HEDGEFUNDIE's excellent adventure Part II: The next journey

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Z33
Posts: 4
Joined: Fri Jun 11, 2021 11:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Z33 »

Hi All,

Been reading for a while now and lurking on these threads. Keen to start but wanted to wait for the Fed.

Looks like they turned Hawkish and the belly of the curve got smacked overnight. 10s and 30s yields are dropping as I write.

Any views on how this may and would change the HEFA approach going forward?

Cheers
User avatar
firebirdparts
Posts: 2677
Joined: Thu Jun 13, 2019 4:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

If you look at past performance, quite a bit of it depends on falling rates, and everybody saw that on day 1. We've talked really the entire history of these threads about maybe you would prefer to throttle back on the yield "risk" and lots of people are running a portfolio that is 50% 3X stocks and 50% something else they chose for "ballast". These portfolios wouldn't have performed like HFEA in the past, but they're okay. You could do worse.

EDV was brought up initially, and TLT, and maybe cash, or gold, or utilities, etc etc.

My take on this is always that IF the stock side is the only thing making any money, then by golly you better not rebalance too fast.

Timing wise I guess you're okay. Impossible to time, really.
A fool and your money are soon partners
Hydromod
Posts: 597
Joined: Tue Mar 26, 2019 10:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

One thing that was brought up a while back was the idea of a target volatility approach. Basically you size the UPRO fraction versus another fund based on recent volatility. This basically cuts the allocation during times of higher volatility and expands it when calm.

Backtesting with PV against CASH suggests that you could do fairly well with this strategy, setting a target that is maybe 2/3 to 3/4 of maximum observed. It greatly reduces drawdowns, and perhaps cuts volatility decay too.

Maintaining the out-of-market asset as TMF could boost returns or not, depending on whether the insurance aspect kicks in during high volatility periods.

Clearly not a strategy for taxable though.
e5116
Posts: 725
Joined: Mon Oct 05, 2009 11:22 am

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by e5116 »

TMF up 6.4% today (as of now).... :shock: I guess sometimes the "hedge" does work when broader market is down even though this year it seems it hasn't been as regular as the past.
Jags4186
Posts: 5937
Joined: Wed Jun 18, 2014 7:12 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Jags4186 »

e5116 wrote: Thu Jun 17, 2021 11:09 am TMF up 6.4% today (as of now).... :shock: I guess sometimes the "hedge" does work when broader market is down even though this year it seems it hasn't been as regular as the past.
You always know you’re in for a big day when everyone is saying it’s time to run.
e5116
Posts: 725
Joined: Mon Oct 05, 2009 11:22 am

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by e5116 »

Jags4186 wrote: Thu Jun 17, 2021 11:17 am
e5116 wrote: Thu Jun 17, 2021 11:09 am TMF up 6.4% today (as of now).... :shock: I guess sometimes the "hedge" does work when broader market is down even though this year it seems it hasn't been as regular as the past.
You always know you’re in for a big day when everyone is saying it’s time to run.
Yep now +8%.
jdinatale
Posts: 20
Joined: Tue Jul 14, 2020 3:54 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jdinatale »

I'm so glad TMF is having a killer day!
Impatience
Posts: 403
Joined: Thu Jul 23, 2020 3:15 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Impatience »

Z33 wrote: Wed Jun 16, 2021 9:05 pm Hi All,

Been reading for a while now and lurking on these threads. Keen to start but wanted to wait for the Fed.

Looks like they turned Hawkish and the belly of the curve got smacked overnight. 10s and 30s yields are dropping as I write.

Any views on how this may and would change the HEFA approach going forward?

Cheers
Don’t try and time it. Nobody knows which way interest rates will go. IMO the only way to successfully follow this strategy is to just get into it and just follow it blindly for a very long time.
LeverageWBeverage
Posts: 24
Joined: Fri Jan 01, 2021 5:25 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LeverageWBeverage »

Impatience wrote: Thu Jun 17, 2021 12:12 pm
Z33 wrote: Wed Jun 16, 2021 9:05 pm Hi All,

Been reading for a while now and lurking on these threads. Keen to start but wanted to wait for the Fed.

Looks like they turned Hawkish and the belly of the curve got smacked overnight. 10s and 30s yields are dropping as I write.

Any views on how this may and would change the HEFA approach going forward?

