Here is an analysis of the drawdowns using our model versus the index. The data for the index is actual; the data for our funds is based on the results of our backtests.
| US Market | Canadian Market | |||
| Horizon | 12/31/1998 – 12/31/2006 | 6/30/1990 – 12/31/2006 | ||
| Investment Vehicle | Martial Capital US Equity Fund (after fees) | S&P 500 (before fees) | Martial Capital Canadian Equity Fund (after fees) | TSX Composite (before fees) |
| Compound Annual Growth Rate (CAGR) | 44.81% | 1.76% | 29.61% | 10.52% |
| Worst drawdown | -19.34% | -46.34% | -17.78% | -43.32% |
| Worst 3 month drawdown | -17.56% | -18.52% | -17.78% | -26.89% |
| Worst 6 month drawdown | -9.66% | -29.03% | -12.73% | -27.72% |
| Worst 12 month drawdown | +0.72% | -27.35% | -8.94% | -33.17% |
The worst performance in any 12 month period in our US fund was a gain of 0.72%.
How can it be that our funds, using a long-only strategy, can earn these kinds of returns with drawdowns so much less than the market? For the fullest explanation, see "Our Investment Strategy" using the link on the left. In brief, the answer is:
- Our model for each fund has more than one algorithm it can use. The model picks the algorithm according to how it perceives the market's sentiment. This not only increases the performance of the model, but reduces the drawdown in the process.
- Our algorithms are designed to attain the best returns given the market's sentiment. They are constrained by two factors which were added to lower risk: diversification across many sectors and the absence of features that would significantly increase the model's volatility such as leverage and derivatives.
There are a few cautions we should point out here:
- These data come from our backtest period. This is not as strong a demonstration as if the data came from a period of live trading. There is no guarantee we will be able to achieve our backtested results during live trading. For the latest data on this point, click the link to the left.
- Markets are unpredictable. Will we ever experience drawdowns lower than the backtest? Yes. It is almost certain that one day the markets will have a particularly vicious drawdown which will cause one or both of our funds to have a drawdown larger than any we have seen.
The good news is that there are ways of reducing drawdowns even more. Take a look at the "Reducing Drawdowns" link on the left.
- The returns for the two indices are before any fees. In reality, if you were to buy an Index Fund based on either index, there would be administrative fees which will lower your return. With the S&P 500 earning 1.76% per year over the last 8 years, a significant portion of the potential returns would have been taken away by the fund administrator. The returns for our funds are after a 2% of assets annual fee plus profit sharing equal to 20% of profits (high water mark method). Expenses (trading commissions, for example) have not been deducted from any of these numbers.
- The maximum drawdown number for the TSX in this chart is different from the worst drawdown number in the chart on the page "What is a Drawdown?" This page is based on month-end data, the chart on "What is a Drawdown?" is based on daily data.
All performance data contained on this site represents past performance. Past performance is no guarantee of future results. These funds are subject to the risks relating to investing in the stock market. These risks include the possibility that stocks may experience large price swings with the potential for significant loss of your investment.
