Most of the designer models have serious problems in term of real world performance due to a number of factors. The biggest issues in my opinion are the following:
-Almost all require weekly re-balancing and have massive turnover. Transaction costs and not being able to keep up kills you here. Try getting in and out of 25 stocks every Monday at 9:30.
-Most are the product of data mining or lack any real out of sample testing. When you start your backtest can have a huge impact on performance.
-The universes include tons of stocks that are nano cap and not liquid. I have gotten crushed trying to move even as little as $20k out of some of these names.
-None of the systems that I have seen allow for any kind of rotation (i.e. market cap, industry, cyclicals).
This is why I don’t subscribe to any of the designer models. Instead I have 10 large cap and 20 small cap screens that I compile in Excel and use momentum metrics to rotate strategies. No system beats the market over every window. The average annualized return of these 30 screens out of sample since 04 is 35% for micros and 25% for large. S&P at 8%. Sounds great, right? But let’s look at it with your windows.
For the 30 4 week screens that I track (outperformance %):
L3M - 53%
L6M - 50%
L12M - 63%
L24M - 76% (a few don’t outperform significantly, so closer to 66%)
Better, but not that great. The longer you look out the better it gets, but in the short run its a coin flip.
Same data set with rotation, only picking the top 3 based on history available (outperformance):
L3M - 66%
L6M - 76%
L12M - 77%
L24M - 80%
Even with a mix of large and micro, the top 3 returned 45% annually. My advice, is build your own to suit your needs. Over the long run, you will do much better.