Cheers
Don’t try and time it. Nobody knows which way interest rates will go. IMO the only way to successfully follow this strategy is to just get into it and just follow it blindly for a very long time.
Smart way to go. We are taking enough risk here with leverage. No need to then try and mastermind the future.
TheDoctor91
Posts: 75
Joined: Thu Feb 25, 2021 12:43 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by TheDoctor91 »

Gotta love it. Would love to see what those on here and twitter would have to say about the death of the bonds approach, the inevitable death of TMF because of current rates, and the inevitability of inflation making TMF useless and that we're going in to 1970s.
Tingting1013
Posts: 1594
Joined: Mon Aug 24, 2020 5:44 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Tingting1013 »

TheDoctor91 wrote: Thu Jun 17, 2021 1:56 pm Gotta love it. Would love to see what those on here and twitter would have to say about the death of the bonds approach, the inevitable death of TMF because of current rates, and the inevitability of inflation making TMF useless and that we're going in to 1970s.
It’s obvious that TMF hit bottom in March and has nowhere to go but up from here.
User avatar
cos
Posts: 438
Joined: Fri Aug 23, 2019 7:34 pm
Location: Boston
Contact:

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

RovenSkyfall wrote: Tue Jun 15, 2021 9:21 am The other point worth considering is that a lot of the recent performance of the SP500 has been due to increasing valuations. How this has influenced the returns and future expected returns seems less predictable. This would lead me to feel more confident in a LETF of a SCV index for future expected returns (despite the volatility) compared to UPRO. This post offers some good thoughts on the matter.
langlands wrote: Tue Jun 15, 2021 10:30 am If the underlying asset is "weak" meaning it has a low Sharpe ratio s, the optimal leveraged version of it will have low volatility s and a low geometric return 0.5*s^2. Furthermore, the ratio between the geometric return and volatility is 0.5*s, which will be low. If you think about it, this means that the portfolio takes a long time to recover from drawdowns (hopefully shedding some light on the question about "duration risk" mentioned above).

Conversely, if the underlying asset is "strong" meaning it has a high Sharpe, the optimal leveraged version of it will have high volatility and a high geometric return. But despite the high volatility, it will recover quickly from drawdowns.
By these accounts, isn't UMDD the superior LETF? Or maybe even UDOW? Check out the corresponding factor regressions and Sharpe ratios of the underlying. Seems like a clear-cut conclusion.
Impatience
Posts: 403
Joined: Thu Jul 23, 2020 3:15 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Impatience »

The leading headline on Bloomberg right now: “Big Tech-Long Bond Trade Reasserts Itself on Fed”. Haha! I’ll try and remember this moment next time I’m down 10% in one week :D
langlands
Posts: 1081
Joined: Wed Apr 03, 2019 10:05 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

cos wrote: Thu Jun 17, 2021 2:48 pm
RovenSkyfall wrote: Tue Jun 15, 2021 9:21 am The other point worth considering is that a lot of the recent performance of the SP500 has been due to increasing valuations. How this has influenced the returns and future expected returns seems less predictable. This would lead me to feel more confident in a LETF of a SCV index for future expected returns (despite the volatility) compared to UPRO. This post offers some good thoughts on the matter.
langlands wrote: Tue Jun 15, 2021 10:30 am If the underlying asset is "weak" meaning it has a low Sharpe ratio s, the optimal leveraged version of it will have low volatility s and a low geometric return 0.5*s^2. Furthermore, the ratio between the geometric return and volatility is 0.5*s, which will be low. If you think about it, this means that the portfolio takes a long time to recover from drawdowns (hopefully shedding some light on the question about "duration risk" mentioned above).

Conversely, if the underlying asset is "strong" meaning it has a high Sharpe, the optimal leveraged version of it will have high volatility and a high geometric return. But despite the high volatility, it will recover quickly from drawdowns.
By these accounts, isn't UMDD the superior LETF? Or maybe even UDOW? Check out the corresponding factor regressions and Sharpe ratios of the underlying. Seems like a clear-cut conclusion.
Well I don't think anyone is doing 100% UPRO or considering 100% UMDD, so it depends a bit what else is in your portfolio and how much leverage you plan to take.

But yes, if you think MDY has a higher Sharpe ratio than SPY, UMDD could merit a sizeable allocation in your portfolio. (I actually own some UMDD, so I should warn you that it's much less liquid than UPRO with wider bid ask spreads. If you're putting in a market order for $50,000 or less though there is nothing to worry about.)

