Wednesday, October 24, 2012

How to generate safe investment strategy?


I've wondering today whether it is possible to achieve a stable low risk equity line for a number for non-correlated investment strategies with mostly positive average returns and various individual volatilities.

Not all of the strategies needs to have positive averages - some very bad apples may happen in the portfolio:


Chart: Returns density of the worst strategy

When the number of combined strategies is low, it is quite easy to produce a loss:
Chart: 5 strategies

However, with the increase in the number of strategies, the equity line for the combined portfolio becomes stable. The problem is, the number of strategies you need to combine in order to achieve the desired result is quite large:

Chart: 1000 strategies
  

Thursday, October 18, 2012

There is a new algo player coming to town

There is a new player coming to town, and I'm very happy about it.

UniSystem FIZ is a new algorithmic fund run by Union Investment and managed by Robert Ślepaczuk, a Ph.D. from University of Warsaw.

You can get some idea about his views on investment strategies from a working paper he co-authored: "Investment Strategies Beating the Market. What Can We Squeeze From The Market?"

I've mentioned that I'm very happy about this development, since the Polish investment fund market cries for a radical change. I wrote about this here, herehere and here among others.

There are two things that worry me a little though.

First, I assume that better management practices require fund managers to put their money where their mouth is. In other words, they should invest a substantial part of their financial resources in the fund they manage for both sharing its successes and feeling the pain of losses.

Second, the UniSystem marketing site seems to present only the SIMULATED past results of the fund. I have not been able to find actual fund results there, but will return to this a bit later.


We've recently seen such an approach to selling investment products in the case of Eurogeddon and it didn't go very well so far:

Source: Analizy.pl



Nevertheless, I've finally found the actual official results of UniSystem FIZ - they're slightly positive YTD  and I hope this tendency will hold :)

The marketing simulation compares UniSystem to two market indexes: WIG20 and S&P500.

So how they really fared so far (till 2012-09-28) against these two benchmarks?



  • UniSystem:   +3.50%
  • WIG20:        +4.37%
  • S&P500:      +16.30%

The results seems quite stable even if inferior to the benchmarks.

But wait! I've seen somewhere such consistency of returns... Let's hope, some Black Swan will not strike another Union Investment fund...

Some more information about the UniSystem fund can be found here; http://www.union-investment.pl/fundusze-inwestycyjne/unisystem-1