TuringTrader's Round-Robin

Last updated on .
Download as CSV

Key Facts

  • momentum strategy
  • re-balances monthly
  • trades sector and style-box ETFs
  • holds bond ETFs in risk-off periods

Tags

Summary

Round-Robin is a proprietary premium strategy developed by TuringTrader.com. It was introduced in November 2020 and is based on work published by Scott M. Juds in 2016 and 2017.

Round-Robin aims to continually beat the S&P 500 while avoiding deep drawdowns during recession periods. It does so by using market-regime detection to switch between separate momentum-based asset-rotation strategies for bull and bear markets.

The strategy has low maintenance requirements. It only rebalances its positions once per month, and it holds no more than two ETFs at a time.

Performance

The chart above shows the portfolio’s historical performance and drawdowns, compared to their benchmark, throughout the simulation. The chart below shows the portfolio’s annual returns:

This table shows the performance metrics for TuringTrader's Round-Robin:

Asset Allocation

The portfolio last required rebalancing after the exchange's close on n/a. Due to fluctuations in asset prices and portfolio values, the exact allocations vary daily. The current asset allocation is as follows:

- Delayed Data -

Review

Strategy Rules

The operation of Round-Robin can be summarized as follows:

  • detect market-regime by combining economic indicators with S&P 500's momentum and volatility
  • in bear markets, use a momentum strategy trading various debt instruments
  • in bull markets, use two momentum strategies: one trading sector ETFs, the other trading -box ETFs
  • for each momentum strategy
    • create a benchmark through equal-weighting the traded assets
    • determine momentum relative to this benchmark
    • use walk-forward optimization to continually adjust the momentum filters

Our background article, Low-Noise Momentum Strategies, describes Round-Robin's operation in more detail. The strategy's mechanics were adapted from Scott M. Juds' book Conquering the Seven Faces of Risk. For those interested in a better understanding of the strategy's rationale, we recommend reading Juds' book.

Diversification

Round-Robin typically invests in only two ETFs at a time. While these ETFs cover a wide array of individual companies, the strategy focuses on only one sector and one style. However, as market conditions evolve, Round-Robin rotates from one asset to the next. Juds calls this concept serial diversification.

Round-Robins' serial diversification aims to position the portfolio well to cope with current market conditions. The market-regime detection serves as an additional safeguard, allowing to react swiftly to changes in sentiment, and move the portfolio into a risk-off state. The effectiveness of these mechanisms manifests itself in Round-Robin's low beta of less than 0.5.

Nonetheless, Round-Robin is first and foremost a stock-market strategy. Therefore, we see its primary use in conjunction with other strategies, which offer diversification into additional asset classes.

Returns & Volatility

Unlike many strategies that beat the S&P 500 index only over the full economic cycle, Round-Robin beats its benchmark in most years. Through switching between separate bull- and bear-market portfolios, the strategy further expands its lead on the benchmark during recession periods.

The Monte-Carlo analysis shows that Round-Robin creates an impressive upside over the S&P 500 benchmark while at the same time maintaining a significantly lower risk profile. Notably, Round-Robin managed to yield positive returns in all of the years simulated and rarely suffered deeper drawdowns than its benchmark.

Account & Tax Considerations

Round-Robin trades frequently and will trigger taxable events regularly. Investors cannot expect to hold any assets long enough to qualify for long-term treatment of capital gains. Therefore, the strategy works best in tax-deferred accounts. However, thanks to Round-Robin's significant upside, we expect the strategy to even add value in taxable accounts.

Because the strategy holds no more than two ETFs simultaneously, it can function as intended with account values as low as $2,000.