I don't think 25 years of backtesting history is anywhere near conclusive though. We have near 100 years of stock price data now and the factor debate still rages on. Further, the strongest evidence is for SCV specifically with the small factor alone being very inconclusive. I've tried looking for a leveraged SCV fund before and came up empty handed. My best proxy is DPST and NRGU (leveraging regional banks and oil companies).
Hydromod
Posts: 597
Joined: Tue Mar 26, 2019 10:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

langlands wrote: Thu Jun 17, 2021 4:24 pm
cos wrote: Thu Jun 17, 2021 2:48 pm By these accounts, isn't UMDD the superior LETF? Or maybe even UDOW? Check out the corresponding factor regressions and Sharpe ratios of the underlying. Seems like a clear-cut conclusion.
Well I don't think anyone is doing 100% UPRO or considering 100% UMDD, so it depends a bit what else is in your portfolio and how much leverage you plan to take.

But yes, if you think MDY has a higher Sharpe ratio than SPY, UMDD could merit a sizeable allocation in your portfolio. (I actually own some UMDD, so I should warn you that it's much less liquid than UPRO with wider bid ask spreads. If you're putting in a market order for $50,000 or less though there is nothing to worry about.)

I don't think 25 years of backtesting history is anywhere near conclusive though. We have near 100 years of stock price data now and the factor debate still rages on. Further, the strongest evidence is for SCV specifically with the small factor alone being very inconclusive. I've tried looking for a leveraged SCV fund before and came up empty handed. My best proxy is DPST and NRGU (leveraging regional banks and oil companies).
I suspect that a tell-tale plot of MDY vs SPY would show essentially the same performance except MDY outperformed during the period from 2001 to 2003, which is where it got the Sharpe boost. That might be a bit thin of a basis for picking UMDD. Or not.
AnilG
Posts: 76
Joined: Wed Sep 09, 2015 1:41 am

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by AnilG »

I tried target volatility approach with TQQQ/TMF with monthly rebalancing for over a year and recently abandoned the strategy. I just couldn’t handle mentally the large swing in positions from month to month. The emotional reaction I had was most probably be similar to the times of large drawdown. I guess strategy might be okay when volatility is stable but during high volatility changes, portfolio gets whipsawed. It wasn’t for me. Quantitatively it might be superior but mentally I can’t handle it. Recently I switched to fixed 60/40 with quarterly rebalancing.
Hydromod wrote: Thu Jun 17, 2021 8:52 am One thing that was brought up a while back was the idea of a target volatility approach. Basically you size the UPRO fraction versus another fund based on recent volatility. This basically cuts the allocation during times of higher volatility and expands it when calm.

Backtesting with PV against CASH suggests that you could do fairly well with this strategy, setting a target that is maybe 2/3 to 3/4 of maximum observed. It greatly reduces drawdowns, and perhaps cuts volatility decay too.

Maintaining the out-of-market asset as TMF could boost returns or not, depending on whether the insurance aspect kicks in during high volatility periods.

Clearly not a strategy for taxable though.
Hydromod
Posts: 597
Joined: Tue Mar 26, 2019 10:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

AnilG wrote: Thu Jun 17, 2021 6:33 pm I tried target volatility approach with TQQQ/TMF with monthly rebalancing for over a year and recently abandoned the strategy. I just couldn’t handle mentally the large swing in positions from month to month. The emotional reaction I had was most probably be similar to the times of large drawdown. I guess strategy might be okay when volatility is stable but during high volatility changes, portfolio gets whipsawed. It wasn’t for me. Quantitatively it might be superior but mentally I can’t handle it. Recently I switched to fixed 60/40 with quarterly rebalancing.
Hydromod wrote: Thu Jun 17, 2021 8:52 am One thing that was brought up a while back was the idea of a target volatility approach. Basically you size the UPRO fraction versus another fund based on recent volatility. This basically cuts the allocation during times of higher volatility and expands it when calm.

Backtesting with PV against CASH suggests that you could do fairly well with this strategy, setting a target that is maybe 2/3 to 3/4 of maximum observed. It greatly reduces drawdowns, and perhaps cuts volatility decay too.

Maintaining the out-of-market asset as TMF could boost returns or not, depending on whether the insurance aspect kicks in during high volatility periods.

Clearly not a strategy for taxable though.
Was the total portfolio having a lot of volatility that bothered you, or was it just that the position changed a lot?

