- momentum strategy w/ risk-parity position-sizing
- rebalances weekly
- trades individual S&P 100 stocks
- holds a managed bond portfolio to reduce volatility
Stocks on a Stroll is a proprietary premium strategy by TuringTrader.com. It was introduced in early 2020, based on concepts reaching back to 2015. We updated the strategy for higher returns and lower volatility in March 2021.
Stocks on a Stroll aims to provide market-like long-term returns at significantly lower volatility. It does so by combining a momentum strategy trading individual stocks with a healthy position in a managed bond strategy.
The strategy has moderate maintenance requirements, as it rebalances its positions once per week.
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 Stocks on a Stroll:
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:
The operation of Stocks on a Stroll can be summarized as follows:
- trade all S&P 100 stocks, plus U.S. treasuries as a risk-off asset
- rebalance once per week (on Wednesdays)
- disqualify stocks trading below their 100-day moving average
- disqualify stocks that made any single-day moves exceeding 15% in the past 90 days
- rank stocks by their volatility-adjusted momentum, calculated as the product of slope and R2 of a 90-day logarithmic regression
- only open new positions, if TuringTrader's Market Vane indicates bullish conditions
- use fixed-fractional position sizing, based on the 20-day average trading range
- ensure healthy position sizes by limiting total portfolio risk, capping the maximum allocation to a single stock, and scaling back exposure with increasing market volatility
- invest any unused capital in TuringTrader's Bonds-NOT portfolio
Most of these rules are taken verbatim from Clenow's Stocks on the Move strategy. We recommend reading Clenow's book to understand the strategy's rationale better.
Expanding upon Clenow's work, we improved the money management to remedy the following issues: concentration in too few assets, taking excessive total portfolio risk, and holding idle cash. Further, we added a significant position in our Bonds-NOT portfolio. These proprietary changes give the portfolio a docile personality: Instead of creating outsized returns, Stocks on a Stroll focuses on achieving a smooth equity curve with minimal volatility.
Stocks on a Stroll typically allocates between 25% and 40% of its capital to 4 stocks and reduces this exposure in times of market stress. The portfolio invests the remaining capital in our Bonds-NOT portfolio.
With this allocation, the portfolio offers some intrinsic protection against market crashes, which is further augmented through its active management. As a result, Stocks on a Stroll has a remarkably low beta of less than 0.25.
Returns & Volatility
Stocks on a Stroll offers a significantly lower risk profile than a passive 60/40 portfolio. At the same time, the strategy beats its benchmark in many years. Over the entire economic cycle, Stocks on a Stroll beats the S&P 500, even though it is lagging the index most years. This is possible because the portfolio avoids steep losses in times of market turbulence.
The Monte-Carlo simulation shows Stocks on a Stroll's admirably flat risk and return profiles. The portfolio has a solid upside over the benchmark, but only about 40% of the risk. We typically see similar risk profiles only in bond-heavy cross-asset portfolios, e.g., Robbins' All-Seasons Portfolio, and at the expense of absolute returns.
Account & Tax Considerations
Stocks on a Stroll trades frequently and will trigger taxable events regularly. Investors should expect that shares are seldom held long enough to qualify for long-term capital gains. Consequently, the strategy will work best in tax-deferred accounts.
Because the strategy holds up to 4 high-flying and potentially expensive stocks simultaneously, it requires no less than $15,000 to function as intended.