An interesting option is available under the 50:50 based No Lose and High Yield blend.
Assuming the High Yield achieves a 5% income, then that income can be used to support the No Lose half allowing an increase of the No Lose's stop from 5% to 10%. In effect the No Lose half borrows 5% each year from the High Yield half.
For reference the figures are :-
Using intra-day values for the FT100 from its inception in April 1984 up to late 2006 :
5% stop : 5459 test days, 2479 hit days, 45.41% hit rate, 17.95% mean gain/hit, 56.79 mean time (days) to failure.
10% stop : 5459 test days, 3644 hit days, 66.75% hit rate, 16.14% mean gain/hit, 81.71 mean time (days) to failure.
17.95% + 5% = 22.95% or 1.2295 gain factor per hit (for the 5% based stop)
16.14% + 10% = 1.2614 gain factor per hit (for the 10% based stop)
5459th root of ( 1.2295 power 2479 ) = 9.84% (5% stop case)
5459th root of ( 1.2614 power 3644 ) = 16.767% (10% stop case)
Repaying the 5% borrowed from the High Yield side reduces that 16.767% down to 11.767%, but that is still nearly 2% more p.a. average than that of the 5% No Lose's 9.84% average.
The income from having used the high yield dividends to support No Lose stops of 10%s would be lost during years when the No Lose failed (zero income left), whilst in the 5% case at least 2.5% or so income would be available even in poor years. The 2% p.a. additional average benefit for the No Lose component might however justify this, especially when you further consider the benefit that with a higher hit rate trading would be less (more rolling monthly positions would have a higher proportion of roll-overs e.g. in 44.6% of cases positions would still not have been stopped after two years whilst for the 5% stop based approach that figure is only 20%).
More frequent benefit (hits), lower costs, more overall benefit (rewards), but some years with zero overall income - seems reasonable.
Considering that over the same period the FT's total benefit was around 13% p.a. with nearly a 12% benefit from No Lose when using the Index as the holding more likely that would be more when High Yield type stock holding were used for the No Lose constitute set instead, and as high yield stocks generally outpace the market average this modified blend would appear to have a reasonable chance of at least generally pacing the market average whilst having only half or less of the markets downside risk. Periodic bear periods therefore would generally result in the blend pulling ahead due to the lower downside motion of the blend and thereafter possibly maintaining the gap.
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