It is too good to be true honestly.
I expected 20%+ p.a. or so
Can you post the current holdings? I see you have Micro in the universe. Just wondering how micro is Micro.
Just FYI all of those GBR stocks that aren't AIM listed are going to have a 0.50% stamp duty - so that should be factored into the transaction costs.
Also looks like you aren't using many liquidity filters? The first stock I looked at randomly, SFG1T, traded about $6,000/day over the last few days. Unless you're trading with a really small amount, you might want to increase that, which will probably bring the returns down a bit.
I checked and found that my strategy's current holdings of UK stocks are all traded on AIM. So this is not a serious issue.
In terms of liquidity filtering, I have selected variable slippage so strategy capacity should not be a serious issue. This is because my strategy chooses to enter or exit low-liquidity positions when liquidity is good.
The stock ARCOMA has the lowest Market Capitalization. Its 3M Average Volume is about 50k USD. The recent liquidity is much lower. However, it bought the stock when the liquidity was not so low.
If you're trading a really small balance, sure. But what if you're looking to buy $50k per position? You're just not going to be able to trade this.
If you've got a small amount of capital though, that's great and would give you a huge advantage until the liquidity becomes a problem. It also explains why you can get really good results.
Edit: I sort of see what you're saying, it just seems weird to have stocks on there trading so low with a $1m current market value. Might be really hard to get out of some of them.
So how do you recommend liquidity screening?
Is MedianDailyTot(200) > 40000 & AvgDailyTot(200) > 40000 enough?
I thought the 0.5% stamp tax applies to all UK stocks?
No it doesn't apply to UK microcaps traded on the AIM exchange.
I think its market capitalization is not 1 million dollar. The unit is million Euro in the screenshot.
Liquidity screening really just depends on the size of your bankroll (first and foremost), your turnover, the slippage you're willing to tolerate and how good you are at trade execution. It's hard to answer as it's so personal.
So assuming I have $200,000 to put into this strategy, what kind of liquidity screening should I set up?
When using very low liquidity limits, I dont use a single period like AvgDailyTot(30) > 50000 because just few days of very high volume can raise the value for a stock that rarely trades. And volume for Europe smallcaps seems to be a lot more volatile then US smallcaps.
This formula would require the AvgDailyTot for the last 5 days to be >50000 in each of the last 6 weeks:
LoopMin("AvgDailyTot(5,CTR)",6,0,5) > 50000
When using a single period like AvgDailyTot(30) for example, then using MedianDailyTot() is better than AvgDailyTot() for the same reason.
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The liquidity of SFG1T is not actually so low.
Do you know of any way to get a list of companies traded on the AIM exchange? Or at least the major ones? I can't seem to find one.
Yuval,
This site maybe helpful to you.
Regards
James
I think the London High Growth Segment is exempted from stamp tax too
Can we assume that almost all UK microcaps are exempt from stamp duty.
They all report semi-annually, and I would filter them out of my universe anyways. To include the semi-annual reporting companies, you have to be careful with the factors you are using.
Many of them publish interim reports that are not official and not recorded with FactSet. So even if you use factors that work with semi-annual reporting companies, most of the year your ranking system will have less information about the company than the market.
Another possible issue with UK microcaps: Unless you're using a broker with access to the market makers (not common with many US brokers) you won't be able to access a lot of the liquidity, and trades can only happen in small time windows at auction periods throughout the day.