PowerStocks Labs has been busy at it again, and we are pleased to announce a new "designer investing strategy" tailored for the SA market that we will be tracking in our live model portfolios dubbed JSE-TRAX. JSE-TRAX is designed to track or marginally beat the performance of the JSE-ALSH index whilst significantly lowering volatility of monthly returns and minimising your exposure to market risk. It is a simple mechanical trading strategy that leans on the 20 and 10 year research done by the PowerStocks Research team on the Seasonality of JSE Returns.

Over the last 10 years, using the JSE-TRAX strategy, you would have beaten the JSE ALSH index by 0.2% compound per annum by only being exposed to the share market for 4 months of the year! For the other 8 months of the year your investment cash would sit in a low risk high yielding call or money market account.

Dave Keene, head of PowerStocks Labs explains : "Excluding income taxes, having R100,000 sitting in an FNB call-account since 1st January 1999 would have yielded you a total growth of 141.8%, or 9.2% compound per annum growth. At the end of 2008 your virtually "risk free" investment would now be worth R242,000. If you however invested the R100,000 in the JSE ALSH index, then excluding dividends and taxes, you would have seen a growth of 292.2%, or 14.64% compound per annum. At the end of 2008, even after the horrific crash, your investment would have grown to R392,000. Of course there is no denying that the higher gains from being invested in the stock market exposed you to higher volatility of returns and greater "market risk" than cash sitting in a call account!"

"However, if you had followed the simple PowerStocks JSE-TRAX strategy, and diverted your cash into the JSE for just 4 specific contiguous months of each year, you would have seen growth of 298.9% or 14.84% compound, marginally greater than being invested in the JSE for the full 10 years! Although the trading strategy only marginally out-performs the ALSH, the main benefit to the investor is its far lower exposure to market risk (as it is only exposed to the JSE for 4 high growth, low risk months of the year) and much lower volatility of monthly and yearly returns. In fact the strategy was actually comprehensively outpacing the ALSH in total returns between the 2001-2005 period."

Keene explains further : "One would imagine that a strategy that mixes fixed deposits with times in the JSE would deliver returns in between the two extremes, but what JSE-TRAX attempts to do is give you the FULL performance of the market for significantly less risk. Given that most professionally managed funds, with high admin fees, struggle to beat the indexes, JSE-TRAX gives the beginner investor a great opportunity to try out DIY investing and give the fund managers a run for their money."

Keene is at pains to point out though that the investor that stuck with the JSE strategy for more than three years would only be paying capital gains taxes as opposed to income taxes on realisation of profits. He concluded "If you have a longer than 3-year investment horizon, you are better off with a buy-and hold strategy on the JSE. The longer time horizon smoothes out the volatility and lowers your risk and you get the benefit of tax efficient returns. JSE-TRAX is not designed to replace regular investing on the JSE. It is designed for investors who want some of their portfolio in income generating cash for a 1-3 year horizon, but want to maximise returns whilst minimising their risk. It is also a great low-risk starter-pack for a novice investor."

The JSE-TRAX model portfolio will have monthly performance updates posted on the NEWS section of the PowerStocks Research website. To learn how to implement the mechanical strategy yourself, see the research paper we recently published titled Seasonality of JSE Returns. JSE-TRAX is a February-January strategy, but you can commence it any time of the year. The YTD performance of the model portfolio incepted on 2 February 2009 appears below: