The ETF Portfolio Strategist: 11 July 2021

Proprietary Strategies

Passively managed exposure to global market betas continues to outperform our proprietary strategies this year and last week was no exception.

Global Beta 16 (G.B16) was flat for the trading week through July 9, but that edged out the fractional losses for the prop strategies, which posted 0.1% to 0.2% setbacks. All three actively managed strategies use G.B16 as a benchmark. For details on strategy rules and risk metrics in the tables below, please see this summary.

Year to date, G.B16 still holds a comfortable lead via a 10.4% gain. The closest the prop strategies come to the benchmark’s performance: 8.7% for Global Managed Volatility (G.B16.MVOL) and Global Momentum (G.B16.MOM). Global Managed Drawdown (G.B16.MDD) is further behind so far in 2021 with a 2.5% advance.

On a risk-adjusted basis, all three proprietary strategies fare better, arguably much better — Sharpe ratios, for example, are substantially higher over the trailing five-year period vs. G.B16. But risk management’s value has faded in 2021, in part because unmanaged market exposure a la G.B16 has been a red-hot performance winner with minimal downside hazards. Risk management will, presumably, prove its worth anew at some point, but for the moment it’s a tough sell when reviewed through raw performance terms.

There were only a handful of changes on the rebalancing front last week for the proprietary strategies. G.B16.MDD became slightly more defensive at the close of last week’s trading. By contrast, there were no changes for G.B16.MVOL and G.B16.MOM. ■