By Wouter Kneepkens.
September continued where August left off. Volatility in the stocks we follow was limited, with our trades ending up in the -0.9% - +1.9% range. We completed six trades in total for the month with a 67% hit rate.
We did four trades that made us money this month: TomTom, KPN, Apple and Facebook, two longs and two shorts. We’ll have a quick look at two of these:
The TomTom trade this month was a classic. On 9 September the company announced a deal with Ford, on the 10th it added a deal with Sony and it also resulted in some positive comments by analysts (“positive messages TomTom”). This is the type of talk that our algorithms pick up on, meaning we were able to benefit from (part of) the increase in the share price.
Graph1.: TomTom, 7-13 SEP’13, source: trading dashboard SNTMNT.com
Our Facebook trade has been our most successful (and second profitable) short trade. The share had been trading upward in the past days/weeks, with sentiment being pretty volatile containing both positive and negative news and points of view. Early in the day on the 26th sentiment broke negatively (while the share was at its intraday high of c. +2%) on the news that insiders were selling their stock. We quickly amassed a short position, which we closed later in the day when the share had decreased around a percent on the insider selling netting our portfolio +1.9%.
Graph2.: Facebook, 23 Sep-2 Oct’13, source: trading dashboard SNTMNT.com
What didn’t work:
We had two unsuccessful trades this month: Sainsbury and Delta Lloyd.
This was a good lesson for us… We added the FTSE100 on 1 September and were eager to get a trade in, too eager. Our algorithms take a while to settle in, so our trade into Sainsbury on 2 September was just too early. Also UK trades kill us on commission and stamp duty (trading cost 2x NL, 8x US), meaning we need bigger win percentages to make them work. 92% of the loss (-0.85% for the fund) on the Sainsbury trade was commission, while the loss on the position was only the other 8% (-0.07% for the fund).
With our Delta Lloyd both the signal and our reaction to the signal simply seem to have been too slow. We saw some positive sentiment, made the trade, but saw the position move against us. The move was caused by an announcement of a takeover in Belgium, but proved to not be sustainable.
Graph3.: Delta Lloyd, 17-23 Sep’13, source: trading dashboard SNTMNT.com
Especially the Delta Lloyd trade cost us a good amount of performance for the month. Yet September still came in with a very decent 1.83% (after broker commissions and FX). The portfolio is now up 13.54% for the year and we’re continuing our streak. We’re also happy to have successfully closed our first two profitable shorts, a nice milestone for the strategy.
Table1.: Performance of SNTMNT trading strategy – 30 September 2013