Strategy 12E1
June 2026 holdings:
DLR.TO, HSUV.TO, PHYS.TO
The ETFs presented here are for informational purposes only. They do not constitute a recommendation to buy or sell. I am not a financial advisor.
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Structure and operation
The 12E1 strategy is a variant of 12E, itself derived from 12C. It is composed of Canadian ETFs allowing investment in Canada in Canadian dollars. The strategy does not include energy sector ETFs and can therefore be considered more "green."
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To replace the energy funds without losing too much in performance, I overlaid an absolute momentum indicator that switches the strategy into defensive mode. It sometimes happens that a signal reversal occurs after the first week of the month, shifting the strategy from in-market to out-of-market mode. This occasional instability comes from the fund used to calculate absolute momentum, which is highly sensitive. I consider this situation acceptable because it is infrequent. The initial signals have in fact sometimes proven more profitable than the corrected ones.
The fact that 12E1 remains performant despite these reversals confirms its robustness. In finance, aiming for perfection or precision does not make much sense in a universe as chaotic as the markets. The objective is rather to correctly frame the trend and move in the right direction.
The tables below present the performances and annual returns. The analysis period begins in 2014 because certain ETFs did not exist before that; this is what limits the horizon of the backtests.
| Performance (2014-2025) | 12E1 | S&P 500 |
|---|---|---|
| CAGR | 21.85% | 13.39% |
| Standard Deviation | 17.69% | 14.52% |
| Best Year | 54.20% | 31.33% |
| Worst Year | 0.93% | -18.13% |
| Maximum Drawdown | -17.73% | -23.95% |
| Sharpe Ratio | 1.10 |
| Annual Returns | 12E1 | S&P 500 |
|---|---|---|
| 2025 | 54.20% | 17.71% |
| 2024 | 10.51% | 24.84% |
| 2023 | 14.85% | 26.11% |
| 2022 | 6.69% | -18.23% |
| 2021 | 48.76% | 28.53% |
| 2020 | 20.66% | 18.25% |
| 2019 | 26.36% | 33.31% |
| 2018 | 10.23% | -4.52% |
| 2017 | 31.85% | 21.67% |
| 2016 | 12.41% | 11.82% |
| 2015 | 3.34% | 1.25% |
| 2014 | 36.06% | 13.51% |
Behaviour during periods of crisis
In the first quarter of 2026, during the war in Iran, the S&P 500 posted a negative return of −4%, while 12E1 gained 7%, a gap of 11% in three months.
In April 2025, when the S&P 500 dropped −14% following the announcement of Trump's tariffs in the United States, 12E1 generated a positive return of 2%. After an initial rebound, the strategy switched to defensive mode and remained there until October 2025.
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12E1 is more concentrated than 12C, with only three ETFs. This explains the marked volatility gaps between invested and out-of-market periods — that is, between the aggressive and defensive phases.
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In 2022, the S&P 500 finished the year with a loss of −18%, while 12E1 generated a positive return of 8%. It was then in defensive mode, which explains its low volatility at the time the markets were falling.
Fear of downturns often leads investors to hold portfolios that systematically underperform the market. The desire to never fall as much as the index comes at an enormous cost to returns and growth during bull markets. In designing my strategies, I try to minimize drawdowns while maximizing growth phases in order to generate superior returns. It is a difficult balance to achieve.
Origin of the strategy
I developed strategy 12E in March 2023 for a Canadian friend who was beginning to invest in the stock market and had an ecological conscience. When I presented him with 12C and its performance to interest him in trend following strategies capable of beating the market, he replied that he could never follow it because it occasionally holds energy sector ETFs — oil and natural gas.
I took that objection as a challenge. I went back to 12C. I ran a series of backtests removing the banned ETFs. This approach ran counter to what I had done in 2022, when I had added energy ETFs to cushion market downturns. The strategy therefore needed to be reinforced in a different way.
Through somewhat exploratory testing, I came across a very low-volatility American mutual fund whose curve seemed ideal for reflecting market trends. I used it to shift the strategy out of the market, since 2022 had clearly shown that bonds are no longer a reliable buffer against market downturns.
Excluding energy ETFs forced me to rework the strategy to make it more resilient and offset significant downturns. I ran numerous backtests adjusting parameters and modifying the ETF universe.
Despite these efforts, my friend ultimately stayed with his long-term ETF portfolio. His ideal of simplicity is to hold a single fund covering all global equity markets. I then advised him to buy a total world stock ETF. It is a simple strategy, valid over the long term and one that requires no portfolio manager whose fees eat into returns.
The 12E1 returns displayed since March 2023 are out-of-sample values. Even though I do not invest in this strategy myself (because I consider 12C more profitable and more diversified), I have kept it active since that date to track its performance and the generation of signals in real time, which constitutes the best walk-forward test.