Equily’s sophisticated portfolio design and optimization tools make it easy to discover the rebalancing premium – no matter how simple or complex the portfolio. Our mission is to reward investors by discovering superior portfolio returns without requiring additional capital or risk. 

In this article we will show you how using equily’s ‘Portfolio Power-Up’ tools, we squeezed an additional 243% more returns ,for less volatility (0.3%) than a Buy-and-Hold strategy. 

Portfolio Power-Up: The Golden Giants

The Golden Giants portfolio, created by our co-founder of Equily to demonstrate modelling a more complex portfolio in the platform, consists of the following 2 asset types:

• 25% commodities (gold)
• 75% large cap equities (invested as 40 individual stocks)

The equities allocation is made up of 40 large cap stock on the S&P 500 that have a track record of paying dividends. This portfolio is derived from fundamental analysis of historical dividend payments, which creates an inherent success bias in the testing results for the base case buy-and-hold strategy. We recommend the reader focus on the effects of power-ups on the Golden Giants portfolio.

Diagram 1: The Golden Giants portfolio 

The Winning Power Ups

Using Equily’s portfolio optimization feature we ran 5 different power-up strategies across 61 unique scenarios. In total we executed over 30,000 simulated trades dating back 19+ years to November 2004 to discover the rebalancing premiums hidden inside the Golden Giants. The end-to-end exercise takes around 1 hour, so it’s relatively easy.

All Power-Ups were given a starting portfolio of $100,000. The winning power-ups for the Golden Giants by category are as follows.

1. Risk Adjusted Return: Best Performed is the Absolute Power-Up

This category is for the best Risk Adjusted Return (RAR), which is a calculation of the profit from an investment portfolio that considers the degree of risk that must be accepted to achieve it. A widely held industry standard also known as the Sharpe Ratio.

In summary, the equily Absolute Power-Up created a 243% improved return on the original investment over a 19-year period using 101 trades (average 5-6 trades per year). If you had invested $100,000 that would equate to an additional $243,407 rebalancing premium on top of the buy-and-hold strategy return of $901,286 giving you a total profit of $1,144,492 Meaning your final pot of money would be $1,244,492 rather than $1,001,286 after 19 years investment.

From a risk perspective, interestingly the equily Absolute Power-up would have done this for slightly less risk than a default buy-and-hold strategy; 15.81 vs 15.84% volatility respectively.

Below is snapshot of the trades simulated by the equily Absolute Power-Up:

2. Best Profit: Winner is the Absolute Power-Up

This category is for the best portfolio profitability. A simple calculation of looking at profit only and ignoring risk.

In this case, the Best Profits results are the same as the Best Risk Adjust Returns (above). It seems the Power-Ups are finding an optimal point in the Golden Giants portfolio that nicely balance risk and maximise returns. For comparison in these results, we have provided the next best profits (2nd best) in the table below.

2nd best profitability as the best profitability is the same as the Best Risk Adjusted Return results 

3. Least Risk: Best performer is the Relative Power-Up

This category is for the least volatility or risk. A simple calculation that purely focusses on volatility and ignores return. For these results, we must bear in mind the success criteria for a Power-Up i.e. it must improve investor returns.

Whilst the equily Relative and Time Power-Ups created the least volatile returns overall, they failed to deliver a profit greater than the original Buy-and-Hold strategy. Therefore, they are eliminated from the results. As such the category winner is Value Power-Up. It created a slightly better return than the Buy-and-Hold strategy, bearing in mind that all trading costs are factored. Importantly it did so with much lower volatility of 14.33% vs 15.84%. By comparison this is below the average stock volatility of 15%.

Summary conclusion

The Golden Giant is an interesting portfolio to look at in terms of the concentration around 40 high-yielding global corporates balanced by gold as commodity. The potential returns are significant, even in a basic buy-and-hold strategy, but they are influenced by the companies being pre-selected based on having history of dividend payments i.e. success bias.

Diagram: Golden Giants – Consolidated comparison of returns  (Run 1: Buy-and-hold, Run 2: Best Risk Adjust Return, Run 3: 2nd Best Profitability, Run 4: Lowest Volatility)

Using equily Portfolio Power-Ups allows you to adjust Golden Giant portfolio growth and risk depending on your appetite to create a superior return. Based on the Portfolio Optimization testing performed, it is possible to squeeze up to 243% more returns for less volatility (0.3%) than a Buy-and-Hold strategy. A double win. Alternatively, the Value Power-Up allows you to reduce portfolio risk by up to 1.5%, yielding a more modest 16% improved return vs a Buy-and-Hold strategy.

What is Smart Rebalancing using equily? And how does it reward investors?

A successful rebalancing strategy creates what we call a rebalancing premium. This premium is essentially “hidden value” that sits inside a portfolio. equily smart rebalancing algorithms calculate the optimum point to buy and sell assets in a portfolio with the objective of creating superior investor returns without additional risk or capital beyond the initial lump sum.

Sounds magic, right? Well, portfolio rebalancing is baked in science. In fact, Nobel Prize research by economist Harry Markowitz in what is known as Modern Portfolio Theory (MPT).

There’s no such thing as the perfect investment but crafting a strategy that offers high returns and relatively low risk is a priority for any investor. We believe smart portfolio rebalancing, deployed correctly, is fundamental to achieving this outcome.

At equily, we call our smart rebalancing algorithms – Portfolio Power-Ups. A successful Portfolio Power-Up is defined as follows:

1. Improves the investor returns consistently over a significant historical period of testing compared to a buy-and-hold strategy.
2. That no additional investor capital will be required beyond the initial lump sum, and all trading costs are factored.
3. Manages the portfolio risk profile to not exceed the volatility of the original buy-and-hold strategy and preferably will be less volatile (a double win)

We need to be clear this is not a “secret” formula for consistently beating the market. We believe in taking an evidence-based approach to investing within a diversified portfolio and rebalancing strategy. The data shows that you can grow your investment pot over the long-term and squeeze further value by rebalancing the Golden Giants portfolio. We’ll explore other portfolios in future equily Power-Ups.

None of this article constitutes financial advice. Consumers should seek advice from a qualified and regulated Financial Advisor in your country prior to and when investing in financial markets. The purpose of this insight article is to explore different model portfolios demonstrate the features and functionality of the equily platform to generate superior portfolio returns using smart rebalancing and historical testing.