Mutual funds are very good investment avenues for the
average investor. There is a popular belief that mutual funds are terrific
investment vehicles because they potentially diversify risk away. A look at
some of the best mutual funds in the recent past paints a rather interesting
picture:
What is interesting in the above chart is that the returns above closely track each
other. Funds that take high risk deliver higher returns while funds that take
lower risk deliver lower returns. Thus it appears that none of the funds are
consistently generating excess returns relative to the risk they are taking.
So how do we solve this problem? Why not consider an
optimized portfolio of stocks that can produce significantly superior returns
for a given level of risk? Enter the
portfolio
optimizer tool from Spotalpha. Set
your maximum risk profile (say -10%). Identify stocks and keep optimizing till
you find a portfolio that provides maximum performance within identified risk
profile. Allocate to these stocks and comeback every 15 days or so to check if
there are any new re-balancing suggestions to the allocation. You are now on
the path to superior returns.
An optimized portfolio of stocks
like this
one delivered
+154% return at a lower draw down risk
of
-5%, when compared to the best mutual fund which delivered +28%
return for a draw down risk of -10% on an annual basis:
