- aggressive 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 the Loose is a proprietary premium strategy by TuringTrader.com. We first introduced the portfolio in early 2020, based on concepts reaching back to 2015. In March 2021, we updated the strategy for higher returns and lower volatility.
Stocks on the Loose aims to beat the S&P 500 at lower volatility and with lower maximum drawdowns. The strategy trades stocks with a momentum approach but gradually rotates into a managed bond portfolio when stock market conditions seem unfavorable to achieve the stated objective.
With its weekly rebalancing schedule, Stocks on the Loose has moderate maintenance requirements.
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 the Loose (v2):
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 the Loose 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 10% 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. These proprietary changes lead to a much more even-keeled behavior and significantly higher returns.
For the Bonds-NOT portfolio we use a custom variant, which has its monthly rebalancing schedule aligned with this portfolio's weekly schedule.
Stocks on the Loose typically allocates 70% to 100% of its capital towards a set of 3 to 5 stocks. In more turbulent times, the strategy rotates into a managed bond portfolio.
With this allocation, the portfolio bears significant concentration risk, in addition to the market risk. Nonetheless, the portfolio's beta is around 0.3, thanks to the strategy's timely active management.
Returns & Volatility
Over the entire economic cycle, Stocks on the Loose outperforms the S&P 500 by a wide margin. Further, the portfolio beats the S&P 500 in many years, even outside of recessions.
This behavior results in more predictable returns and lower drawdowns. The Monte-Carlo simulation confirms these claims.
Account & Tax Considerations
Stocks on the Loose trades frequently and regularly triggers taxable events. Investors should expect almost all capital gains to be short-term. Therefore, the strategy works best in tax-deferred accounts.
Because the strategy holds up to 6 high-flying and potentially expensive stocks simultaneously, it requires an account holding no less than $30,000 to function as intended.