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TRADING INDEX SYSTEM RESULTS
Back-Testing With Brokerage-Available Funds Back-testing for the book Using Mutual Funds Trading Indexes was performed using only Fidelity funds (see results below). In early 2003, a more sophisticated system of back-testing was developed, as compared to that employed in 2001 using only Fidelity funds. Many combinations of funds and fund styles were used for this later testing, with various constraints on risk factors, and no restrictions as to fund company. The following table represents a result of the testing, using the Aggressive Growth method (one-fund holding, any risk factor, etc.). The account value on December 31, 1997 is assumed to be $100,000. Brokerage-Available Funds
As can be seen, $100,000
invested with the FTI System would have grown to nearly three quarters of a
million dollars in those five years; whereas investments indexed to most of
the common market indexes would have lost money. Other back-testing, using various
combinations of funds and fund styles, produced annualized returns as high as
60% for the period. The above returns exclude the "bear" style of
funds. Had they been used, the returns in 2001 and 2002 would have been
higher, but returns in some earlier years would have been lower, and
volatility and short-term risk would have been greater for the entire period.
The returns shown in the above table were produced using essentially the same
number of funds and the fund styles we intend to use in the foreseeable
future. Testing of the two-fund Moderate Growth method for the five-year
period yielded from 30 to 35% annualized returns, and the three-fund
Conservative Growth method produced from 20 to 25%, the exact returns
depending on small variations in the fund combinations. The problem with testing
for years much earlier than 1998, using the "Brokerage-Available"
universe of funds, is the lack of complete and accurate information on funds.
The necessary information on the Fidelity funds was available through various
publications, but it was not for the thousands of other funds. The farther
back in time we attempt to test, the less confidence we have in the results.
We feel confident about the 1998-2002 testing with the larger fund universe,
in that there is more recent information and good repeatability in results. Back-Testing With Fidelity Funds
Only
The account value on
December 31, 1993 is assumed to be $100,000. As can be seen, the FTI System
returns more than quadrupled what would have been earned in any buy-and-hold
system using market indexed funds. Even without the phenomenal return of over
200% in 1999 (due primarily to a long hold of the Japan Small Companies
fund), the FTI System, with Fidelity funds, would still have nearly tripled
the eight-year return of any of the major market indexes. However, if the
returns of any of the years 1998-2001 are compared for the application using
only Fidelity funds and brokerage-available funds, it can be seen that the
use of brokerage-available funds usually yields better returns. This is
because using a larger universe of funds increases the probability of having
the top trending funds available. Comparisons With Other Fidelity
Systems (1994-2001)
Comparisons with advisory
services who specialize in Fidelity funds are documented in the book. Basically,
these other services showed earnings comparable to those of the market
indexes shown, their accumulated returns ranging from $212,300 to $257,400,
which corresponds to a range of 9.9% to 12.5% annualized return. Why Returns Vary From Year to Year Tests have shown that the
system might struggle to make profits during two market conditions: (1)
trendless or "sideways" markets (no leadership in any fund style),
especially when high volatility exists; (2) all fund styles trending upward
but in close parallel, (no clear superiority of one or more of the fund
styles). Market behavior through much of 2002 represents the first condition
fairly closely. However, during these months, we identified trends that went
against the major market indexes and enabled the system to produce positive
returns. One international fund as well as treasury bonds, and one or two
sectors diverged for two or more months at a time, which was enough to
produce profits well above the negative returns of the stock market indexes.
