Friday 28/3/2020 was Best Ideas Competitive Edge's first birthday! We've decided to mark this occasion by reviewing how the strategy has performed in its first year
Best Ideas seeks to outperform by combining the top picks of a group of skilled investment managers AND superior risk management, asset allocation and portfolio construction. This has allowed us to out-perform our benchmark (the SPDRS S&P 500 ETF or SPY) in 8 out of 12 months.
The fee on the SPY is 0.0945% and the base management fee for Best Ideas Competitive Edge is 0.83% (0.75% plus 10% GST), so the SPY has a 0.7355% head start over Best Ideas Competitive Edge.
Even so, Best Ideas Competitive Edge had a higher daily mean return (0.17% vs 0.05%) and lower annualized volatility (12.8% vs 13.8%). It also had 29 fewer days with negative returns (93 vs 122)!
The charts below compare the daily performance Australian-listed SPDRS S&P 500 ETF (SPY). We've chosen this ETF because it's the simplest and cheapest way for an Australian investor to buy US large cap stocks.
The chart below shows the distribution of daily returns over the last 260 trading days. Returns are shown in AUD unhedged, include dividends and are net of base management fees.
Notice that Best Ideas Competitive Edge (Blue) has fewer extreme up or down days than the SPY ETF (green). In other words, the spread of returns is much narrower.
The next chart shows the difference between the two distributions. Best Ideas Competitive Edge had fewer negative returns (especially in the -0.5% to -0.75% and 0 to -0.25% ranges) and more positive returns in the 0.25% to 0.5%, 0.50% to 0.75%, 0.75% to 1% and 1% to 1.25% ranges.
The final chart presents the data as a cumulative distribution. Here you can see that 47% percent of the daily returns for the SPY were negative. Only 36% of the daily returns for Best Ideas Competitive Edge were negative.
These results demonstrate the value of combining a diverse set of tools: fund manager selection, high conviction stock-picking, risk management, asset allocation and portfolio construction when trying to outperform the market and protect capital.