Strategy-Review of the BOSS-Score by Value & Opportunity
The superb finance blog Value & Opportunity introduced in 2012 in a series of posts ( Part 1, Part 2, Part 3, Part 4) the BOSS-Score (Boring Sexy Stocks-Score). It’s a screen for idea generation and not a systematic investing strategy. Recently I rediscovered it and got the idea to backtest this screener as a systematic strategy.
The goal of the BOSS-Score is to find companies that have a good fundamental quality and are attractively valued.
I had to make some changes in the calculations due to data and technical limitations. To help clarify the differences, here’s a side-by-side comparison of the original and the quant one.
I will comment shortly on the most significant changes. In the original BOSS-Score the fundamental Sharpe quantifies the business volatility (fundamental volatility). The quant version measures the rentability compared to the industry (peers).
In the original post, Value & Opportunity didn’t specify the risk-free rate. I usually assume it to be zero. The equity risk premium consists of the 2025 values by Damodaran. I assume them to be constant over the whole backtest.
The BOSS-Score strategy has exposure to the quality and value factors.
Before we jump into the strategy backtest a few pieces of “background” information.
Investment universe and benchmark
The investment universe is limited to the US. These are companies headquartered in the US, no ADRs, etc. In addition, the financial sector is excluded. The stocks have an average daily trading volume of at least $500,000 over the last 200 days. The smallest 30% of stocks, measured by market capitalization, are excluded. These restrictions are intended to improve the quality of the results so that they more closely reflect reality, i.e., the chosen stocks are actually tradable for investors.
The S&P 500 serves as the benchmark. It represents the overall market and can be traded very easily via ETFs. The S&P 500 performed very well during the period under review. Only during the COVID-19 pandemic in 2020 and 2022 were there significant setbacks.
Implementation of the strategies
Two portfolio construction approaches are used (P50 and P25). For each six portfolios (or variants) are created, three with 25 stocks (P25) and three with 50 stocks (P50). The stocks are equally weighted in all portfolios. Three rebalancing cycles are considered for each of the two portfolio sizes: 52 weeks (52W), 26 weeks (26W), and 13 weeks (13W). After these periods, the portfolios are rebalanced/recalculated.
BOSS-Score P25
Figure 1 shows the cumulative performance of the individual P25 portfolios.
The 52W and 26W portfolios outperformed the S&P until March 2020 but regained their strength pretty fast and have outperformed it since. The 13W portfolio did it only until 2015.
Table 1 lists the individual key figures for the variants.
Over the full performance period, the BOSS-Score P25 26W variant delivered the highest total return at 856.04 % (15.16 % CAGR), marginally ahead of the 52W version at 852.29% (15.13 % CAGR), and well above the 13W strategy’s 515.24 % (12.03 % CAGR). By contrast, the S&P 500 achieved a 749.81 % (14.31 % CAGR) return.
Despite their outperformance, all BOSS-Score P25 variants carry a much higher risk profile. The maximum drawdowns for the 52W, 26W and 13W strategies are -51.58 %, -47.23 %, and -50.35% respectively. They are substantially higher than the -33.72 % drawdown experienced by the S&P 500. Volatility, as measured by standard deviation, is also elevated in the BOSS strategies, ranging from 19.93 % to 21.08 %, compared to just 15.03 % for the benchmark.
Risk-adjusted return metrics further emphasize this tradeoff. The Sharpe ratios for the BOSS-Score strategies range from 0.70 to 0.82, while the S&P 500 posts a higher Sharpe ratio of 0.96, indicating superior returns per unit of risk. The Sortino ratio, which accounts for downside risk, follows a similar pattern: the S&P 500 leads with 1.27, whereas BOSS strategies range from 0.99 to 1.18.
The MAR ratio (CAGR divided by max drawdown) further underscores the inefficiency of the BOSS-Score strategies on a risk-adjusted basis. The S&P 500’s MAR of 0.42 exceeds those of the BOSS-Score strategies, the highest of which is 0.32.
Summary P25
In summary, while the BOSS P25 strategies (particularly the 52W and 26W variants) deliver strong total returns, this performance comes with substantially higher volatility and drawdown risk. On a risk-adjusted basis, the S&P 500 remains the superior investment. Investors considering BOSS-Score P25 strategies should be mindful of their elevated risk characteristics.
BOSS-Score P50
Figure 2 shows the cumulative performance of the individual P50 portfolios.
It’s relatively similar to the P25 portfolios. 52W and 26W portfolios outperformed the S&P until March 2020 but recovered pretty fast and have outperformed it since. The 13W portfolio did it only until 2015.
Table 2 lists the individual key figures for the variants.
Over the full performance period, the BOSS-Score P50 52W variant delivered the highest total return at 915.60 % (15.59 % CAGR), ahead of the 26W version at 786.33% (14.61 % CAGR), and well above the 13W strategy’s 564.05 % (12.56 % CAGR). By contrast, the S&P 500 achieved a 749.81 % (14.31 % CAGR) return.
Like the P25 portfolios, all BOSS-Score P25 variants carry a much higher risk profile. The maximum drawdowns for the 52W, 26W and 13W strategies are -45.03 %, -43.45 %, and -45.79% respectively. They are substantially higher than the -33.72 % drawdown experienced by the S&P 500. Volatility, as measured by standard deviation, is also elevated in the BOSS-Score strategies, ranging from 19.55% to 20.04%, compared to just 15.03% for the benchmark.
Risk-adjusted return metrics further emphasize this tradeoff. The Sharpe ratios for the BOSS-Score strategies range from 0.71 to 0.83, while the S&P 500 posts a higher Sharpe ratio of 0.96, indicating superior returns per unit of risk. The Sortino ratio, which accounts for downside risk, follows a similar pattern: the S&P 500 leads with 1.27, whereas BOSS -Score strategies range from 1.03 to 1.18.
The MAR ratio further shows this. The S&P 500’s MAR of 0.42 exceeds those of the BOSS-Score strategies, the highest of which is 0.35.
Summary P50
Like the P25 portfolios, while the BOSS P50 strategies (particularly the 52W variant) deliver strong total returns, this performance comes with substantially higher volatility and drawdown risk. On a risk-adjusted basis, the S&P 500 remains the superior investment. Investors considering BOSS-Score P25 strategies should be mindful of their elevated risk characteristics.
Conclusion
The highest return was achieved by the P50 52W variant. You can see the benefits of diversification in the lower drawdowns and volatility. However, the effect is smaller than expected.
The BOSS-Score is a relatively simple systematic strategy that outperformed in 4 of 6 cases. This underscores that systematic investing strategies don’t have to be highly complicated to achieve high returns. To be fair, the risk adjusted performance is good but not spectacular. The BOSS-Score strategy would be a good fit for a multi-asset/multi-strategy portfolio.
Disclaimer
The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.
Cool, I thought that eeveryone had forgooten about it.
To be honest, I never used it for autmated trading, it was rather for idea generation. The problem was to sort out the terminal decliners.