I would expect that TQQQ would swing around from 20 to 80 percent at various times. It’s very different from holding a fixed allocation, for sure.
elderwise
Posts: 417
Joined: Fri Jul 22, 2016 10:27 am

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by elderwise »

Just our of curiosity anyone else here doing this with 100% fngu?

I was doing the OG HFEA then moved to 100% tqqq In mid 2020 then found out about fngu and yes I know how risky an etn is vs an etf(etf actually holds the stock) vs etn which mirrors a specific index in this case FAANG+

Want to see how its working out or if anyone has a blended mix with a % of fngu.
AnilG
Posts: 76
Joined: Wed Sep 09, 2015 1:41 am

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by AnilG »

Allocation based on historical volatility turned out to be very volatile and portfolio was always taking wrong position. Portfolio allocation was swinging wildly from one month to the next. The monthly allocation change was mostly in the wrong direction. When TQQQ volatility was high, allocation was pushed to TMF which was in downward trend. Moving away from volatility was logically correct and right move. But The next month TQQQ volatility declined and formed upward trend, while the portfolio was mostly in TMF. As TQQQ volatility declined so at next rebalance allocation gets tilted toward TQQQ but then TQQQ volatility risen and became range bound.

Basically allocation was always in wrong direction and backward looking. I don’t believe any guardrail around allocation range or changing volatility duration would have prevented this problem. Reducing the vol duration makes changes in portfolio positions more extreme, increasing vol duration increases recovery time from deep drawdown like March 2020. The main issue was TMF was in consistently downward trend with low volatility and TQQQ was somewhat upward trend with high volatility.

Edit: Interesting post by Larry Swedroe today on volatility managed portfolio. The Performance of Volatility-Managed Portfolios
Hydromod wrote: Thu Jun 17, 2021 8:24 pm
AnilG wrote: Thu Jun 17, 2021 6:33 pm I tried target volatility approach with TQQQ/TMF with monthly rebalancing for over a year and recently abandoned the strategy. I just couldn’t handle mentally the large swing in positions from month to month. The emotional reaction I had was most probably be similar to the times of large drawdown. I guess strategy might be okay when volatility is stable but during high volatility changes, portfolio gets whipsawed. It wasn’t for me. Quantitatively it might be superior but mentally I can’t handle it. Recently I switched to fixed 60/40 with quarterly rebalancing.
Was the total portfolio having a lot of volatility that bothered you, or was it just that the position changed a lot?

I would expect that TQQQ would swing around from 20 to 80 percent at various times. It’s very different from holding a fixed allocation, for sure.
Hydromod
Posts: 597
Joined: Tue Mar 26, 2019 10:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

AnilG wrote: Thu Jun 17, 2021 11:35 pm Allocation based on historical volatility turned out to be very volatile and portfolio was always taking wrong position. Portfolio allocation was swinging wildly from one month to the next. The monthly allocation change was mostly in the wrong direction. When TQQQ volatility was high, allocation was pushed to TMF which was in downward trend. Moving away from volatility was logically correct and right move. But The next month TQQQ volatility declined and formed upward trend, while the portfolio was mostly in TMF. As TQQQ volatility declined so at next rebalance allocation gets tilted toward TQQQ but then TQQQ volatility risen and became range bound.

Basically allocation was always in wrong direction and backward looking. I don’t believe any guardrail around allocation range or changing volatility duration would have prevented this problem. Reducing the vol duration makes changes in portfolio positions more extreme, increasing vol duration increases recovery time from deep drawdown like March 2020. The main issue was TMF was in consistently downward trend with low volatility and TQQQ was somewhat upward trend with high volatility.

Edit: Interesting post by Larry Swedroe today on volatility managed portfolio. The Performance of Volatility-Managed Portfolios

Thanks, I'll take a look.
Ah, yes. I get it.

I think that the way crashes tend to work is that the equities dive, treasuries spike after a little lag, equities start recovering, and treasuries come off their high. At some point things return to something approximating pre-crash conditions. This describes 2000, 2008, and 2020 pretty well.

So the overall portfolio may dip (equities dominate), spike (treasuries dominate), dip (treasuries dominate), and then the portfolio resumes its merry between-crash way.

With volatility limiting approaches and a TQQQ/TMF portfolio, you mitigate the initial TQQQ drop and may even get an overall portfolio bump from the TMF spike, but pay the fee back by reducing the TQQQ recovery rate afterwards and accentuating the TMF drop from the spike. Over a full cycle it tends to give a smoother ride and should have similar returns, but it feels especially bad during the recovery when TQQQ is improving and you're still in TMF giving back its temporary spike.

