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Market Neutral Portfolio 

Market neutral investing without short-selling

An investment strategy is market-neutral if it seeks to erase a market risk. YPAFI Market Neutral Portfolio is designed to manage a capital over $50k without fearing a market crash. It is based on the idea that a diversified portfolio holding defensive and cyclical companies with very strong fundamental factors has a high probability to beat the indices in all market conditions. It holds 25 stocks and a leveraged inverse ETF. There is no short selling, leveraging is optional.

The portfolio is diversified in various dimensions: number of companies, ranking logics, sectors. It holds 25 stocks, at least 10 in defensive sectors and 10 in cyclical sectors. 10 at least are in the S&P 500 index, the other ones are in the Russell 3000 and filtered on liquidity. Stocks are selected using five models, four of which are sector-oriented. The 5th model is the SP500 Growth&Value model of YPAFI Growth Portfolio.

The Market Neutral Portfolio is a DIY hedge fund, with a scalable hedge for various goals and risk profiles. The next table shows simulated performances from 1999 to 2015 with various hedging strategies using the 3x leveraged inverse S&P 500 ETF SPXU. Data for SPXU are synthetic before the inception date. Rebalancing is weekly. If leverage is used, stocks are held on capital and SPXU on margin. The maximum drawdown depth is calculated on rebalancing day. It may be slightly deeper intra-week.

Hedge Leverage Annual Return Drawdown Depth Drawdown Length
no no 28% -36% 103 weeks
100% no 15% -9% 54 weeks
100% 1.33 21% -11% 54 weeks
75% no 17% -11% 49 weeks
75% 1.25 23% -14% 50 weeks
50% no 20% -17% 51 weeks
50% 1.167 24% -19% 51 weeks
Timed no 25% -15% 50 weeks
Half Timed no 20% -10% 48 weeks
Half Timed 1.33 28% -13% 49 weeks

100% = full hedge (market neutral), for $3 in stocks, $1 in SPXU.
75% = 75% hedge. For $4 in stocks, $1 in SPXU.
50% = 50% hedge. For $6 in stocks, $1 in SPXU.
Timed =  100% hedge when the market timing signal is bearish. Else, the hedge is in cash. 
HalfTimed =  one half of the hedging position is permanent, the other half is timed.

16-year simulation without hedge: no timing, no hedge.

AnRet: annualized return; MDD: max drawdown depth; Sharpe, Sortino: risk adjusted performance ratios; Kelly: probabilistic robustness ratio; MDL: max drawdown length; Vol: volatility; Cor: correlation with SPY; Ord: average orders/week (replacing 1 stock = 2 orders)

AnRet MDD Sharpe Sortino Kelly MDL Vol Cor Ord
28% -40% 1.4 2 24% 23 mths 17% 0.8 4

market neutral

This is probably the only market neutral service compatible with an IRA account. At this time we have identified two other market neutral services.

Editor Updates/year Positions (long/short) IRA compatible Scalable hedge Price
InsideAlpha 52 24 (12/12) no no €650/3months
ValuEngine 12 32 (16/16) no no $50/month
YPAFI 52 26 (26/0) yes yes $87/month

YPAFI Market Neutral Portfolio 87 USD / month*

30-day money back guarantee

*Recurring billing by credit card or Paypal. Plus tax if your billing address is located in the European Union, Switzerland, Norway or specific locations in the U.S. (NY, NC, CT, Broomfield County CO). You can stop it at any time. The address is for tax compliance purposes, there is no physical mail or delivery.


Information sent by email before the 1st trading day opening of every week. It contains stocks that we buy, sell and hold the same day. It also contains the hedging indicators, other useful market timing indicators and a market outlook. This is a follow-up of our portfolio for informational purposes. It is not a recommendation to buy or sell securities. We provide an opinion about the market. Every subscriber is free to use it in any way for individual purpose, except disseminating included information. You are responsible for your investments. Investing is risky. Past performance is never a guarantee for the future. We are not a RIA and cannot provide personal advice. If you have a doubt, please consult a registered advisor.

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