In 2013 we introduced our Correction Protection Model (CPM) to Asbury Research subscribers. That initial version of the model did an outstanding job of essentially avoiding the entire 2008 Financial Crisis, and subsequently performed well in real time by simply staying invested during market advances and moving to cash during market declines.
However, the character of the market has changed over the past several years — as it typically does over time — due to a number of factors including quantitative easing, a more accommodation central bank policy, and the fact that more than 70% of daily stock market volume is now attributable to algorithmic trading. In our view, these factors have resulted in more sustained market advances, smaller, quicker market declines, and more choppy and erratic day-to-day price movement. Because of this, in 2019 we introduced an updated and improved version of CPM.
This version of CPM, which has been back-tested to 2011, has the exact same purpose. It is a defensive model that has produced exceptional risk-adjusted returns. CPM’s primary objective is to protect investor assets during adverse market conditions but to otherwise remain invested, taking advantage of the market’s historical propensity to move higher over time.
2020 Final Performance:
S&P 500 (SPX): +16.3%
Correction Protection Model (CPM): +31.2%
CPM Relative Outperformance: +14.9%
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Disclaimer: This data is provided for information purposes only. Past performance or back-tested results may not necessarily indicate future results. The performance indicated from back-testing or historical track record may not be typical of future performance. No inferences may be made and no guarantees of profitability are being stated by Asbury Research LLC. The risk of loss trading in financial assets can be substantial. Therefore, you should therefore carefully consider whether such trading is suitable for you in light of your financial condition.
The Bottom Line
Since 2011, CPM:
- has outperformed the S&P 500 (SPX)
- has reduced the time invested in the market (exposure to risk) by 34%
- has reduced the average maximum drawdown in the S&P 500 by 47%
- is 26% less volatile (risky) than the S&P 500.
Simply stated, CPM provides Asbury Research subscribers a means to achieve exceptional risk-adjusted returns by participating in US stock market advances while significantly reducing market exposure and market risk during stock market declines — all without sacrificing long term performance.
All investment models have inherent limitations in that they look back over previous data but can’t see into the future. Past performance does not guarantee future results. These limitations aside, however, our model argues against the buy and hold “strategy” and the assertion that “you can’t time the market”.
Attempting to get out of the way of an emerging market decline comes with the inherent risk of potentially missing out on some performance — especially considering the current “buy the dip” mentality engendered by a decade of accommodative central bank policy. However, our model’s performance since 2011 is a testament to intelligent quantitative risk management, showing that a conservative, systematic, and repeatable process of active management can, over time, significantly outperform passive buy and hold investing.
Asbury Research’s models and investment research are used to inform Asbury Investment Management but do not imply an actual investment portfolio.
Disclaimer: This is provided for information purposes only and is not intended to be a solicitation to buy or sell securities. The performance indicated from back-testing or historical track record may not be typical of future performance. No inferences may be made and no guarantees of profitability are being stated by Asbury Research LLC. The risk of loss trading in financial assets can be substantial. Therefore, you should carefully consider whether such trading is suitable for you in light of your financial condition.