Quiet Compounding 125 Overview
| CAGR | 18.4% |
|---|---|
| Maximum drawdown | -9.8% |
| MAR ratio | 1.88 |
| History | 23 years (282 months) |
Quiet Compounding 125 is Quiet Compounding with one change. It holds the same four strategies at 25% each and rebalances back to equal weights once a year, but its Catalyst block is Catalyst 200, which can lever its technology position with Smart Leverage when conditions warrant. Carrier, GPMv and Triad are held exactly as they are in Quiet Compounding, in their base unleveraged form.
The aim is the same as the base portfolio's: market-like returns or better, a fraction of the drawdowns, and as little drama as the components allow. Quiet Compounding 125 trades a small, carefully contained amount of leverage for about two more points of return per year, and keeps everything else that makes Quiet Compounding what it is.
What the Name Means
The number is exact arithmetic, not a label.
| Component | Weight | Maximum notional | Contribution |
|---|---|---|---|
| Carrier | 25% | 100% | 25% |
| Catalyst 200 | 25% | 200% | 50% |
| GPMv | 25% | 100% | 25% |
| Triad | 25% | 100% | 25% |
| Total | 100% | 125% |
That 125% is the notional maximum. Average notional over the full record has run about 106%, and leverage has been deployed in roughly a quarter of all months (71 of 281), so do not think of this as a portfolio that is always levered to 125%. Most of the time it holds exactly what Quiet Compounding holds.
The ceiling is reached only when Catalyst is in its Goldilocks state, holding 100% technology, and Smart Leverage is deployed, so the block holds QLD, a 2x Nasdaq-100 fund, in place of QQQ. In Catalyst's split cooling state, only the technology half of the block is levered and the portfolio tops out near 112.5%. Because weights drift between January resets, a strong run for Catalyst 200 can carry actual exposure above 125% until the next reset. The highest on record is about 137%, in September 2020, after Catalyst 200 had outgrown its 25% share during a long Goldilocks run.
What It Holds
Each component has its own page with the full rules. What matters here is what each brings to the blend.
| Component | Weight | What it contributes |
|---|---|---|
| Carrier | 25% | Credit regime positioning. It stays invested unless the high yield credit spread signals real stress, and favors long-term gains. |
| Catalyst 200 | 25% | Macro regime positioning with Smart Leverage. It resolves a growth and inflation regime, and can lever its technology position to 2x. |
| GPMv | 25% | Protective momentum. Market breadth across eleven risk assets sets how much of the sleeve is at risk. |
| Triad | 25% | Rotational momentum. Three independent momentum sleeves, each with its own defense. |
Catalyst 200 is the only block that ever levers. The other three never do.
How the Leverage Works
The leverage here is conditional rather than constant, which is the whole point.
Smart Leverage does not run a permanently levered position. It sits idle by default and deploys only when a specific sequence of conditions is met. QQQ must be 10% or more below its all-time high, its momentum must have turned back up, and Catalyst must actually be holding technology. If the regime says energy, real assets or tail-risk convexity, there is no technology position to lever and nothing happens.
Leverage then exits on any of three events: QQQ's momentum rolls over, Catalyst's regime moves away from technology, or the deployment reaches 13 consecutive months, which is set at the long-term capital gains boundary. The full detail, including an honest note on how loose the drawdown condition has been in practice, is on the Catalyst 200 page.
Two consequences matter more than the headline number.
Leverage arrives after declines, not before them. Because the module deploys after the market has already fallen and started to recover, the levered block was generally not levered going into the worst market episodes in the record. In 2008 and 2022, Quiet Compounding 125 returned almost exactly what Quiet Compounding did. Treat that as a historical fact about how the trigger behaved rather than a structural guarantee.
Leverage still cuts both ways. Quiet Compounding 125's worst decline in the record did not come from a crisis. It came between August and October 2020, from a peak the levered block had helped build, when technology pulled back while leverage was deployed and drift had carried the portfolio's exposure to its highest level on record. A conditional rule is not a safety net. Leverage could hurt, and eventually it does - but QC125 doesn't have enough leverage to cause permanent damage.
Why Only One Block Levers
A small dose, in one place
Quiet Compounding 125 is built to answer a narrow question: what does Quiet Compounding look like with just a little leverage? Levering one block in four, and only to 2x, keeps the answer modest. Three quarters of the portfolio never levers at all, which is what holds the ceiling at 125%.
