Investing in market index ETFs provide a generally diversified portfolio with the ability to track overall market returns. What if there is a method to beat the market returns with a simple mechanical and quantitative process?
Well, a strategy of simply buying the 10 per cent of the Singapore market with the lowest price-to-book (PTB) ratio, and rolling the money to the next basket of low PTB stocks the following year, would have yielded a return of 22 per cent a year during a 10 year period from end 2003 to 2013.
At this rate of return, the initial capital of $150,000 would have ballooned to about $1.09 million by early 2013. This is after accounting for 1.5 per cent transaction costs for each trade, and an annual performance fee of 20 per cent on high water mark for the manager who is executing the strategy. Compare that ......