Market behavior during 1996-97 represents the second condition. However, even
then, there were a couple of fund styles that diverged from the rest (see
Chapters 9 and 10 of the book). If by chance either of these two conditions
prevailed over a long period of time, we might not see extraordinary returns
such as those in the above table. Actual Brokerage Account Results in 2002 In 2002, we used what we called a "Basic Approach" and a "Value Approach", each with one to three fund holdings. These results, which are actual, and not back-tested numbers, are as follows:
Recall that the major market indexes were down from 16.8% to 31.5% in 2002. Newsletter: FTI Returns for 2002 Newsletter: FTI System Trades for 2002 Actual Brokerage Account Results in 2003 In 2003, we used three
strategies (methods): Aggressive Growth, Moderate Growth, and Conservative
Growth. The user of the Aggressive Growth method holds one fund at a time,
the user of the Moderate Growth method holds two funds at a time, and the
user of the Conservative Growth method holds three funds at a time. The
limits on risk factor vary among these three strategies, the more
conservative using less volatile funds. Returns for 2003 were: Newsletter: FTI Returns for 2003 Newsletter: FTI System Trades and Returns for 2003 - Part 1 Newsletter: FTI System Trades and Returns for 2003 - Part 2 Actual Brokerage Account Results in 2004 In 2004, we used the same
three strategies used in 2004: Aggressive Growth, Moderate Growth, and Conservative
Growth. Returns for 2004 were: Mutual Fund Account Results in 2004 We began tracking Fidelity,
T. Rowe Price, and Vanguard TI mutual fund in June, 2004, so the returns
represent back-tested returns through June and actual returns from July
through the end of the year. Most of the gains occurred after
June. We used the Aggressive Growth method for each of the
portfolios. These portfolios performed considerably better than the
brokerage-available portfolios in 2004. Newsletter: FTI System Trades and Returns for 2004 Brokerage and Mutual Fund Account Results in 2005 In 2005, we stopped
tracking the guided approach for the moderate and conservative brokerage
strategies and began emphasizing a more personalized approach. From the
brokerage list, we tracked a 1-fund portfolio. From the mutual fund
accounts, we continued to track a 1-fund portfolio in each of the Fidelity,
T. Rowe Price and Vanguard TI lists. We used the Aggressive Growth
method for each of the portfolios. Our average return for the 4
portfolios was ahead of most major market indexes. Fidelity: +12.1% Newsletter: FTI System Trades and Returns for 2005 Brokerage and Mutual Fund Account Results in 2006 In 2006, we continued with
the same approach from the previous year of tracking hypothetical trades for
a single-fund brokerage-available portfolio in addition to a 1-fund portfolio
for Fidelity, T. Rowe Price and Vanguard. Our average return for the 4
portfolios was 12.1%. Fidelity: +12.7% Newsletter: FTI System Trades and Returns for 2006 Brokerage and Mutual Fund Account Results in 2007 Our portfolio tracking
approach was the same as in the previous 2 years. The
brokerage-available and Fidelity portfolios yielded about 10% each. Our
average return for the 4 portfolios was 0.5%. Fidelity: +9.9% Newsletter: FTI System Trades and Returns for 2007 Brokerage and Mutual Fund Account Results in 2008 Our portfolio tracking
approach was the same as in the previous 3 years. While most major
market indexes plunged nearly 40%, FTI held its own. The average return
for the 4 portfolios was -4.1%. The brokerage-available portfolio,
which includes the option to purchase contrarian funds, gained nearly 10%. Fidelity: -9.9% Newsletter: FTI System Trades and Returns for 2008 Brokerage and Mutual Fund Account Results in 2009 Our 4-portfolio average
return in 2009 was 29.8%, above the 18.8% gain of the Dow Jones Industrial
Average and slightly above the average of the 5 major market indexes we
track. The portfolio of brokerage-available
funds once again excelled, gaining 51.5%.
Since 2002, the accumulated
return from the brokerage account is 213.22%. Fidelity: +24.7% Newsletter: FTI System Trades and Returns for 2009 Current Results We continue to track a 1-fund portfolio for brokerage-available, Fidelity, T. Rowe Price, and Vanguard TI lists, with only very minor changes in rules and other changes in fund inventory intended to assure that the system reaches its full potential. Returns for the current year for these methods as currently tracked in the "Guided Approach" are shown in the reports available to members, and occasionally given in the free newsletters. Also, we cite the trades in newsletters at least once per year, so that every detail of the claimed returns can be documented and checked by anyone who has been following the system. There are no "secrets" as to how the claimed returns are achieved. Disclaimers
There is
always risk involved when investing in mutual funds, both in the long-term
and in the short-term, using any technical or other system. We cannot
guarantee that past results of applying the Fund Trading Index System will be
duplicated in the future or that returns will always be ahead of the major
market indexes. We cannot guarantee that all data on fund sales and
redemption fees are accurate. We are not directly associated with any fund or
brokerage company. All performance figures assume re-investment of all
dividend and capital gain distributions. We assume no responsibility for
misuse or misinterpretation of the rules for using the FTI System. Home | Overview | Historical | Tutorial | Funds | FAQ | Book | Membership | Contact
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