Celebrating 1 year since fund inception

October 2021 - October 2022 🎉

A year ago, Unhedged launched three of our investment algorithms into the world. Since then, our algorithms have programmatically managed investors’ money under extremely challenging conditions, including but not limited to: one of the worst stock market starts of the past 50 years; six consecutive months of interest rate rises in Australia and the US; a crash in cryptocurrencies and a weakening Aussie dollar. Boy, did we pick the right time to launch a fund!

Our funds’ first birthday naturally brings a time to reflect on investment performance. In an environment where the only bull market appears to be a bull market for cash, were there any bright spots our algorithms could identify?

Sector Rotation Algorithm

We’ll start with our star performer since inception, Sector Rotation. In its first year, from October 21, 2021, to October 20, 2022, it earned a +10.64% return, while its benchmark (iShares Core Growth Allocation) is down -5.40% over the same period. That’s a stunning double-digit outperformance of 15.24%!

Sector Rotation Algorithm 1 Year Performance

Sector Rotation’s max drawdown in its first year was -11.13%, while its benchmark, the iShares Core Growth Allocation dropped to -16.65% in the same year. So even at its lowest, Sector Rotation did not fall as far or hard as its benchmark did.

Following the onset of interest rate hikes beginning in May 2022, Sector Rotation, true to its name, rotated into the bond ETFs, rising rates instruments, cash and gold to better withstand turbulent markets.

Industrial Activity Algorithm

Industrial Activity ended its first year from October 21, 2021, to October 20, 2022 above its benchmark, the SPDR S&P 500 ETF Trust. While the algorithm lost some ground relative to the market in Q2 of this year, it made up for that underperformance, ending the first year up +2.80% while the SPDR S&P 500 ETF Trust ended the first year down -2.66%. The algorithm outperformed its benchmark by a respectable +5.46%.

Industrial Algorithm 1 Year Performance

Industrial Activity’s max drawdown for the period was -17%, while its benchmark, the SPDR S&P 500 ETF Trust dropped -21.68%. So even at its lowest time, it stayed +4.68% above the benchmark’s lowest low.

Momentum Algorithm

Right… Momentum… Upward momentum was hard to find, and momentum is precisely what this algorithm is looking for. It tracked slightly above the market for the most significant part of the year. However, in July, it didn’t follow the bear market rally. Our algorithms are trained to invest over a longer horizon, and it didn’t believe the rally would last. Although the algo got that right, it has been catching up with the market in recent months. Its overall performance is down -4.67% in its first year since inception, while its benchmark (SPDR S&P 500 ETF Trust) was down -2.66% over the same period. So it crossed the finish line from October 21, 2021, to October 20, 2022 -2.01% below the benchmark. A disappointing result for us overall, given the strong start it had.

Momentum Algorithm 1 Year Performance

Momentum’s max drawdown during the year was -19.32%, while its benchmark dipped to -21.68%. So at least at its lowest low, it wasn’t as low as its benchmark.

Interestingly, Momentum performed full sell-downs and held USD cash more than once during its first year (without us telling it to do so). This saved it from the heavier fall in the market that other investors may have had to bear.

Closing Remarks

Average Daily Overperformance

We have discussed how an investor’s money would have grown with Unhedged over our first trading year versus investing in the market benchmark. Another way to visualize the relative performance of all three portfolios is to examine their daily overperformance (alpha) compared to their benchmarks. This is calculated by subtracting the daily return of each algorithm’s benchmark from the daily return of the algorithm itself, and averaging by the 260 trading days in our first year, from October 21, 2021 to October 20, 2022.

1 Year Performance of Each Unhedged Algorithm

Here our performance can be seen in a slightly different light. Note that once again, Unhedged’s Sector Rotation is the star performer. No debate there. Recall that Sector Rotation ended the year +15.24% above its benchmark, the iShares Core Growth Allocation ETF. This is attributable to its average daily outperformance over the past year. Averages are affected by extreme values and on a number of days, Sector Rotation really thumped its benchmark, performance wise.

However, we also see that on average, everyday Unhedged’s Momentum investment option outperformed its benchmark the SPDR S&P 500 ETF Trust over the past year. The momentum algorithm may have disappointed us at the end of the year and finished -2.01% below its benchmark but for most of the year it was doing its job of outperforming the benchmark.

Interestingly enough, Industrial Activity which ended its first year, +5.46% above its benchmark, the SPDR S&P 500 ETF Trust, on average slightly underperformed for most of the year before making up ground post September to finish above its benchmark.

One Year Later

How have we done one year since fund inception? In one of the most challenging financial markets to launch a managed investment vehicle, two of our algorithms not only beat their benchmarks but also delivered a higher return than holding cash. All three have protected against deep market downtrends and smoothened returns. “Not too bad”, or “pretty good” we would say!

These results showcase Sector Rotation as the best performer. However, historical performance does not guarantee future performance. Our algorithms are lowly correlated and designed to work together—a meaningful allocation across all three benefits from this characteristic. Always consider the PDS when making investment decisions.

Past performance is not indicative of future performance. The information in this report has been compiled from sources we believe are reliable and we make no warranty in respect of its accuracy.

Previous fund related performance: