Two Regimes

You can have your cake and eat it, too

The rationale of this strategy is based on the following hypothesis: on a monthly timescale, global equity markets either go up or down. This is obviously not true, but it is an approximation that is good enough to understand if we should allocate our capital to risk assets or to safe assets.

The main advantage of this strategy is the ability to limit big losses while harvesting returns when equity markets are stable.

The main risk of this strategy is the allocation percentage: when the confidence in the equity markets conditions is high, the strategy allocates 100 % of the portfolio to risk assets. This risk is mitigated by:

• Continuous checks on equity markets stability. If any of these checks fails, the strategy switches to safe assets.
• A conservative approach: the default allocation is to safe assets.

Strategy details

• Asset classes: equities, government bonds
• Number of assets: 3
• Backtest period: Jan 1998 - Oct 2022
• Rebalancing frequency: variable, average: 5.4/year
• CAGR: 16.95%
• Sharpe: 1.33
• Max Drawdown: 13.42%
• Maximum leverage: 1 (long only)
• Detailed tearsheet: Two Regimes

Equity curve

Sampling of the equity curve is on a monthly basis.