Background
Alpha Equity Investments is a fictitious retail investment firm based in Chicago. The firm manages portfolios for over 1,000 clients, specializing in medium to long-term equity investments across various sectors of the U.S. stock market.
In January 2023, the firm initiated a new investment strategy focused on technology and energy sectors after conducting an internal review of post-pandemic market trends.
Objective
To evaluate the performance of Alpha’s sector-based portfolio strategy over a 12-month period (January 2023 – December 2023), and compare it against major benchmarks like the S&P 500 and Nasdaq Composite.
Strategy Overview
- Initial Capital: $1,000,000
- Portfolio Allocation:
- 40% in Technology (Apple, Nvidia, Microsoft)
- 30% in Energy (ExxonMobil, Chevron, NextEra Energy)
- 20% in Diversified ETFs (VOO, QQQ)
- 10% in Cash Reserves
- Risk Approach: Moderate (Stop-loss at 15%, profit booking at 30%)
- Rebalancing: Quarterly
Market Conditions (2023 Summary)
- Tech sector rebounded strongly after a poor 2022, fueled by AI hype.
- Energy stocks remained stable due to fluctuating oil prices.
- Fed interest rate hikes slowed down in Q3, boosting investor confidence.
- Inflation decreased from 6.5% in January to 3.2% in December.
Results
| Metric | Portfolio | S&P 500 | Nasdaq |
|---|---|---|---|
| YTD Return | +18.2% | +15.6% | +21.4% |
| Max Drawdown | -8.3% | -7.1% | -10.5% |
| Sharpe Ratio | 1.4 | 1.2 | 1.5 |
- Technology stocks like Nvidia (+85%) and Microsoft (+40%) were key drivers.
- Energy sector returns were modest (+6% average) but stable.
- Portfolio volatility was lower due to ETF and cash allocations.
Key Takeaways
- Sector focus can outperform broad indexes if timed correctly.
- Diversification and cash reserves helped manage volatility.
- Quarterly rebalancing allowed timely profit-booking and risk mitigation.
- Heavy reliance on tech increased dependency on macroeconomic policy and investor sentiment.
Future Considerations
- Expand into healthcare and green energy sectors.
- Increase AI-driven analysis tools for trend prediction.
- Introduce ESG screening to attract sustainability-focused investors.