track record

SweetSpot Investments LLC

SweetSpot's track record

SweetSpot's Track Record

The SweetSpot Investment Strategy has been traded in real time since December 1998. In nine full years of trading it has gained an average of 19.1% each year, [1] compared to the market's average return of 4.1% [2]. It's a rare strategy than can consistently beat the market by just a point or two per year. Here the average margin of victory is 15 points. A back-test performed in 2006 showed market-beating returns going back to 1989, the earliest it would have been possible to trade the strategy using sector funds. [3]

Looking at each year's picks as one three-year trade, every trade from 1998-2007 has been profitable and every trade has beaten the market. Furthermore, all 23 individual positions were profitable and 20 out of 23 beat the market.

Completed SweetSpot Trades:*

Pacific Basin (fpbfx) bought 12/23/98/sold 12/21/99: +102.8% (s&p +17.9%) **

Canada (ficdx) bought 12/23/98/sold 12/21/01: +43.9% (s&p -3.9%)

Latin America (flatx) bought 12/23/98/sold 12/21/01: +16.7 (s&p -3.9%)

Medical Delivery (fshcx) bought 12/23/99/sold 12/28/00: +76.3% (s&p -7.8%)

Food & Agriculture (fdfax) bought 12/23/99/sold 1/2/03: +23.4% (s&p -35.6%)

Japan (½ fjpnx + ½ fjscx): bought 12/29/00/sold 1/2/04: +8.8% (s&p -11.7%)

Pacific Basin (fpbfx) bought 12/29/00/sold 1/2/04: +4.0% (s&p -11.7%)

Leisure (fdlsx) bought 12/29/00/sold 1/2/04: +15.3% (s&p -11.7%)

Industrial Materials (fsdpx) bought 1/8/02/sold 1/2/03: +0.3% (s&p -20.6%)

Insurance (fspcx) bought 1/8/02/sold 10/15/04: +21.7% (s&p -0.4%) ***

Medical Delivery (fshcx) bought 1/8/02/sold 1/3/05: +68.0% (s&p +8.6%)

Chemicals (fschx) bought 1/2/03/sold 1/3/05: +74.6% (s&p +36.8%)

Transportation (fsrfx) bought 1/2/03/sold 1/3/05: +68.6% (s&p +36.8%)

Leisure (fdlsx) bought 1/2/03/sold 1/3/06: +70.1% (s&p +46.6%)

Defense & Aerospace (fsdax) bought 1/2/04/sold 12/29/06: +70.9% (s&p +33.8%)

Energy Service (fsesx) bought 1/2/04/sold 12/29/06: +126.7% (s&p +33.8%)

Environmental Services (fslex) bought 1/2/04/sold 12/29/06: +29.8% (s&p +33.8%)

Automotive (fsavx) bought 1/3/05/sold 1/3/08 +8.3% (s&p +25.4%)

Industrial Equipment (fscgx) bought 1/3/05/sold 1/3/08 +55.7% (s&p +25.4)

Materials (fsdpx) bought 1/3/05/sold 1/3/08 +78.0% (s&p +25.4%)

Sweden (ewd) bought 1/3/07/sold 1/3/08 +0.4% (s&p +4.7%)

Spain (ewp) bought 1/3/07/sold 1/3/08 +21.4% (s&p +4.7%)

Singapore (ews) bought 1/3/07/sold 1/3/08 +27.7% (s&p +4.7%)

Annual Performance 1998-2007:

Average annual return: +19.1%

Average annual S&P 500 return: +4.1%

Average annual excess return: +15.0 percentage points

How Has SweetSpot Performed Lately?

In 2007 the combined performance of all SweetSpot and HotHands positions was +12.7% while the market gained 4.6%.

On January 3, 2008, the 2005-'07 SweetSpot trade was completed. Collectively, autos, industrial equipment, and materials returned 47.3%, 21.9 percentage points better than the market.

The first-ever real-time HotHands trade was also completed on January 3, 2008. The combined performance of singapore, spain, and sweden was +16.5% versus +4.7% for the market. As good as those numbers look, the HotHands strategy actually did even better -- it told us to buy China. We didn't, due to concerns about the integrity of that country's economic system. But if we had, China's 45% return in 2007 would have increased our overall HotHands gain to 23.6%, 18.9 points better than the market.

Finally, the 2007-'09 SweetSpot trade was the first to rely on the data for 500 funds instead of 55. In its first year the trade was up 22.3%, beating the market by almost 18 points.

*Trades entered on 12/23/98 were based on information provided by Morningstar and Lipper as reported in the Wall Street Journal in December 1998. Trades beginning on 12/23/99 through 1/3/06 were based on a proprietary formula using data for all non-diversified Fidelity mutual funds. Collectively, those funds served as a proxy for the overall market. Beginning in 2007, the formula was applied to data for the entire universe of non-diversified mutual funds and exchange-traded funds, thus increasing the likelihood that market behavior will be accurately gauged.

Until 2005, a fund was sold a year or two early whenever it strayed too far from its sweet spot. This happened to about one-third of all positions, beginning in Year One with the Fidelity Pacific Basin Fund. This sell signal was abandoned when both real-time and back-tested results showed that its use did not materially improve performance and thus complicated matters unnecessarily.

**"s&p" is the S&P 500 Index as reflected by the returns of the Fidelity Spartan 500 Index Fund (ticker symbol: fsmkx). The S&P's performance corresponding to each trade is reported parenthetically. Results assume the reinvestment of all dividends and other distributions.

***In October 2004 Fidelity Select Insurance (fspcx) was sold 2.5 months early when widespread fraud in the insurance industry was revealed. Barring such developments, each SweetSpot trade is held for three years and each HotHands trade is held for one year.

Notes:

[1] Returns assume the reinvestment of all dividends and other distributions. Stated returns were achieved by an individual investor who paid no fees other than those imposed by fund sponsors. The information necessary to trade the strategy is now being made available for a fee, the payment of which would have reduced stated returns.

[2] "The market" is represented by the S&P 500 Index, the most commonly used proxy for the broad stock market, as reflected by the returns of the Fidelity Spartan 500 Index Fund (ticker symbol: fsmkx).

[3] Most strategies fall short when investors attempt to duplicate back-tested results. Here, however, while the back-test showed a clear advantage over the market, SweetSpot's real-time results far exceeded what the back-test would have predicted. The back-test merely confirmed that the strategy would have worked over a longer time horizon than the period in which the strategy has been actively traded. Still, no representation is made that investors will see profits similar to either actual or hypothetical past results.

The SweetSpot Investment Strategy by SweetSpot Investments LLC is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Permissions beyond the scope of this license may be available at info@sweetspotinvesting.com.