Performance Analysis and Backtests of Horizon smallcases

Volatility, returns and CAGR of backtested smallcases

We backtested 6 horizons — 10, 15, 20, 25, 30 and 35-year smallcases over 6 different base years. After generating the data, we built out 3 tables — one outlining the annualized returns (CAGR) of an absolute investment, next outlining the XIRR of the monthly SIP and last showcasing each smallcases’s volatility.

  • CAGR: As you can see from the first table, we have outlined the average, minimum and maximum returns of each target year smallcase. The average return of the 10-year smallcases would be lesser than the ones with a further target-date because the closer the target year, the more is invested in conservative asset classes like fixed income and lesser is invested in aggressive asset classes like equity.
  • XIRR: The second table illustrates the average, minimum, maximum XIRR an investor would have achieved had he invested in the respective Horizon. One clear takeaway is that the variation in maximum & minimum annualized returns in SIP method has been reduced and are much closer to the overall average, further signifying the power of SIP vs lumpsum investing.
  • Volatility: The volatility (3rd table) of smallcases with a closer target date is lesser, again, because aggressive investments like equity are more volatile but their presence in these smallcases is less than smallcases with target dates that are much later (20, 25, 30-year smallcases, for example).

Live Performance (Closed Beta)

We were very happy over the backtested performance of the target date smallcases. Thus, we decided to create 6 horizon smallcases at the beginning of 2021. These smallcases are Horizon — 2030, 2035, 2040, 2045, 2050, 2055 and have the horizon period of 10, 15, 20, 25, 30 & 35 years respectively. The chart below shows the live performance of these smallcases over the last year.

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Windmill Capital

Windmill Capital

SEBI Registered Research Analyst | Simple & Transparent Products for DIY investors | Thematic and Quantamental Model Portfolios.