“Kaafi kuch badla is saal khass kar woh, jiske badalne ki umeed nahi thi.”
“A lot changed this year, especially that what we didn’t expect to change.”
Chase broke some records this year. No good news there. We hit a new low on the drawdown, which made us humble, if not anything else.
As if that was not enough, we also saw a year with the highest number of consecutive loss-making trades.
This was when several folks following Chase gave up.
It indeed was getting more challenging by the day. That’s when we started an options model of Chase to see if it helps calm our nerves. So, yes, it did help a bit as we waited for that trend to appear.
“Na koi vaada, na koi yaqeen, na koi umiid, magar hamen to tera intizar karna tha” – Firaq Gorakhpuri
“No promises, no belief, no expectations, but I had to wait for you.”
Halfway through the year, things started getting better, we saw some trends emerge. But once bitten twice shy as they say.
Towards the end of the year, the trends did help Chase close on a positive note. Not something many, including myself, would have expected, though.
Chase 2021 Performance Summary
CM Chase clocked 25.5 % vs 22.7 on NIFTY. A large part of outperformance came in the last three months when the Index was down-trending, and chase managed to hedge the downfall.
Chase 2021 NAV Comparison
The beginning of 2021 till about Feb saw crazy levels of outperformance. However, the next six months were tough. March till August was a very range-bound period for the index, and the underperformance was evident. It took the next four months for us to recover from that. But recover we did.
Now compare 2021 with 2020 and you would see how different it was. Chase completely hedged the downside and participated in all of the upside.
Deadly drawdowns
This year we had one of the largest drawdowns of close to -19% on Chase; we ended the year with a little under 5% drawdown. Do note that drawdowns mean distance from the previous high and not a loss except for the investor who entered exactly at that high.
2020 though was a very different year, extremely trending on both sides, you can see that in the chart. Chase DD never went below 10% the whole year.
What saved the day in 2021?
The conditional leverage approach saved us from getting kicked out of the game.
We’ve maintained right from the beginning that leverage can hurt, and when it hurts, it hurts badly. This is why we chose to keep the 2x leverage only when we know we have an edge, i.e. on the upside.
The purpose of the short trade is to hedge and maybe make some money out of it. In the long run, it’s the uptrends that make money.
Futures vs Options
What does come as a surprise is that Options in the past eight months at least conceptually did better than futures, 901 vs 780 points in futures. However, at what cost, you may ask. There were 3x more options trades than futures, 171 vs 61. That also means more brokerage, transaction costs, time, and effort. We are still thinking if it’s really worth doing both.
In summary
Chase kept its word and did outperform the index. Trend following by itself is hard on one’s gut, and in 2021, it was tougher. We managed to scrape through a meagre outperformance. Thankfully we were not much levered, which would have made it unbearable. We learned to trust the system and position size conservatively.
With that, we walk into the future, hoping it’s better than what it was last year.
To know more about Capitalmind Chase our index trend-following strategy visit this link.
Feel free to connect with us on https://twitter.com/capitalmind_in
