Active funds in a bull market

This is Lesson 10 of the Fund Strategy series. In a bull market capital is abundant and the trend is up, so active-fund tactics can be more aggressive than in a ranging or bear market — the one-liner: don’t chase rallies, buy the dip in one shot, then scale out once returns are excessive.

How should we invest in active funds during a bull market?

Unlike the conservative “buy the dip” mindset of a ranging market, a bull market is a market of incremental capital — the trend is up and the margin for error is high. But precisely because prices rise fast, the worst mistake is chasing at the top. Our tactic waits less than in a bear market — buy when performance is flat or even weak, and take profits in batches once returns turn excessive.

1. Buy strategy

Step 1 — make sure the current calendar-year return is below 50% of the past average annualised return.

For example, if a fund’s past average annualised return is 20% and its gain this year has already reached 15%, then even if it reaches its historical average from here, the remaining upside is small. In that case we generally won’t keep adding to it — we wait and observe.

Step 2 — assess the fund’s current performance.

A wise man does not stand beneath a collapsing wall. When a fund’s monthly and weekly performance is very strong, a pullback is often around the corner; when its monthly and weekly performance is flat or even weak, a big move is often brewing.

Because we are in a bull market, we don’t wait as long as we would in a bear market. We simply buy in one shot whenever the monthly / weekly performance falls below the historical bull-market average monthly / weekly return.

Specific buy conditions:

1. The fund’s YTD return < 50% of its average annualised return;
2. Current monthly return < the historical bull-market average monthly return;
3. Buy in one shot.

2. Sell strategy

To keep the sell strategy effective, we arrange batched selling — we don’t expect to sell at the very top, only to capture the high-probability certainty.

Sell point 1:

When “past average annualised return < current-year return < past maximum annual return”, we consider the fund to be in an excess-performance zone. Then, when the monthly return approaches the historical bull-market single-month maximum gain, we trim the position.

Sell point 2:

The remaining position is held until the annual return approaches the past calendar-year maximum, at which point we clear it.

Whether it can exceed its historical high after clearing is not something we agonise over — we want the high-probability certain event, not the low-probability uncertain one.

Specific sell conditions:

1. Sell point 1:
   • average annualised return < fund’s annual return < calendar-year maximum return;
   • this month’s return approaches the historical bull-market single-month maximum gain;
   • sell 1/2.
2. Sell point 2:
   • annual return approaches the past calendar-year maximum return;
   • clear in the current month.

Summary

The essence of active-fund tactics in a bull market: buy in one shot at the low without chasing, and sell in two batches once returns turn excessive — trim half at sell-1 to lock in profit, then clear the rest at sell-2 when annual return nears its historical maximum. We don’t agonise over selling at the very top; we only capture the high-probability certainty, leaving the low-probability uncertainty to the market and putting the high-probability certainty in our own pocket.

⚠️ This article is a methodological framework for illustration only and does not constitute any investment or trading advice. Markets carry risk; decisions require caution.