Evaluation of AIM
Further to my earlier post, which recounted running standard AIM against the UK FTSE All Share Index from Sept 2007 to date, starting at 40% equities as suggested by VWave at the time, and producing a total return of 1.5%.
The ROCAR came out at 3.1, based on the average in equities of 51%. The arithmetic mean monthly return was 0.1%, with a standard deviation of 2.6.
I've just compared the above to using the 10 month simple moving average, as advocated by Mebane Faber, in a trend following system. If the index closed at the month end above the SMA10, 100% of capital was invested in the index for the following month. If it closed below the average, 100% was in cash for the following month.
For the same time period, ignoring dividends, interest on cash and trading costs, the total return was 30.2% and the ROCAR was 55, based on the fact that the system was 100% in equities for 55% of the months, and in cash for 45% of the months. The average monthly return was 0.6%, with a standard deviation of 3.0. Buy and hold was -13% as before.
