BACK-TESTED SIMULATION

Page Summary: Cooking up effective investment algorithms

Discussion and Evidence

Sceptic: Back-testing can be used to prove almost anything, by selecting the right sub-set of a database.
Response: That is why we back-tested our individual strategies across the entire database.
Key Facts: Testing covered up to 30 years of monthly data on 50 countries and regional mandates.
Statistics: E.G. The Momentum strategy generated 16.5% p.a. gains, 5.2% p.a. better than the average performance of world markets between 1977 and 2006.

 

Please read the financial health warning
Please read the financial health warning

 

Explanation
This chart shows the cumulative performance of all Buy and Sell signals generated by our chart technical strategy. It is shown on a log scale to equalise percentage changes at different levels.  Please note the very large cumulative difference generated over time.

 A sample strategy using chart analysis of world markets

 

Sceptic: No serious fund can be churned as rapidly as computerised trading systems assume.
Response: That is why we built an anti-churn portfolio turnover constraint into all our strategies.
Key Facts: On average each trend-based strategy generates only one buy and sell signal a year for each asset. Turnover is lower for valuation strategies.
Statistics: Annual turnover ratios for directional signals range between 1.2 - 2..0 transactions for each asset in all four RouteMap modules
Explanation
This chart shows the average number of changes or recommendation each year in each market, e.g. 2..0 means Buy and Sell once a year for each of the strategies that generate directional signals in all of the RouteMaps.		 Average annual turnover by investment strategy

 

Sceptic: Behavioural finance has shown that while some strategies can beat the market, they only do so modestly and are often not worth the costs involved.
Response: That is why our Composite Trend Indicators were designed to appeal to different kinds of investors at the same time.
Key Facts: Composite Indicators perform significantly better than an average of the underlying component strategies that we could back-test individually.
Statistics: The performance gain between 1977 and 1999 is 5.5% p.a. greater than a simple average of three component strategies.
Explanation
This chart shows the annual returns in US$ of  Buy and Sell signals for all countries and regions analysed in the Shares RouteMap. It demonstrates that performance is better than average when all three strategies are unanimously bullish or bearish, in our Composite Trend Indicator.   		Exponential improvement in performance by combining strategies

For further information, please see Report and Analysis

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Copyright © 1999 Professional Investment Tools Ltd., authorised by the Financial Services Authority. Independent Financial Adviser (UK) and member of Investorside Research Association (US). Please read Financial Health Warning and Licence Agreement. UK laws apply exclusively. Principal sources: Consensus Economics, Corel Corp., FIBV, Global Financial Data, PIT, national governments and stock exchanges. Information and opinions are based on sources believed to be reliable and accurate. However PIT does not guarantee this to be the case, and does not accept liability for any loss arising. This is for information only and does not constitute a solicitation to deal in any securities. Opinions are liable to change. Past performance is no guarantee of future success. Last modified: December 12, 2003.