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Opus: First Month Update

Opus November 2022 Update

TLDR: Opus outperformed its benchmark with lower volatility and drawdowns.

Backtest of Composer's Opus' first month of performance, November 2022.

Opus–12 backtested performance for the first month since inception. Data from October 4th, 2022 through November 4th, 2022.

Composer’s Opus strategy launched on October 4th, so let’s dig into performance for the first month. For simplicity, we will review Opus–12, but performance is comparable for the conservative Opus–8 and the more aggressive Opus–14.

Strategy

Returns

Opus–12

1.8%

Opus–8

1.2%

Opus–14

1.0%

Benchmark: 60/40

-1.5%

Performance is shown gross of fees, so to calculate your net returns subtract $30 for monthly subscriptions and $24 for annual subscriptions from the strategy's value. Note that your Composer subscription includes unlimited strategies, and the cost per strategy goes down with multiple strategies running.

As a reminder, Opus is a combination of 5 sub-strategies. Check out our Opus write-up for more details on how the strategy is constructed and managed. 

Composer's algorithmic strategy, Opus, is comprised of five sub-strategies.

Opus' five sub-strategies

Opus performance review

First, some context, since October 4th, the S&P 500 (SPY) is down 0.4% while the Nasdaq 100 (QQQ) is down 6%. Opus’ benchmark, the 60/40 portfolio, is down about 1.5%. 

It’s been a volatile month, and depending on the days you look at, returns for equities can look wildly different. We’ve had an FOMC meeting, 3Q GDP data, and multiple labor market updates. It’s been a busy month, and SPY’s standard deviation (25.8%) was well above its 5-year average (~18%). Opus is diversified among stocks, bonds, commodities, and currencies and aims to perform well in choppy and down markets. 

Composer's Opus strategy and its performance during its first month.

Performance metrics for Opus and its benchmark, October 4th, 2022 through November 4th, 2022.

Opus–12 was less volatile than both comps, with a standard deviation of 11.8%. Drawdowns for SPY (4.7%) and 60/40 (4.3%) were greater than Opus–12 (2.6%). 

Let’s dig into Opus's performance by reviewing the performance for each sub-strategy. 

Efficient Core 

The core of the strategy is WisdomTree US Efficient Core Fund (NTSX) which is down about 3.5% for the period, which makes sense since it's a slightly leveraged version of a 60/40 portfolio.

Large Cap Value

The value sleeve has done exceptionally well over this period, with the value ETFs VLUE (+5%), VTV (+5.5%), FNDX (3.8%), and RWL (+3.4%) all returning significantly more than SPY. Interestingly, Value experienced three standard deviation outperformance relative to Growth over this period. The investment team remains bullish on value stocks over the long term, but we don’t expect this outperformance to continue over the next few months. 

Commodity Momentum

With many commodities retreating from their early year highs, the commodity sub-strategy was mostly in short-term treasuries (SHV). The Commodity Momentum evaluates each commodity ETF independently and invests when performance trends above the risk-free interest rate. Otherwise, the strategy invests in short-term treasuries. 

There was some trading in and out of energy-related commodity ETFs as the symphony looked for a clear signal on commodity trends. SHV allocations were as high as 20% over the period and as low as ~9%.

Sector Momentum

As for sector momentum, the strategy has stayed invested in Energy (VDE) and then moved from Utilities (VPU) to Health Care (VHT) back to Utilities. It looks like the symphony logic is staying clear of the more volatile sectors like technology and consumer discretionary and currently prefers defensive and energy-based sectors.

Volatility Hedge

Within the Volatility Hedge, gold (GLD) was down 2.6%, while managed futures (DBMF) were up 3.8%. The US dollar (UUP) was volatile but up slightly for the period at +0.8%.   

A solid start 

The diversification of the strategy appears to be doing its job, with commodities, stocks, bonds, and currencies all moving in different directions. We are encouraged to see the strategy delivering reduced volatility, smaller drawdowns, and performance above its benchmark for the first month. 

The investment team is currently evaluating strategies and changes for the January rebalance. More to come!  

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