@Praveen, you do a simulation, it is to find out how your trading strategy would have behaved in good and bad times since the future will present you with both. So, you need your strategy to be prepared accordingly. Ignoring the bad times is an invitation for a portfolio disaster.
As for avoiding the 2007-08 crash, the simulation presented does not show very good returns over that period. On the contrary, it did show quite a drawdown, some -78%. That is not very positive. Not many people or fund would stick around for such an adventure into the dark side of inverse-profitability.
The strategy has an average holding time of over 2 years. In an up market, it is all good for longs but not so good for shorts. And yet, in recent years, the number of shorts exceed the number of longs. And that phenomenon is shown to be increasing. So there should be no surprise to see the strategy as if breaking down.
The leveraging is gradually increased up to an average 5.5 as per the tearsheet. Meaning that you would be borrowing 4.5 times the equity where no interest fees are being charged, or even considered.
If you had F(0)∙(1+r)^t to represent portfolio growth without leveraging, then with leverage you would have: 5.5∙ F(0)∙(1+(r - θ∙L)^t. And if you removed the leveraging, or paid the interests on the 4.5 times equity, you might see the total profits disappear. Those fees are compounding too. Note that removing the leveraging would also remove the fees (θ∙L). Is r > |θ∙L| so that r - θ∙L > 0 and by how much? That is the question. From my point of view, I see the overall CAGR presented as insufficient to compensate for the financial burden brought on by this 5.5 leveraging. For now, I will leave that problem for someone else to solve.