How Often Does Upgrading Outperform?

September 30, 2010

Upgrading doesn’t necessarily move in sync with the market. In fact, it is designed specifically not to move in lock-step with the S&P 500. Sometimes we gain more than the market and sometimes, we lose more than the market. This ability to move independently is essential to generate longer-term outperformance. After all, in order to outperform an index a portfolio must be different from that index.

And Upgrading has generated higher returns over the long term: from December 31, 1999 through April 30, 2010, the Monthly Upgrader Portfolio (MUP), our recommended equity portfolio, gained 92.3%, while the S&P 500 lost -2.8%. But on a more short-term basis, Upgrading may not look as favorable.

When measured on a monthly basis, for example, the MUP only outperformed the S&P 500 index 58% of the time. But over longer time periods, the MUP was much more likely to outperform its benchmark. When we look at the MUP returns on a rolling 12-month basis, the MUP beat the S&P 500 a whopping 80% of the time, and it did so by a larger measure, gaining an average of 9.5% more than the index over the 112 rolling 12-month periods, and lagging it by an average of just 3.5%.

On a calendar year basis, the MUP outperformance is even more striking: the MUP came out ahead of the S&P 500 in nine of the last 10 calendar years.

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