Recently there was a lot of talk about slippages in Smallcase eating into returns. We were surprised by this and decided to do a study on one of our smallcase products the NNF10 to start with.
The assumption used here is to not take the previous Friday Close as the model transaction point but use the Monday Open as the assumed transaction point.
This strategy was tested from Apr 16 to May 21 and the results were a bit surprising. We were expecting a nominal slippage.
We found that the results actually improved by 2.61% in this 5 odd year period. This may be due to gaps both up and down contributing to the variance in the returns . The variation ranged from +3% to -2.5% on extreme days but was a positive 0.04% on average. In bull markets there may be a case for more slippage and in bear markets a case for more positive gain. Overall in longer term we feel there is no adverse performance purely on this basis.
NNF10 is a monthly rebalanced strategy and has performed well vs the underlying NNF index.
We shall do more studies in the future when possible.