Why Catalyst
Catalyst is the fastest compounder of the four, and its leverage is applied to a single, clearly defined position. Moving from Catalyst to Catalyst 200 raises its return materially and its risk-adjusted score along with it, at the cost of a modestly deeper worst decline. That trade is what Quiet Compounding 125 borrows.
One leverage switch
With a single levered block, there is a single leverage decision. The portfolio sits at 100% notional whenever Catalyst 200's Smart Leverage is dormant, and rises toward 125% only when it deploys. That makes the leverage easy to see and easy to reason about.
Everything else is unchanged
The four strategies still read four different inputs: the credit spread, a growth and inflation regime, market breadth, and relative momentum. They still rarely go defensive in the same month, which is what makes the blend smoother than any of its parts. Adding leverage to one block does not change that, and it was the reason for keeping the other three exactly as they are.
How It Compares
Quiet Compounding 125 sits between Quiet Compounding and the Calculated Risk portfolios, and the differences are about structure as much as numbers.
- Against Quiet Compounding, it earns about two more points a year, takes a worst decline under three points deeper, and scores higher on risk-adjusted return. In the years when leverage never deployed, the two are nearly identical.
- Against Calculated Risk 150, it earns less and its leverage ceiling is lower, but its worst decline is shallower and it is spread across four independent engines rather than two. Calculated Risk 150 puts half the portfolio in Catalyst 200; Quiet Compounding 125 puts a quarter there.
An investor choosing between them is choosing between broader diversification with less leverage and more concentrated leverage with more return.
Rebalancing
Quiet Compounding 125 resets to 25/25/25/25 in January, and only in January. Between resets the block weights drift with each component's returns, so a strong year for one strategy leaves it above 25% until the next January.
Annual rebalancing at the portfolio level keeps trading low where it can be kept low. Each component still manages its own holdings on its own schedule, and Catalyst 200's leverage module arms and deploys independently throughout the year.
The Mix Can Change
Quiet Compounding 125 is a portfolio of DMS strategies, and the DMS lineup is not frozen. New strategies are added and existing ones are refined over time, and when a new or updated strategy would make for a better risk-adjusted portfolio, the strategies and weights used here may change. Changes take effect at the start of a new month, never partway through one.
When the mix changes, the history shown on this page is recalculated as if the current mix had been held throughout. The record describes today's portfolio, not the path an investor following it would actually have taken, which is one more reason to read it as a backtest rather than a track record.
Why the Record Starts in 2003
The binding constraint is Catalyst 200, whose regime classification depends on market-implied inflation expectations. That data series begins in 2003, so the portfolio's history begins there too. The other three components have longer records on their own pages.
Twenty-three years is a shorter record than most strategies on this site, and it contains fewer distinct macro regimes than a longer one would. The tables below hold every row to the same window so that comparisons are fair.
Performance Highlights
Over the full available history, alongside the base portfolio, the leveraged Catalyst block, the entry Calculated Risk tier, and the index:
May 2003 through October 2026, net of trading friction:
| CAGR | Max Drawdown | Ulcer Index | UPI | |
|---|---|---|---|---|
| Quiet Compounding 125 | +18.4% | -9.8% | 2.14 | 7.85 |
| Quiet Compounding | +16.2% | -6.8% | 2.03 | 7.18 |
| Catalyst 200 | +32.7% | -17.9% | 4.43 | 7.02 |
| Calculated Risk 150 | +24.6% | -12.7% | 2.98 | 7.70 |
| S&P 500 | +11.2% | -51.0% | 11.70 | 0.82 |
The Ulcer Index measures how deep the portfolio went and how long it stayed there, so lower is better. The last column is the Ulcer Performance Index: return above cash divided by the Ulcer Index. Max Drawdown reports the worst single moment; UPI reports the experience of holding it. Higher is better.
Read the top two rows together. A quarter of the portfolio with conditional 2x leverage added about two points of annual return, deepened the worst decline by under three points, and moved the Ulcer Index only slightly, because the extra drawdown was brief rather than prolonged. The result is the highest UPI in the table, narrowly ahead of Calculated Risk 150 and clearly ahead of the base portfolio.
Against the index, it earns roughly seven points more per year with a worst decline about a fifth as deep.
