Seasonal overlays on a 50% SACEVS Best Value/50% SACEMS EW Top 2 mix (held Nov–Apr; idle cash or 6-month T-bills May–Oct) sacrificed considerable return relative to the always-invested baseline (gross; July 2006–October 2023; monthly data).
A subscriber requested testing of a strategy that holds a combination of 50% Simple Asset Class ETF Value Strategy (SACEVS) Best Value and 50% Simple Asset Class ETF Momentum Strategy (SACEMS) equal-weighted (EW) Top 2 strategies during November through April and idle cash during May through October. We consider three strategies:
Best Value - EW Top 2 - hold Best Value-EW Top 2 during all months.
Best Value - EW Top 2 Seasonal (Idle Cash) - hold Best Value-EW Top 2 during November through April and idle cash during May through October, as requested.
Best Value - EW Top 2 Seasonal (6-month T-bill) - hold Best Value-EW Top 2 during November through April and 6-month U.S. Treasury bills (T-bill) bought at the beginning May each year during May through October.
We run annual statistics for each variation as in "Combined Value-Momentum Strategy (SACEVS-SACEMS)". Annualized returns are compound annual growth rates. Maximum drawdown is the deepest peak-to-trough drawdown for these strategies based on monthly measurements over the sample period. For Sharpe ratio, to calculate excess annual return, we use average monthly yield on 3-month Treasury bills during a year as the risk-free rate for that year. Using monthly returns for SACEVS Best Value and SACEMS EW Top 2 and the specified T-bill yield during July 2006 through October 2023, we find that:
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