This analysis was written from a neutral perspective. We advise you to always make careful and well-informed investment decisions.
15
0
0
Fact
The SIO strategy, based on the AAII Sentiment Survey Index, outperformed Dollar-Cost Averaging (DCA) by +78 percentage points and the Buy & Hold approach by +45 percentage points.
The simulation period ran from January 2020 to December 2024, with the strategy dynamically adjusting exposure through an Overweight/Underweight allocation model.
Opinion
Adjusting portfolio weightings based on market sentiment demonstrates the potential for higher excess returns compared to a simple buy-and-hold approach.
However, to minimize errors during extreme market conditions, it is essential to complement this strategy with macroeconomic indicators and corporate earnings data for a more comprehensive investment decision.
Core Sell Point
Consider leveraging the AAII sentiment index within the SIO strategy to potentially achieve higher returns in the market.
Hello, this is CORE16. Our SIO Pension Investment Strategy leverages the AAII Sentiment Survey Index, published by the American Association of Individual Investors (AAII), to dynamically adjust exposure to the S&P 500.
By implementing this strategy, we achieved a cumulative return 78 percentage points higher than simply using Dollar-Cost Averaging (DCA) on the S&P 500, and 45 percentage points higher than a basic Buy & Hold approach.
Key Concept of the SIO Strategy
This approach follows an Overweight/Underweight allocation model, reducing exposure when market sentiment is overly optimistic and increasing it when sentiment turns excessively bearish. Since the AAII sentiment index quickly reflects shifts in investor psychology, this strategy capitalizes on market volatility more effectively than a simple time-based investment approach.
Practical Considerations
While relying solely on a single indicator can be risky, incorporating macroeconomic data—such as interest rates and economic indicators—on a quarterly or monthly basis can enhance investment decisions.
Nevertheless, our simulation results highlight that effectively utilizing sentiment data can generate long-term excess returns compared to the broader market.
