2019 was the fourth consecutive year of underperformance by the annual Bridesmaid sector pick. Those poor results have trimmed the annualized “alpha” of the strategy to just +2.2% since 1991.
Our work on the Bridesmaid momentum effect dates back to 2006, and was originally based on equity sectors rather than asset classes. Again, the hypothetical approach is to ignore macroeconomic trends, sector fundamentals, valuations, and the like, and to base sector selection solely on the prior year’s sector total return rankings.
Here are the historical annual performance results for the hypothetical Bridesmaid strategy.
While the consideration of risk seems almost a quaint notion as the bull market nears its eighth birthday, it’s nonetheless worth noting the Bridesmaid allocation strategy has generated a favorable return/volatility trade-off in relation to: (1) the seven candidate asset classes; and, (2) the strategy of owning an asset class with a prior-year total return rank other than #2.