July-August 2021 – Update for the Capitalmind Chase Strategy
After an extremely choppy July where Chase lost -4.55% vs. NIFTY which was almost flat at 0.30%, the month of August ended with Chase at 7.45 % and the index closed a whopping 8.7 % up.
Read on for the specifics of what Chase went through in July and August of 2021
Capitalmind Chase performance since inception
Let’s start with the drawdowns. Beginning March, we entered a new choppy regime, which is quite evident in the drawdowns.
Drawdown does not mean we went in red in terms of our capital deployed, and it only tells us how much in losses we are from the highest point on the equity curve. Nevertheless, it has excellent value for those starting with the strategy, as they get to know how bad can things get if the drawdown period begins the moment they start trading Chase.
Run through the image below, and you can see we made a low of -17.98 on the 26th of April, which is also the max drawdown since inception.
The strategy’s returns peaked at 65% on the 12th of February ’21, and as of August end, it’s at 50%. Not bad at all.
When I say ‘not bad,’ it’s relative, not bad compared to two contexts, one, the advantage of a hedge that the strategy provides; two, the relatively low leverage keeps us afloat compared to a more levered trend following strategy, which is bound to get hammered in such regimes. Given, these two built in features of the model, the performance is not bad.
Look at the sharp fall during the last week of Jan, and Chase was largely insulated. However, it was the choppiness and narrow range since April that hit us hard.
As you can see, the underperformance started in April 2021 and has continued till today.
But the good news is, as of writing this post, we’ve covered the underperformance, but then we would only know for sure once the current long trade ends.
July & August 2021 Performance
If you look at July’21, NIFTY barely moved. It was historically one of the lowest-ranging months. After such a narrow range month, there was bound to be a move. We would have made history if such a move didn’t happen in August.
Comparing the active components | Futures vs. options
Sometime during mid-April ’21, we got to a point where some of our subscribers got to a point where they could not trade the active component of Chase as they had no margin left with them.
That’s when we introduced our Options model. Though it’s a bit more active than the futures, it has its advantages.
We’d started with two outcomes in mind. One, in choppy regimes, the options approach would help us dampen losses; two, in trending periods, we would be able to capture close to 60% of the upside of what the futures model offers. Then, of course, the lower transaction costs of Options are a cherry on the cake.
We compare two such regimes to see how the Options model has performed.
Longest losing streak – You know they say when it rains, it pours. 2021 was one such year for Chase. With the Olympic season on, Chase decided to join the fray and break some records. So it did. We had a 17-day losing streak, one day more than what we’ve ever had.
Let’s compare how the two models did during this 17-day streak. As evident, the options model lost lesser than the futures model. -680 vs. -968 points. That’s a 30% lesser loss compared to futures.
How did the options do in terms of capturing the trends?
Even in trends, on an average we capture 30% lesser than futures, three trades is not a sufficient sample though. We’ll keep a watch and keep you posted.
In Summary
All said and done, 2021 so far was a challenging year for index trend followers. Models with high leverage, while okay on back tests are difficult on the gut. I may sound like a broken record, but please DO NOT trade Chase without an investment in the passive component.
August and September (so far) do bring some hope. But then we cannot predict, and all that we can do is to stay nimble.
After all, that’s what trend following is all about.
If you are new to Capitalmind Chase we’ve written about the strategy here.
If you are interested in learning more about Trend following as a broader approach to trading you may want to explore our series on trend following over here.
