26 Years Against the Index: What Eight Systematic Strategies Show

All eight strategies outperformed the index in average annual return, by a margin of 3 to 16 percentage points a year. Six of the eight also outperformed it on the Sharpe ratio.

EMERALD has the best risk/return profile. Its return is almost on par with that of POWER, the most aggressive strategy, while its maximum drawdown is half that of the index. EMERALD's Calmar ratio is 0.91, versus 0.17 for the S&P 500. POWER delivers the highest cumulative return, but at the cost of drawdowns comparable to those of the index. STABILITY lives up to its name: with volatility in line with that of the S&P 500, it delivers twice the return with shallower declines.

The table and charts also show the blended strategy: a portfolio of eight equal-⁠sized sub-⁠portfolios, each corresponding to one of the strategies. Once a year, the sub-⁠portfolios are reset to equal proportions. We explain its purpose below.

A single strategy's portfolio consists of about 10 stocks, and a significant part of its risk comes from individual companies. The natural next step is to combine strategies, and the blended strategy is the simplest way to do this. The strategies' portfolios partly overlap, so the combined portfolio ends up holding 30-⁠40 stocks. The stock weights are not equal, however: a stock that belongs to several strategies at once gets a correspondingly larger weight.

The blended strategy returned 18.7% a year with volatility of 17.9%, a maximum drawdown of -39.0% and a Sharpe ratio of 0.95. This is lower than for the best single strategies, but it removes the need to guess the leader in advance, and the result depends much less on luck in selection. The blended strategy outperformed the index in 22 of 26 calendar years and underperformed it in 2016, 2018, 2022 and 2024.

Equal proportions are the simplest way to blend. Combinations that take into account the correlations between strategies and their behavior in different market regimes give more interesting results. This is a topic in its own right, which we will cover separately.

For an experienced investor, average return is less interesting than what happens in bad periods. Defensive qualities are spread unevenly across the lineup, and this is deliberate. The growth engines are POWER, EMERALD and AVICORE. POWER pays for the highest return with index-⁠level drawdowns: in 2008 it lost almost as much as the market. EMERALD is the exception here: with a return close to that of POWER, it also proved the most resilient in crises. STABILITY and DIVIDEND serve as anchors, and outside the lineup, so does gold: its correlation with the S&P 500 is practically zero, and it rose in 2000-⁠2003 and 2007-⁠2009.

Not every crisis plays out the same way. In 2022 most strategies lost at least as much as the index: the blow to growth companies hit our portfolios too.

Splitting the period into two sub-⁠periods shows that the result does not rest on a single lucky stretch. In 2000-⁠2012 the S&P 500 returned 2.1% a year and the blended strategy 14.3%. In 2013-⁠2025 the index returned 14.6% and the blended strategy 23.4%. The premium held up both in the “lost decade” for stocks and in a strong bull market.

The exception is DIVIDEND: over the last ten years its return has fallen to 3.9% a year. This is consistent with the overall underperformance of the dividend factor in an era dominated by growth companies and calls for a separate analysis.

Since October 22, 2024, the strategies have been traded on live accounts at Interactive Brokers. Account values are recorded on the 22nd of each month. The strategies were launched in three stages: POWER, INDIGO, YELLOW and GREEN have been traded since October 2024; STABILITY, EMERALD and DIVIDEND since October 2025; and AVICORE since April 2026.

All results are net of brokerage commissions and dividend withholding taxes. Capital gains tax is not taken into account.

We analyze only the strategies that have been trading for more than a year. Over a shorter period there is too little data and too much noise: a few months of results say more about market randomness than about the quality of a strategy. That is why only the four first-⁠wave strategies are shown below. The others will be added to the analysis once each of them has a year of live trading behind it.

Over 23 months these four strategies returned 63% to 82%, or 29-⁠37% a year. Over the same period the S&P 500 TR rose 35.9%, or 17.4% a year.

We recognize that there is still little data: with volatility of 20-⁠25% a year, the spread of results even over two years is very wide, and it is too early to draw conclusions about the premium, in either direction. The track record is updated monthly.

All results for 2000-⁠2025 were obtained from historical data. We know that a backtest generally overstates future returns, and we have eliminated the typical sources of overstatement. The backtest is based on the historical composition of the index: delistings and spin-⁠offs are accounted for correctly. At each rebalancing, only financial statements that companies had already published by that date are used. Rebalancing once a year means low turnover, so trading costs have little effect on the result. We also tested other dates for the annual rebalancing: the results change only slightly, which means they do not depend on a lucky choice of month.

Some limitations cannot be eliminated. Eight strategies were tested, so the best of them cannot be assessed in isolation: a correction for multiple testing (for example, the deflated Sharpe ratio) reduces the significance of the leaders. In this respect, the blended strategy's result is more reliable than that of any single strategy. A 10-⁠stock portfolio is concentrated, and a significant part of its risk is company-specific. Finally, 26 years is a long period, but still only one realization of history.

That is why we launched the strategies with real capital (see the “Live Trading” section above). The horizon is still too short for statistical conclusions, but this is exactly the test that a backtest cannot replace.