TuringTrader's Stocks on a Stroll

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Key Facts

  • momentum strategy
  • risk-parity
  • re-balanced weekly
  • trades individual S&P 100 stocks
  • holds U.S. Treasury bonds to reduce volatility

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Summary

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.

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 U.S. treasury bonds.

The strategy has moderate maintenance requirements, as it rebalances its positions once per week.

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 Stocks on a Stroll:

Asset Allocation

The portfolio last required rebalancing after the exchange's close on n/a. The current asset allocation is as follows:

- Delayed Data -

Review

Strategy Rules

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 the S&P 500 is trading above its 200-day moving average
  • 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 by scaling back exposure with increasing market volatility
  • invest any unused capital in U.S. treasuries

Most of these rules are taken verbatim from Clenow's Stocks on the Move strategy. We therefore recommend reading Clenow's book to better understand the strategy's rationale, and checking the C# source code in the TuringTrader.org repository.

Expanding upon Clenow's work, we improved the money-management to prevent the following issues: concentration in too few assets, taking excessive total portfolio risk, and holding idle cash. Further, we added a significant position of bonds. 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 low volatility.

Diversification

Stocks on a Stroll typically allocates about 40% of its capital toward a set of 4 stocks and reduces this exposure in times of market stress. The portfolio invests the remainder of the capital in U.S. Treasury bonds.

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 0.1.

Returns & Volatility

Over a full economic cycle, Stocks on a Stroll performs about on-par with the S&P 500, even though it is lagging the index most years. This is possible because of its significantly lower risk profile, providing a significant advantage 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 30% of the risk. We typically see comparable 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. While the portfolio holds its Treasury bonds throughout, these mostly lead to interest income, which is taxed immediately. For these reasons, 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.