The Growth Portfolio – New Research

The Growth Portfolio is a longer term trend following strategy that has been a stalwart of mine since the late 90s. The strategy is loosely based on the Bollinger Band Breakout strategy (BBO) discussed in Unholy Grails, although the original design was based on Keith Fitschen’s Aberration trading system.

Over time there have been a few tweaks, but the core rules and parameter settings  remain more or less unchanged for over 20-years.

1997 – strategy developed to trade a portfolio of global futures contracts
2000 – transition to stock trading
2007 – addition of Regime Filter
2015 – addition of proprietary noise filter
2021 – new research on position sizing and possible introduction of a defensive version

The current research comes after a year or two of under performance from which we determined the portfolio was slow to re-enter the market, especially after the COVID selloff in March 2020.

To counteract, we’ve been studying two slight adjustments.

The first is being more aggressive on the entry, specifically lowering the width of the bands (In Unholy Grails, the BBO strategy used 3-standard deviations).

The second is reducing the number of positions in the portfolio from 20 down to 10. Not only will this allow quicker capital deployment but will also easier for users to manage.

In the following equity growth chart, the blue line represents the current portfolio. As can be seen, it’s been a struggle since the COVID selloff to get upside traction. The orange line however, which has incorporated the two changes above, has managed to kick nicely higher. It is this orange line that I am beta test trading.

Let’s now discuss the possible inclusion of the Defensive version of the portfolio to our service. This is for more conservative investors or those a little more nervous holding positions during broader market weakness. 

In this variant, we look to exit all positions and revert to 100% cash when the broader market trend is down. Whilst this does increase the level of trading, it greatly reduces other important metrics.

These include:

– median drawdown drops from -18% to -13%
– exposure, or time in the market, drops from 76% to 47%
– standard deviation of trade returns drops from 35.4% to 23.8%
– longest drawdown period drops from 22 months to 16 months

All of this and no dilution of returns.