Systematic Relative Strength

Another blog I occasionally read (I read very few these days) is Systematic Relative Strength. It is written by Dorsey Wright & Associates which run managed accounts and an ETF. As a big fan of relative strength strategies, I particular liked their writing and some of their proprietary charts are interesting but perhaps not much more then that. As with any new source of information, one has to perform some due diligence. I looked at their performance for their managed accounts and based on what I had read on the blog, was rather surprised at what I found:

As one can see, the performance blows. Only one of the managed accounts, International RS, outperformed its benchmark since inception and in some cases there is MASSIVE under performance.  I can concede that I believe a relative strength strategy should outperform B&H over the long run and also the numbers reflect a management and possibly a performance fee which can weigh on the true returns one would find in a personal account. However, human psychology being what it is, only those with Ghandi like belief in the strategy would have the wherewithal to slog through years of under performance.

I believe in relative strength and I will continue to read this blog from time to time but was quite surprised by the actual performance.

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~ by largecaptrader on October 16, 2010.

2 Responses to “Systematic Relative Strength”

  1. http://alletf.com/content/combining-relative-strength-and-low-volatility

    I note that in the above site, the Dorser Wright Index, PDP, is touted to have a 10.29% annualized return for the period of April 1997 to September 2011. I can’t find anything to support this. Am I reading this wrong?

    • According to the ETF fact sheet, the annualized return since Inception is -3.55% Net of Fees compared to -3.58% for the S&P. The 3 year is -7.59% compared to -7.15%. I think the returns are a combination of a low-volatility portfolio and relative strength in various combinations to find the “efficient frontier”. Too bad those allocations don’t work as well as they do in real life as academia.

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