It has been a tumultuous year for equity investors around the globe. U.S. stocks ended the year more or less where they started, while most European equity benchmarks finished the year with double-digit percentage drops. Moreover, the year turned out to be one of the most volatile years on record. The Dow Jones Industrial Average moved more than 200 points on 16 different days and closed up or down more than 100 points on 103 trading days this year, which ranks as the fourth-most 100-point swings in the Dow Jones Industrial Average's 115-year history.
Until late April 2011, the S&P 500 climbing 9 percent at its peak at 1,363.61, before dropping as much as 19 percent to 1,099.23 at its bottom. With such wild swings becoming the new normal this year, it was very easy to be on the losing side of the market's daily craziness.
In addition, hedge funds had to take a hard hit this year. The average hedge fund has fallen by around 9 percent this year, and especially legendary John Paulson's investors suffered more than almost any others. His primary fund had lost 46 percent by November 2011, according to CNN article.
WSC Performance Review
Anyhow, it has been an excellent year for us, and especially for our members who have followed our weekly market comment trading advises. In total, we had seven long and seven short positions (Charts of Interest) which racked up an annual performance of 27.14 percent, compared to only minus 0.003 percent for the S&P 500.
We were slightly underperforming at the beginning of the year with our first short-position, but we then picked up performance quite fast. It was one of our most important key calls that U.S. stocks will run into a cyclical top by mid of the year (Market Comment June 26th 2011) before the market will enter a cyclical bear market in Q3 2011 (Market Comment April 3rd 2011) which would be followed by an important intermediate low in early October (September 11th 2011) and by a strong bear market rally that could last at least until early November (Market Comment October 2nd 2011).
We have advised our long-term investors to sell their entire equity exposure already in late July, and since the carnage showed up right on time in early August, they avoided the big bear in 2011! Aggressive traders as well as our prop desk made a decent profit with the big short-trade in early August which was followed by our rebound call after the market bottomed in October.
We lost some ground in December, since global central bank surprised markets with more liquidity and plus in late December volume was very thin and below average. In such environment the market can be easily moved by program traders which can cause painful up and downs. However, losses are just the cost of doing business. Every professional trader should ignore the outcome of individual trades , instead they should be more focusing on the long run performance.
If we have a look at the performance of all underlying markets of the Global Tactical Asset Allocation Strategy, only 5 markets out of 43 (all denominated in local currency) have finished the year with a small plus, while most of the performance was made during the last two trading weeks of the year. Since there has been no attractive equity market around, the Global Tactical Asset Allocation Strategy has been switching to its most defensive allocation (money market) already by late July in order to protect capital for our conservative long-term investors. Since there had been absolutely no attractive long-only investment opportunity around, the strategy was nearly flat for the year.
Our Sector Rotation Strategy was slightly underperforming the S&P 500 in terms of absolute performance; but was leading the race in terms of risk-adjusted returns, which is the main target of this model portfolio! The portfolio had only an annual volatility of 16 percent compared to 23 percent for the S&P 500. In addition, by switching to its most defensive allocation possible late July, members who followed this strategy limited the downside during the cyclical bear market in the third quarter (Charts of Interest - for members only), and therefore totally fulfilled its main target: to limit the downside during a bear market and profit at least as much as the market does during a bull market.
The Global ETF High Conviction Portfolio had an annualized performance of more than 30 percent in 2011, since the strategy was switiching to risklss U.S. Treasuries. As investors were seeking the save haven, the strategy fully participated from the riskless rally!
Outlook and Improvements for 2012
In order to continuously improve our service and to serve our members with the best investment information possible,
In fact, throughout our decades of market experience, we have learned that it is important to follow a strict and transparent investment process and so that our members will totally have a better picture of our investment decisions.
Since many members want to conduct their own research, we will expand our service even more, and therefore all our indicators will be downloadable as csv.file by latest end of Q1 2012 on a daily basis. In addition, we would like to remind our loyal clients who are still in the one month's plan to think about switching into a longer term oriented subscription period to save money.
We hope you will continue to join us for a next thrilling market battle in 2012 and we will do our best to work even harder for your performance!
Happy New Year!
Your team, WallStreetCourier!