In its initial version, Aggressive was an equal-weighted portfolio derived from two different quantitative stock screens, based on companies that trade on U.S. exchanges. Each screen produced an exceptional trading plan by itself, but when the two were combined, the volatility of returns was reduced without much degradation of total returns. This was because their backtested, detrended equity curves have relatively low correlation. Through experimentation and backtest, I have found a simplified "one screen" method that produces slightly improved results, and in my opinion, simpler is usually better.

Information is as of the close on June 6, 2008.

Model Allocation

Based on beginning with a $100,000 portfolio at inception, the target allocation is a 10% weight in the top ten qualifiers. See my previous post on this system. The sort here is by ticker, and the portfolio weights are shown rounded to the nearest tenth of a percent.

BJ's Wholesale Club Inc (BJ) 10.3% weight
Companhia Brasileira De Distribuicao (CBD) 10.0% weight
Celestica, Inc. (CLS) 9.6% weight
Chiquita Brands International, Inc. (CQB) 10.2% weight
IPC The Hospitalist Company, Inc. (IPCM) 10.4% weight
Laclede Group Inc (LG) 10.2% weight
Owens and Minor Inc (OMI) 10.8% weight
SIAC Inc (SAI) 10.9% weight
Stepan Co. (SCL) 10.9% weight
Unifi Inc (UFI) 10.4% weight

The portfolio is 103.7% long, or cash at -3.7%.

Returns

Based on beginning with a $100,000 portfolio at inception.

Equity: $100,758.40
Gain, Past 4 Weeks -1.59%
Gain, Year to Date -0.05%
Gain, Since Inception at 11/26/2008 +0.76%

One stock, SCL, in the Aggressive portfolio went ex-dividend in the past four weeks. Total dividends for the model portfolio were $46.41.

Changes To Model Allocation and System Weights

Through experimentation and backtest, I have found a simplified "one screen" method that produces slightly improved results over the original blend of two screens. The new screen combines two momentum filters with a valuation sort order, holding the cheapest stocks that meet the momentum requirements. I have tested various holding counts and settled on the top ten for my model portfolio tracking. Counts of five through twenty were tested with robust results, the main response being a reduction in volatility as more stocks were held, but returns diminished slightly and transaction expense increased as well. The new model allocation is a 10% holding of each of the following stocks, sorted by Price/Sales ratio (ascending).

Adams Resources & En (AE)
Synnex Corp (SNX)
Chiquita Brands Inte (CQB)
Unifi, Inc. (UFI)
BJ's Wholesale Club (BJ)
Stepan Co (SCL)
Owens & Minor, Inc. (OMI)
Fred's, Inc. (FRED)
Corporate Express Nv (CXP)
Companhia Brasileira (CBD)

If this system were to be initiated today, the target allocation would be a buy for 10% weight holdings of each stock listed.

Tracking

CLS, IPCM, LG, and SAI will be sold Monday morning, market at open. These sales, combined with accounting for the negative cash position, account for 37.4% of the portfolio weight. The target allocations based for the new holdings will be 9.35% weights calculated on Friday's closing prices, and shares of AE, CXP, FRED, and SNX will be bought Monday morning, market at open.

Commentary

For those interested in a less diversified, more aggressive approach, holding only the top five from the previous list would provide that. I personally think there's little to be gained in return, and a lot to be "gained" in terms of volatility, from that technique.

Here are the "next five" on the list, for those interested in holding a larger, more diversified set of risks:

Furniture Brands Int (FBN)
Laclede Group Inc (LG)
Alamo Group Inc. (ALG)
Hanger Orthopedic Gr (HGR)
Commercial Metals Co (CMC)

The most passive approach that could be taken with this screen is to view the list merely as interesting candidates for further evaluation. I prefer using other initial screens when taking this approach, however.

There is also an "active trader" approach that could be initiated with these lists. By keeping these stocks on a watch list and monitoring them for breakouts or "runaway" conditions, they could present day- or swing-trade opportunities for the trader who is capable of monitoring the markets intraday. For example, I might consider a day with range of double a recent average (20 day, perhaps) and a close high in the range, or a gap up, a "runaway" condition if volume were higher than a recent daily average and a new high were made. If I were trading this approach, I would set a tight initial stop based on a one- or two-day price low, and use a wide trailing stop to let the market run. If I were in such a trade during a switchover weekend like this one, I would continue holding with trailing and initial stops, letting any winners run.

If you'd like to become of member of The Rempel Report, you can register here. At The Rempel Report, I track model portfolios for four different mechanical trading systems, as well as my personal portfolio, and disclose all results (good and bad) at regular intervals. Members receive email notification of new posts and can contribute to the site through comments. Registration is still free!