriber did since he joined us three weeks ago. He ran his backtests and subjected the model components to different scenarios, which included just investing in the top five names with the largest momentum weights, investing all-in on the the top 1 pick at each re-balancing period, and even developing his own re-scaled stock weighting scheme to preserve the rankings of the top five picks.
Here are his results.
First, he backtested the published result and he was able to roughly approximate the gross returns generated from the BOH Momentum Model Portfolio. His backtest showed a gain of +45.56% versus the published result for the momentum weighted version of the #BOHMOM of +43.72%. What this means is that the published result is accurate and that we call it as we see it without fudging the performance of the portfolio.
Next, he wanted to see what would happen if he only invested in the stock with the highest momentum weight at each re-balancing period. Recall, the BOH Momentum Model Portfolio is comprised of 11 names with each name in our dynamic portfolio assigned weights based on momentum. The result was mind blowing.
From January 31 to June 27, a strategy of investing in only the weighted stock in the #BOHMOM portfolio generated a whoping +150% return during the period. The hit rate was 75% with the strategy printing negative periods during the April 6 and April 25 re-balancing. It was also during this period, the portfolio suffered a -16% drop after being flat the period before that. What is amazing about the backtest was how the strategy managed to more than recover from the -16% drop and register three straight periods of outperformance to deliever the +150% return by the end of June.
To arrive at a healthy compromise between investing in 11 names and going all-in on the top momentum weighted stock, he also back-tested what will happen if he repeatedly invested only in the top five momentum weighted names. In the table above, you can see that the strategy generated a +61.65% return during the same period. Not bad, right?
Finally, for fun, he summarized how returns are affected by the number of stocks included in the portfolio.
This is in-sample backtesting of our BOH Momentum Model Portfolio conducted independently by a responsible investor who only joined BOH three weeks ago.