Results

These are the first results using a single factor model without inflation.

The key asset classes are:

• Equities: always in there at a decent leverage (~1.8x)
• Trend following: highest Sharpe, easy to lever, can be up to 4.5x

Other asset classes that can be useful are:

• ILS: high returns but inability to leverage means that it’s not really better to add it (max 0.5x)
• Government bonds: not really pulling their weight, but cheap to leverage so can add a small position (max 0.5x)
• Gold: not that amazing but okay to have a small allocation as it’s not expensive to leverage (max 0.5x)

All other assets are either not additive (like corporate bonds) or excluded like equity factors.

For practical purposes this means that a good portfolio is equities plus trend. A decent starter portfolio could be the 100% equity + 100% trend products that are popular now (e.g. RSST, CTAP, Winton Enhanced). However this is a bit conservative on trend. Having it at least at risk (volatility) parity would be better. Ideally you would juice it up a bit by using full futures, replicating one of the ETFs.