An Alternative to the S&P 500

A Superior Strategy for Retail and High-Net-Worth Investors

For decades, investors have relied on the S&P 500 as a benchmark for market performance. While it has delivered solid long-term returns, it also comes with significant volatility and periods of underperformance. But what if there was an alternative—one that provides superior risk-adjusted returns, lower drawdowns, and more consistent performance over time?

Introducing a disciplined 10-stock portfolio designed to outperform the broader market. This strategy, grounded in a three-factor quantitative approach focusing on value, growth, and quality, has demonstrated remarkable performance over the past 24 years. With a straightforward annual rebalance at the start of each calendar year, this portfolio provides investors with an elegant yet powerful alternative to traditional index investing. Each year, the portfolio will invest in equal dollar amounts across the 10 selected stocks.

The Edge: Proven Performance and Robust Risk Management

Our backtest over the most recent 24-year period ending in 2024 reveals compelling statistics:

• Average annual return: 15.3%, significantly outperforming the S&P 500’s 8.47%.
• Outperformance consistency:
  • 90% of rolling 5-year periods.
  • 100% of rolling 10-year periods.
• Risk-adjusted return (Sharpe Ratio): 0.768 vs. 0.469 for the S&P 500.
• Lowest rolling period returns:
  • 10-year: 12% vs. the S&P 500’s 1.4%.
  • 5-year: 8.2% vs. the S&P 500’s -2.2%.

These figures highlight the strategy’s resilience during market downturns. Unlike the S&P 500, which experienced negative returns in some 5-year periods, this portfolio never produced a negative 5-year return in backtesting. Even in its worst 10-year period, it still achieved an impressive 12% annualized return.

Additionally, all stocks in this strategy are selected exclusively from S&P 500 stocks, ensuring high liquidity and institutional quality. Furthermore, survivorship bias was eliminated, as every stock included in the backtest was a member of the S&P 500 at the time of selection.

Addressing Skepticism: Why the Backtest Holds Weight

Some investors may question the validity of backtested results. However, this strategy has been tested across multiple time periods and continues to outperform in 98% of all 10-year periods outside the original backtest and 100% of all 15-year periods. Even in the rare instances when it underperforms, the margin is only by a few basis points, and the portfolio maintains a superior Sharpe ratio with lower drawdowns.

Unlike many quantitative strategies that rely on dynamic weighting adjustments or factor-timing models, this approach maintains a disciplined, rules-based selection process, ensuring stability and consistency. The methodology is transparent and does not engage in data mining or curve fitting. Instead, it leverages fundamental investing principles refined through rigorous empirical testing.

Who Is This Strategy For?

This portfolio is ideal for:

• Retail investors looking for a simple, high-performance alternative to passive indexing.
• High-net-worth individuals seeking lower volatility and superior long-term risk-adjusted returns.
• Investors frustrated with market cycles who desire a strategy that historically performs well across varying economic conditions.

How to Access the Annual Stock List

To democratize access to this market-beating strategy, the 10-stock portfolio will be made available free of charge upon request at the beginning of each calendar year. Investors can then implement the strategy on their own, ensuring transparency and ease of execution.

Tracking Performance: A Live Model Portfolio

Starting in 2025, we will report the progress of the model portfolio going forward, providing updates on how it performs in real market conditions. This will allow investors to see firsthand how the strategy operates over time and evaluate its effectiveness.

Conclusion: A Long-Term Investment for Outperformance

This 3-factor model presents a compelling alternative to the traditional S&P 500 approach. With superior long-term returns, better risk-adjusted performance, and reduced drawdowns, it provides investors with a disciplined and sustainable investment strategy.

While it won’t always track the index in the short term, its strength lies in long-term outperformance—and with a 24-year track record proving its resilience, this is an opportunity investors shouldn’t overlook.

For those seeking a better way to invest, this strategy delivers results that speak for themselves.