Darwinex: the good , the bad and the ugly

[ProfitPioneer]

Is it me, or do these darwins have really poor performances nowadays? JTL new maximum drawdown recently, PUL new maximum drawdown recently, YKA new maximum drawdown recently, TRO new maximum drawdown recently, BSX new maximum drawdown recently, SYO serious drawdown, EPG serious drawdown... I'm not invested in all of these, and luckily I scaled back in time (especially the ones with no skin in the game: I also realized this rule...), but this is just painful. Something changed in the last year in the markets, and these amateur strategies just don't work anymore (especially with the very substantial investment fees, you just get nothing in the end, and even bear the losses). 2022 spring was the last profitable period, and 2/3 of those profits are now vanished in this huge drawdown. I just don't see the point of this darwin portfolio investing anymore: maybe I can expect 3% a year from this, but it is a very risky 3%... Bonds are just better in every way: bonds are risk-free, and I get even more return from them (which is ridiculous, but true). If you don't have access to trading strategies like Renaissance Technologies has, you just shouldn't be in the markets - and these amateur strategies are very-very far from this. After the fees to the traders and Darwinex, not very much is left on the table, if any. What are your opinions? Are darwin portfolios dead, or is it just a very unlucky period?

I see 3 issues/questions investing in darwins / darwin portfolios:

1. You just don't have enough information to pick the right darwins. Okay, 3+ years track record: and what's from that? That is maybe 0.1% of the information you could get from thoroughly backtesting the strategy (with sensitivity analyses, Monte Carlo method, etc.). So, the public information about the darwins is just nothing compared to what you could do if you owned the strategy and made your own backtests. You sell, buy and trade darwins, and build optimized portfolios from them: these are just some ridiculous illusions, you just cannot do these from the publicly available data of the trading strategies.

2. 20% performance fees, right? Well, the strategies go into drawdown after you paid, and you don't get back your paid money. Currently, it seems like I paid as much performance fees as my overall profits, so the performance fees seem like 50%. SOME traders may just go after these performance fees: their strategy is not even profitable anymore, but because of how this performance fee system works, he is able to make money from the investors. I think the performance fees should be untouched for at least a year, and investors should get back their money if these drawdowns happen: this would be a much fair system. Of course, this will never be the way.

3. Investing in drawdowns is another illusion in my opinion. Predicting a trading strategy from its past is impossible in my view - or it would be included in the strategy itself. Moreover, investing in drawdowns seems to be a martingale strategy to me: you increase the leverage if the strategy loses. What is it if not martingale?

So, all in all, I'm very disappointed in trading strategy investing, and I genuinely believe, a 2-3% annual return is the maximum one can make investing in darwin portfolios in the long run (and this 2-3% is with serious drawdowns, stress, etc). Absolutely not worth it. I spent 1.5+ years investing, put in a lot of effort, and made very little money. At least I see the reality of this fairytale.

I would like to express my respect for "Andras0503" and wholeheartedly agree with the points raised in this post.

1. Constructing a profitable Darwin portfolio post-investment can be extremely challenging. While the backtest tool may suggest high potential profitability, it's crucial to recognize the significant survivorship bias present on the Darwinex platform. Successful Darwins often endure substantial drawdowns, and selecting based solely on past performance can lead to future losses.
2. The asymmetry in profit and loss is detrimental to net profit and loss. For instance, if we invest in two Darwins—one yielding a 10% return incurring a 20% performance fee and the other losing 10%—the net result is a zero return, yet investors bear the full loss. Additionally, management fees are applicable regardless of performance. My experience indicates that combined management and performance fees can exceed 50% of gross returns, meaning investors do not truly receive the anticipated 80%.
3. Many Darwins are managed by amateur traders or small teams, making it challenging to outperform established professional firms or hedge funds. The only viable approach to constructing a potentially profitable Darwin portfolio appears to be a highly selective strategy focusing on qualified Darwins. However, even one or two underperforming Darwins can significantly erode overall profits.

Investors should exercise caution when considering investments in Darwins. If you choose to explore this avenue, I recommend starting with a small investment or utilizing a demo account.