Now that the Canadian Benchmark S&P TSX 60 had its worst week since the March 2020 pandemic crash, you may wonder about its recovery. The Science of recovery is tied to the design of the benchmark. The current benchmarks including the S&P TSX 60 is poorly designed, creates concentration risk and hence takes longer to recover.

The drawdown chart below is a comparison of two baskets, the S&P TSX 60 [Benchmark] vs. Exceptional & Rich Canada 60 [E&R]. The picture below is worth 2267 days. A daily time series plot illustrating drawdowns of more than 10% from peak value over a weekly period is considered a drawdown.

Source: AlphaBlock Technologies

Source: AlphaBlock Technologies

The two baskets have the same 60 stocks. E&R is AlphaBlock’s Indexing method, while the Benchmark is the world’s largest Indexing company Standard and Poors’ Index for the Canada 60 also called the S&P TSX 60.

The running competition is an apples-to-apples comparison, with the same set of components, similar turnover, low tracking error [designed to move like the benchmark], and similar volatility. But today is not about performance comparison, it’s about drawdown.

The S&P TSX 60 largest and longest drawdown started on June 18, 2008, and went on for a long 2267 days till September 2, 2014. The second-largest drawdown in the benchmark started on September 4, 2000, and lasted for 2040 days till August 6, 2006. E&R Canada 60 drawdowns for the period were not only brief but also saw new highs during the period.

E&R recovers faster because it improves the flaws of current Indexing methodologies without creating concentration risk. Predicting markets is a difficult job, but reducing recovery periods is a Science.

AlphaBlock Team