How We Construct and Backtest our 50 Stock Portfolio Rebalanced Monthly

We construct the portfolio beginning with a population of the top 2,000 U.S. stocks by market cap. After calculating expected returns on these, we rank the stocks from lowest to highest expected return.

Next we filter out stocks with a price under $5 per share or a market cap under $300M. In the tests shown here, we imposed no constraints for sector weighting.

From that remaining population, we select the best 50 stocks for each strategy (the highest expected return stocks for the long only strategies; highest and lowest ERs for a market neutral strategy).

After a three month period, we rebalance the portfolio. Based on newly generated expected returns, we replace up to 50 stocks (100%).

All backtests use date-stamped data to eliminate the possibility of look-ahead bias. We include a benchmark in each chart for comparison purposes.

To see portfolio returns for the strategy, choose from the menu to the left.

For more details, click on the terms at the bottom of each chart.