The New Active

The New Active
Now that we have a series of passive styles (Worst20, Extreme Reversion and Relative Performance), we decided to get more dynamic with our active models. We started with a few objectives. First; more focus on capital conservation. Second; is to avoid a 2008 like negative outlier recurrence. Third; is to protect gains.
Portfolio Wide Stop
The New Active does all the above and more. We have applied a portfolio wide stop loss at 15%. This means that if the market takes a nose dive like in 2008, ORMI New Active would go cash after a 15% loss from any maximum level. The advantage of this approach is that ORMI works with an intrinsic hedge. The same conserved cash can be either reallocated into another model or just be an interest bearing component. After all money saved is money earned. Despite this dramatic but conscious going cash approach the ORMI New Active is still on average 26% cash without considering the large all cash periods of multiple months.
2009 Underperformance
2009 “V” shaped recovery was not a normal bottom. Market basing generally takes more time. Owing to the cash period in 2008 ORMI New Active took a while to get allocated again, but even then this did not affect its net outperformance vs. the benchmark. The NEW ACTIVE has underperformed the market only twice since 2006. The OLD ACTIVE underperformed the benchmark just once.
50% Average Cash, Sleeping Market, Rotation
Though the average cash was just 26%, on overall ORMI NEW ACTIVE has 50% cash. We have not accounted for interest earned on this average cash. However, since the ORMI NEW ACTIVE is consistent when it goes cash, the model allows us to invest that amount for more than a few months in other ORMI models or interest bearing accounts. Moreover, it’s better for cash to be re-allocated than remain invested in a stagnant performance.
New Active vs. Old Active
The results for New Active stand out. It has a lower position and portfolio wide stop, lower volatility, higher annualized returns (without interest on cash). It gives away some holding period 40 days vs. 60 days and also on winners vs. losers, which again in the broad theme of things is irrelevant. And let’s not forget we are still comparing two ORMI models which deliver more than 3.6 times compared to NIFTY.             
Enjoy the latest ORMI.