The fourth quarter put the crown on what was a pretty good year for White Chapel. The final result for Q4 of 2016 was a gain of 31.6% (which amounts to an average annual return of 205%). The main event in this quarter was, of course, the US Presidential election. Before the election, investors expected a Clinton victory and feared a Trump triumph. However, they got a Trump victory which turned into a Trump rally. Our model was not unhappy with the course of events. White Chapel assessed the run-up to the election, the actual election and the first part of the aftermath pretty well. But it expected the Trump rally to cool off a few weeks earlier. It was able to regain some of the lost ground in the final trading weeks of Q4, however.
White Chapel‘s portfolio had a value of around $30,000 at the start of Q4 (initial value was $10,000 at 1 January 2016). It reached its apex for the quarter at almost $45,000 at the beginning of December and ended Q4 at just above $40,000 at the close of the final trading session for 2016 at 30 December.
2016 is the first year of live trading for White Chapel. The crucial question before the start of the year was: will our model be able to live up to the expectations created by the results from our backtests? White Chapel ended the year with an annual return of 303%, which is very close to the average annual return for the backtest period of 1995-2015.
Last year was characterized by surprises and uncertainty. The year started off with a New Year’s Eve hangover and major US indices took some serious losses. The S&P 500 lost around 10% in the first six weeks of 2016. To White Chapel this downfall was no surprise and our model realized a positive return of 70% in the same period: its initial value of $10,000 rose to $17,000. From mid-February on, indices recovered from their initial losses and never looked back. A steady climb brought the S&P 500 from its low for 2016 (1,810 points) to its closing value of 2,238 points at 30 December 2016. This 24% ascent was only temporarily interrupted by the surprise outcome of the Brexit referendum and the fear that surrounded a possible election of Donald Trump as the new US President in the days before his actual election. In both situations, the S&P 500 saw a drawback of approximately 5%.
In hindsight, White Chapel‘s handling of the Brexit was for the most part exemplary. In the weeks before the referendum, the value of our portfolio was approximately $25,000. In the weeks following the surprise outcome of the referendum, our model reached an intraday high of $50,000. White Chapel was able to double the value of its portfolio in a tumultuous period that lasted three months. The only criticism we have is the following: White Chapel expected sentiment to turn somewhat earlier than was the case in reality. As a result, our model lost a substantial part of the gains it had made in the months before and got stuck in a bandwidth between $30,000 and $ 40,000 for almost 4 months.
After that, election fever took over. The consequences of that were discussed in our review of Q4 above.
All in all, White Chapel showed in 2016 exactly where it is good at: taking advantage of turbulent periods and consolidating its gains in the less tumultuous phases in between.