I read two interpretations of DocH’s post. If the proposal is that this is an ad hoc decision-gate, then I strongly agree with earlier comments that that would violate the process and be wholly unfair to the project team. If the request is for more community feedback ahead of the scheduled DG2 snapshot vote, then that would seem to be consistent with the process and fair, and something Julien has been asking for consistently albeit much earlier in the process. Let’s take the latter interpretation.
My main concern with iRobot is that the evidence that the strategy would outperform an ‘average’ portfolio is very weak. It claims to have discovered a new source of alpha which would require much more evidence than was presented here. The back-test showed that an ‘average’ portfolio would beat iRobot’s ‘winner’ portfolio ~80 days out of 90. The evidence barrier is high because there’s a lot of independent literature that any momentum in crypto is small and fleeting. Also, there’s a lot of evidence in the equity literature that the Sortino ratio (or Sharpe ratio) does not predict future performance.
On Sortino-optimization, it’s important to note that its inventor has completely disavowed his namesake methodology: “There was a time that I believed the Sortino Ratio was the best way to measure performance. When the evidence began to accumulate in the 1990s that I was wrong, I wrote a paper pointing out the flaw and posted it on my website.”
My second concern, which I don’t think has been addressed in the liquidity analysis or WTA, is the the product will have high NAV decay and rebalancing costs due to the very high turnover, mid/small cap composition, and $10M proposed AUM. As part of the DG2 post, it would be helpful to have a rough estimate of the value decay and rebalancing costs, particularly since the Coop will need to bear the latter costs.
Index Coop’s market survey indicated interest in a "Top 30 Market Cap Index”, “S&P500 equivalent”, “Value Index”, and “Diverse Blockchain segments” but there was no request for a momentum index or algorithmically-traded index. One could argue that the respondents were unaware such a product was even possible and so couldn’t ask for it but that’s impossible to disprove and the other requests showed a high level of sophistication.
As always, I’m glad we can have these discussions in the sprit of shared respect, process-focus and fact-based reasoning. Cheers.