A New Idea for the QG Fund

brightidea

I made some key changes to the rules of the DTAYS Quantitative Growth Fund at the end of the first quarter this year. Since then, I have been focused on following those rules and honestly haven’t given a lot of thought to any further development of the strategy. The goal for the rest of 2014 has been to prove that the strategy has a legit edge, just as the backtesting has indicated.

There has, however, been one little idea in the back of my mind for a few weeks now. If you look back over the past three months of weekend reports, you will notice that AFSI has been an absolute dud for the QG Fund. Since I bought it on May 27, 2014, the stock has not performed well, but at the same time has not performed poorly enough to signal an exit. It just keeps sitting there in slightly negative territory.

This stock that isn’t doing much of anything wouldn’t be a big deal in a fund that holds hundreds or even thousands of positions. But in the QG Fund, this dead weight makes up 10% of the fund! It is also worth noting that there have been many other potential opportunities that the QG Fund has passed on because it owns AFSI.

My new idea is that perhaps there should be a time limit required for each position to achieve a certain level of performance. For example, maybe any stock that has not moved into profitable territory after 4, 6, or even 8 weeks should be dumped in favor of a more promising option.

As we all know, trading is a marathon, not a sprint. And this is simply an idea, not even a theory or hypothesis just yet. That means I won’t be making any radical decisions anytime soon, but I am beginning to wonder whether it would be worth testing out some type of rule that would dump these types of stocks that weigh down the fund during bull markets.

Overall Performance

The DTAYS Quantitative Growth Fund is currently sitting at a value of $110,284.51, which represents a positive return of 10.28% on the year. That is marginally better than the 9.59% that the S&P 500 has recorded so far this year, and it is drastically better than the 0.10% that my bank is currently offering for a 12 month CD.

Since making changes to the QG Fund at the end of Q1, it is up 16.40% compared to only 7.23% for the S&P 500. While these numbers are all down a little bit from last week, they still represent impressive returns for a mechanical equities strategy that requires an extremely minimal time investment.

Here is what each of the positions in the DTAYS QG Fund look like this weekend:

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The fact that the QG Fund’s position in THRM is approaching an 80% return really speaks volumes to the trend following nature of the fund. As long as the price stays above its 5-ATR exit signal, the fund will continue to hold that long position no matter how high the price goes.

Entries and Exits

Once again this week, there were no exits. However, things were a lot closer this week than they were last week. There were a couple of days where some of the stocks were down enough that I was sure they were going to trip the 5-ATR line. Some of them actually did trade below the line for a while, but they all held their ground and closed about their sell signals.

Because the QG Fund is still holding 9.5 positions, there is no room for any new positions this weekend. If there was room to add a new position, this is what a scan of this weekend’s IBD 50 for new 20-week highs would return:

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We can immediately eliminate the bottom six stocks for failing to meet our ROC filter, and we can also eliminate YY for not meeting out HV filter. That leaves us with AVGO, CP, THRM, SNCR, UA, AMBA, TMH, and FB as new entry opportunities this week.

Those of you who know me personally are aware that I have been BEGGING the QG Fund to let me get into FB, but I also know from my CANSLIM trading experience that I am not going to make any money by just trading my favorite stocks (seriously, dig back about three years and look at how I traded CSTR and KORS)! With my personality, the best way for me to make money is to follow the rules of a system that I believe in.

As I say every weekend, I have no idea what is going to happen in the coming week. Growth stocks could continue on their climb towards the moon, or the bottom could finally fall out leading to the crash we have been expecting for three years. I don’t know. That’s why I just follow my rules and leave the guessing for the gamblers.

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