In its initial version, Aggressive was an equal-weighted portfolio derived from two different quantitative stock screens, based on companies that trade on U.S. exchanges. Each screen produced an exceptional trading plan by itself, but when the two were combined, the volatility of returns was reduced without much degradation of total returns. This was because their backtested, detrended equity curves have relatively low correlation. Through experimentation and backtest, I have found a simplified “one screen” method that produces slightly improved results, and in my opinion, simpler is usually better.
The companies traded by Aggressive tend to be smaller in market capitalization than many investors might be comfortable with, although there is a minimum market capitalization for consideration ($100 million) in the portfolio. Further, the companies traded by this program tend to have a good deal of price momentum, and the program has a high turnover. Compared to the overall market, Aggressive expects to experience around a 50% increase in variability of returns with a very large increase in total return, but the possibility of negative returns exists. Aggressive marches to its own drum; despite the increased variability of returns, market correlation (beta) is moderately low.
The screen combines two momentum filters with a valuation sort order, holding the cheapest stocks that meet the momentum requirements. I have tested various holding counts and settled on the top ten for my model portfolio tracking. Counts of five through twenty were tested with robust results, the main response being a reduction in volatility as more stocks were held, but returns diminished slightly and transaction expense increased as well.