The same five, measured from January 2008, so the window opens just before the financial crisis rather than after it:
January 2008 through October 2026, net of trading friction:
| CAGR | Max Drawdown | Ulcer Index | UPI | |
|---|---|---|---|---|
| Quiet Compounding 125 | +17.7% | -9.8% | 2.28 | 7.18 |
| Quiet Compounding | +15.3% | -6.8% | 2.15 | 6.48 |
| Catalyst 200 | +31.4% | -17.9% | 4.67 | 6.45 |
| Calculated Risk 150 | +23.4% | -12.7% | 3.18 | 6.96 |
| S&P 500 | +10.9% | -48.5% | 11.61 | 0.82 |
The ordering holds, and the worst declines are unchanged, which means none of the four DMS portfolios saw its deepest drawdown during the financial crisis itself.
Two cautions apply here as everywhere. These records are backtested, and a portfolio assembled from components chosen after their histories were known deserves more skepticism than a single strategy does, which is one reason the weights are simply equal rather than tuned. And a single figure covering two decades says nothing about the order the returns arrived in, which is most of what an investor lives through.
Portfolio Characteristics
- Four independent engines. Credit regime, macro regime, breadth-driven protective momentum and rotational momentum, each reading different inputs.
- Rarely all defensive at once. The components step aside on different signals, which is what smooths the ride.
- Equal weight. No single component or signal controls more than a quarter of the portfolio at each reset.
- Modest, conditional leverage. One block can reach 2x, for a 125% ceiling at each reset and about 106% on average. Leverage has been deployed in roughly a quarter of months, averaging about 123% notional when it is on.
- Leverage through a 2x fund, not margin. Catalyst 200 reaches 2x by holding QLD. No borrowing is required in the account.
- Annual rebalancing at the top level. Weights reset each January and drift in between, while each component manages its own holdings.
- Substantial underlying turnover. The portfolio itself trades rarely, but three of its components trade regularly, so the trading is real even if you never place those orders yourself.
- Best suited to tax-deferred accounts. Carrier's share is built to realize mostly long-term gains and leverage deployments are capped at the long-term boundary, but the other components generate short-term gains. In a taxable account, plan accordingly.
- Shorter history than most strategies here. The record begins in 2003 because of Catalyst's data dependency.
- Fully mechanical. Every allocation follows from published rules with no discretionary override.
Who It's For
Quiet Compounding 125 is designed for investors who want:
- Everything Quiet Compounding offers, with about two more points of return per year.
- Diversification across four strategy types rather than the two-block concentration of the Calculated Risk portfolios.
- A little leverage, applied only when conditions warrant and limited to a quarter of the portfolio.
- Drawdowns shallow enough that staying invested is realistic rather than aspirational.
- One portfolio to follow instead of four.
It is a poor fit for investors who want no leverage at all, who should hold Quiet Compounding instead, or for those seeking the highest possible compounding rate, who should look at the Calculated Risk tiers. It also does not suit anyone who needs a long backtested record.
A note on CAOS history. CAOS, the tail-risk fund held through this portfolio's Catalyst 200 component, has real return history back to September 2013 through its mutual fund predecessor, AVOLX. There is no credible proxy for a tail-risk strategy before then, so rather than rely on a manufactured series, results before September 2013 use intermediate-term Treasuries (IEF) in its place. From September 2013 onward, all results use the actual fund.
A note on CLSE history. CLSE, the long/short equity fund held through this portfolio's Carrier and Triad components, has real return history back to January 2010 through its mutual fund predecessor, MARNX. Before then, results use a blend of 70% U.S. large-cap stocks (IWB) and 30% Treasury bills (BIL), matching CLSE's typical net long exposure of roughly 70%. The blend captures the fund's market exposure but none of its stock-selection skill, so it is a deliberately conservative stand-in.
Past performance, including backtested results, is not indicative of future results. Backtested performance is hypothetical, does not reflect actual trading, and benefits from hindsight in the selection of strategy rules and component weights. Portions of the history rely on reconstructed proxy data for funds that did not exist for the full period. Leveraged ETFs carry risks beyond those of their unleveraged counterparts, including the effect of daily rebalancing on returns over holding periods longer than one day. Investors should carefully consider their risk tolerance and consult with a financial advisor.
For the latest details, visit www.DualMomentumSystems.com