Downsizing the DTAYS Quantitative Growth Fund

quantitative growth

quantitative growthI have spent quite a bit of time over the past few weeks looking at the backtesting results that Cesar Alvarez provided me with for the DTYAS Quantitative Growth Fund. I have openly discussed many of the changes that I have implemented on account of these results. I switched the ATR-based trailing stop to a multiple of 5. I also added Cesar’s historical volatility filter.

The one adjustment that I have been really dragging my feet on implementing has been reducing the number of positions held by the fund from 20 to 10. Cesar’s research showed that a portfolio of 10 stocks outperformed a portfolio of 20 stocks in just about every possible variation of the QG fund. The maximum drawdown numbers show that the idea that 20 stocks is safe than 10 is giving me a false sense of security about the entire portfolio.

The main reason that I have not yet switched to the 10 position model is that I am not exactly sure how to transition the positions I currently have into the new portfolio structure. This weekend, I came up with a simple solution: I won’t. I am going to just leave the current positions alone and let them run their course. Then, any new positions will simply replace two old positions. This will let the old positions run their course, while at the same time transitioning me to the new portfolio structure.

When I begin trading the QG Fund System with real capital, there is a good chance that I will be doing so with limited capital. Switching to the 10 position version will cut the number of trades to less than half of the 20 position model. This will significantly reduce the amount of commission drag and allow me to trade successfully with much less capital.

As a side benefit, I will be able to better track and talk about each and every individual position. While this means nothing in terms of the success of the strategy, it should make for more entertaining blog posts.

Another change that I am making this week is to bring back the 12% initial stop-loss. With the 5-ATR trailing stop already in place, there is probably no need for this initial stop, but since it is incorporated in all of the backtesting, I want to make sure it is at least present in my ongoing forward testing.

The Impact of Cesar’s Research

I’ve said multiple times now that I would surely have given up on the QG Fund by now without the thorough backtesting work that Cesar provided me with. Using his work as concrete evidence to support the changes I have made since the fund’s inception has provided me with a great sense of confidence. I cannot say enough that I would probably have quit without his help and insight.

Had I known about the services Cesar offers through Alvarez Quant Trading before interviewing him, I probably would have been too intimidated to ask for his help. However, you can tell by listening to our podcast interview that he is thrilled to be a part of developing any system. If you are working on putting together your own system, I highly suggest that you reach out to Cesar and put his experience to use!

Overall Fund Performance

This was a really tough week for the DTAYS Quantitative Growth Fund. We came into the week just a bit under break-even, and then the bottom started to fall out. Almost every position in the fund lost ground this week, and many of them are no longer with us.

The overall value of the fund has dropped to $94,749.49, which represents a loss of 5.25% on the year. This is not an awful drawdown, but it is depressing that it puts the QG Fund further behind the indexes. Of course, a big part of the reason that we are trailing the indexes has been fixed by Cesar’s adjustments, but we might have just missed out on the best opportunity to make money this year. Time will tell, and there will be more opportunities eventually.

Here is what the holdings of the DTAYS Quantitative Growth Fund look like this weekend:

quantitative growth

Stocks Leaving the Fund

We saw nine different stocks break their 5-ATR trailing stops this week. On Monday, we lost DATA, VRX, ALXN, and MANH. Then on Tuesday, we lost WYNN. Wednesday triggered exits in AZPN, FB, and ACT. We also have an open order to sell BIIB, which triggered an exit on Friday.

This mass exodus probably makes it a good time to begin switching to the 10 stock model.

Stocks Entering the Fund

As you might have expected, there are no new entries to consider this weekend. The only stock in this weekend’s IBD 50 that is at a new 20-week high is CLR, but it doesn’t pass the ROC filter. Based on the way last week went, no new positions is actually a relief. We will continue to hold the 10 remaining positions and wait for sell signals to determine what we do from there.