This paper discusses our framework for assessing the repeatability of performance, using the concepts of hit ratio, asymmetry and breadth. We believe that strategies predicated entirely on being smarter (i.e. having a very high hit ratio) will tend to disappoint, unless supported by longer track records, a clearly identifiable edge and significant asymmetry in implementation. Strategies that primarily seek breadth, with low hit ratios and no asymmetry, can fare very well for many years but typically run high levels of leverage and correlation risk that can result in unexpectedly large drawdowns, especially during financial crises. We favour approaches that seek to combine the benefits of all three performance drivers (hit ratio, asymmetry and breadth), rather than relying on any one. We believe such strategies are more likely to generate attractive and repeatable Sharpe ratios that are demonstrably not the result of luck and do not necessitate unreasonably long investment
horizons.
VIEWS & RESEARCH
About the Author
Suhail Shaikh
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Any views and opinions expressed are for informational and/or similarly educational purposes only and are a reflection of the author’s best judgment, based upon information available at the time obtained from sources believed to be reliable and providing information in good faith, but no responsibility is accepted for any errors or omissions. Charts and graphs provided herein are for illustrative purposes only. The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Some of the statements may be forward-looking statements or statements of future expectations based on the currently available information. Accordingly, such statements are subject to risks and uncertainties. For example, factors such as the development of macroeconomic conditions, future market conditions, unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the actual events or results to be materially different from those anticipated by such statements. In no case whatsoever will Fulcrum be liable to anyone for any decision made or action taken in conjunction with the information and/or statements in this press release or for any related damages. Reproduction of this material in whole or in part is strictly prohibited without prior written permission of Fulcrum Copyright © Fulcrum Asset Management LLP 2024. All rights reserved.