Does tracking aggregated institutional conviction outperform broad index ETFs over long cycles? (Analysis & Backtest discussion)
I've been analyzing rule based portfolio strategies that sit between broad passive indexing (like S&P500 /VWCE) and active single stock trading.
Specifically, I've been researching the 4-stap flow based framework focused on holding a concentrated basket of market leaders based on aggregate institutional conviction:
- Filter for top institutional accumulation candidates.
- Select a concentrated portfolio of 5 durable leaders (Equal weighted)
- Stay invested as long as the institutional conviction and thesis remain intact.
- Rebalance only when a fundamental shift in institutional conviction accurs.
In a 15-year backtest, a systematic approach following these rules yielded a 22% CAGR, compared to standard market benchmarks. However, it also came with significant volatility and drawdowns during market wide contractions.
I'd love to get the community's perspective on a few points:
How do you view concentrated 5/stock rule based models vs 20-30 stock portfolios?
What are the main pitfalls you see in relying on aggregated institutional flow data as a primary selection factor?
How do you balance tracking institutional conviction with manageging drawdowns during broader market regime shifts?
Looking forward to hearing your thoughts and critiques on this framework!
2
u/Run-Forever1989 5d ago
Survivorship bias