Our flagship product posted 10.59% annual net returns for the year, ranking in the top 5 of our peer group on a risk-adjusted basis. Even still, our performance lagged behind the US Equity market that was generally up over 20% for the year.
We design our trading models to capitalize on economic and market environments across the spectrum and expect them to do so going forward. Our concern today is that we are suppressing the natural frequency of cycles with extreme government intervention, which will potentially lead to unnatural boom-and-bust behavior. We need cycles just like we need seasons. Without both, nature can’t cleanse itself. The economy is no different. Economic cycles cleanse negative forces like inflation, excessive risk appetite, complacency, etc. Since Covid panic emerged in February 2020, the Fed has done everything in its power to avoid necessary natural cycles. At some point, there’s got to be a morning after. If the market isn’t permitted to reach this morning after in the context of a healthy, natural cycle, we are setting up ourselves for extreme high frequency boom-and-bust movement. This is the primary reason we have focused on a) eliminating signals that look like buy-and-hold and b) building shorter term contra models that can short Equities, Fixed Income and Commodities in the nascent periods of stress events. We remain optimistic about both the base of our approach that has been around for several years and the newer components we continue to add.
Another source of our optimism comes from our soon-to-be-released RQSI NEMO product, which puts our NEMO framework into practice. RQSI NEMO takes similar risk to a traditional 60-30-10 portfolio but does so in a much more dynamic and controlled way. In 2021, a 60-30-10 portfolio made 13.4% with a 1.2 Sharpe ratio; RQSI NEMO had a 220 bp higher return on ~70% the volatility.
I invite you to read our Year in Review to learn more about last year’s performance and our plans for the future.
-Neil Ramsey