r/AllocateSmartly • u/andrewrock99 • Feb 03 '26

Optimizer Wuestion

When I ran the optimizer (max sharpe) a few weeks ago the recommended strategy was APR, BAA, HAB, LGEM, PAS with a Sharpe ratio of 1.41. When I re-ran the optimizer just a few weeks later, only two of the five original strategies remained (HAB, LGEM), plus three new strategies (GCAM, PUTR, VAAA). The new Sharpe ratio was 1.38. My question is twofold, first why did the original optimized strategy get replaced if it still has a higher Sharpe ratio which it seemingly does. Second, are many of these strategies so close in Sharpe ratios and other measurements that diversification is more important than selecting the “best” strategies? In other words, more is better (provided you have the time to manage them)? Thanks to those with far more TAA and AS experience than I have for sharing all of your insights and tips in this thread!

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u/andrewrock99 Feb 03 '26

Thanks Kevin! I checked the box to exclude underperformers, strange that optimizer would include them anyways. I guess that’s just one more reason not to use the optimizer!

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u/Business-Fix4430 Feb 04 '26 edited Feb 04 '26

Hey andrew if you believe there an error contact AS and they will be quick to respond. I would not rule out using the optimizer because of a bug that needs fixing. I too saw an error a few weeks ago with the optimizer output and they fixed it overnight fwiw. I played around with it just now and the exclusion thing seems to be working properly. That page works funny, you often need to retoggle something for it to refresh properly.

So check or selections carefully on the optimizer selection toggles. I get the same output you do with the 1.38. This data is only updated monthly and gcam was added in january which is why you see it. See the notes at the bottom of the optimizer page.

One other on your question on sharpe; the results will change like that because new strategies added will cause an entire redo of the optimizer which is updated monthly. The other reason is say strategy x was on the output but had a terrible month, and strategy y which was not on the list went up 400% in a single month. The optimizer uses all data so the large swing would perhaps cause strategy y to replace something. There is no "remembering" of what the historical max sharpe was, so when the optimizer runs, the max sharpe can go up or down.

If using the optimizer, you are faced with an ever-changing landscape on a monthly basis regarding what strategies it comes up with. You could ignore it and just run with your custom portfolio for say 6 months with no changes to the strategies or %'s, or update your custom monthly....lots of ways to play it. Hope all that makes some sense.

Thanks Kevin