UTRNX PHILOSOPHY, PROCESS & PORTFOLIO
Utilizing the Chow Ratio to capitalize on the equity markets short-term reversal effect, Vesper has contracted with major large-cap indices to create the UTRNX index. This strategy was designed to achieve superior investment results while incurring less volatility than major-market large-cap indices.
UTRNX PHILOSOPHY, PROCESS & PORTFOLIO
Vesper’s philosophy capitalizes on one of the stock market’s most powerful anomalies; short-term reversal.
85% of daily large-cap stock trading volume is non-fundamental (i.e., program trading). As a result, markets and stocks are often overbought and oversold.
Profiting from this behavioral-driven volatility, our UTRNX index seeks to outperform major-market large-cap indices over the market cycles. The 25-year back-test serves as an example of the opportunity inherent in short-term reversal.
Decades of research have shown that strategies capitalizing on the short-term reversal effect (while controlling trading costs) can add value and reduce volatility relative to the major market indices.
The Chow Ratio (CR) is a performance index that serves for security selection and portfolio optimization. The statistical formation of the CR is similar to that of the Sharpe Ratio but with a different risk-measure.
The conventional measure of price movement volatility, standard deviation, assumes investors treat their winning stocks the same way they treat their losing stocks (i.e. volatility is symmetric).
However, in many instances, the fear of loss causes investors to sell their downward-trending stocks much sooner than their upward-trending stocks. This overreaction results in significantly more downside price movement than upside price movement causing actual volatility to be asymmetric. Therefore, the CR incorporates an asymmetric measure to more effectively select securities.
The eligible universe of stocks to select from are all large-cap companies.
The Chow Ratio is calculated for each company in a major large-cap index.
The 25 stocks with the lowest Chow Ratio value (i.e. the stocks with the best chance to experience short-term reversal) are selected for inclusion in the UTRNX Index.
The Index is evaluated and re-balanced on a weekly basis.
A stock in the Index is only removed at re-balance, if its Chow Ratio value has risen out of the bottom 50 stocks of the large-cap 500 index and replaced with the next lowest valued stock.
The Vesper US Large Cap Short-Term Reversal Index is an equally-weighted index consisting of 25 stocks selected from a large-cap 500 index that will most likely benefit from the short-term reversal effect, which includes gross re-invested dividends.
John Thompson
(215) 704-6630
JThompson@VesperGlobal.com
Hours
Monday - Friday: 9am - 5pm
Saturday - Sunday: By Appointment