It sounds like the market was in the TMF giveback stage while you were doing the volatility limiting, and you missed out on the crash protection. That's the most discouraging time to start. Unfortunate.

If I was in for the long haul, next crash I would be tempted to track and compare cumulative performance from two years before the crash for several weighting schemes. Plotting those comparisons might give better comfort during the recovery, since presumably the volatility-limited portfolio would be tracking higher and the other portfolios would be converging back.
Impatience
Posts: 403
Joined: Thu Jul 23, 2020 3:15 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Impatience »

elderwise wrote: Thu Jun 17, 2021 11:02 pm Just our of curiosity anyone else here doing this with 100% fngu?

I was doing the OG HFEA then moved to 100% tqqq In mid 2020 then found out about fngu and yes I know how risky an etn is vs an etf(etf actually holds the stock) vs etn which mirrors a specific index in this case FAANG+

Want to see how its working out or if anyone has a blended mix with a % of fngu.
I hope not. FNGU tracks an “index” that consists of 10 stocks all in the same narrow slice of industries (social media, “tech”). It carries significant single stock as well as sector specific risk and yes there’s some additional risk from it being an ETN as well. If 100% of your invested money is in FNGU I’d urge you to reconsider.
rchmx1
Posts: 404
Joined: Sat Oct 26, 2019 6:38 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rchmx1 »

elderwise wrote: Thu Jun 17, 2021 11:02 pm Just our of curiosity anyone else here doing this with 100% fngu?

I was doing the OG HFEA then moved to 100% tqqq In mid 2020 then found out about fngu and yes I know how risky an etn is vs an etf(etf actually holds the stock) vs etn which mirrors a specific index in this case FAANG+

Want to see how its working out or if anyone has a blended mix with a % of fngu.
imo fngu is only worth playing around with for short term trades. I'd view it as too concentrated in a too limited number of stocks to be a replacement for UPRO (or even TQQQ) for this kind of strategy.
Marseille07
Posts: 4652
Joined: Fri Nov 06, 2020 1:41 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

elderwise wrote: Thu Jun 17, 2021 11:02 pm Just our of curiosity anyone else here doing this with 100% fngu?

I was doing the OG HFEA then moved to 100% tqqq In mid 2020 then found out about fngu and yes I know how risky an etn is vs an etf(etf actually holds the stock) vs etn which mirrors a specific index in this case FAANG+

Want to see how its working out or if anyone has a blended mix with a % of fngu.
I don't really subscribe to the idea that ETNs are riskier than ETFs. Pretty much everything tracks some index, the difference is whether they are notes, or actually holding the underlyings of the index.

With that said, 100% FNGU is extremely aggressive. The upside is massive but so's the downside. By "100%" I hope you mean 100% of your funny money (5%), not your entire portfolio.
Last edited by Marseille07 on Fri Jun 18, 2021 9:55 am, edited 1 time in total.
User avatar
firebirdparts
Posts: 2677
Joined: Thu Jun 13, 2019 4:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

Some of the money I lost on TMF just came unlost.
A fool and your money are soon partners
rchmx1
Posts: 404
Joined: Sat Oct 26, 2019 6:38 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rchmx1 »

Marseille07 wrote: Fri Jun 18, 2021 9:55 am I don't really subscribe to the idea that ETNs are riskier than ETFs. Pretty much everything tracks some index, the difference is whether they are notes, or actually holding the underlyings of the index.

With that said, 100% FNGU is extremely aggressive. The upside is massive but so's the downside. By "100%" I hope you mean 100% of your funny money (5%), not your entire portfolio.
But is the upside really that intriguing? I wonder about that. People that loaded up in April '20 made out like bandits, but considering how significantly it outperformed the last year, I just wonder if it's destined to stagnate for a while.
FIRE55
Posts: 42
Joined: Tue Dec 15, 2020 7:09 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by FIRE55 »

firebirdparts wrote: Fri Jun 18, 2021 9:55 am Some of the money I lost on TMF just came unlost.
It's interesting to watch alright. I've been carrying a loss of up to ~30% on TMF, offsetting some of the 201% gain on UPRO. Today the loss is down to 11%. Last 5 days, UPRO -4%, TMF +7.5%.

Awaiting a balance band trigger or the end of the month to rebalance - I'm at 58:42 UPRO:TMF today (60:40 target).

My last rebalance trigger fired on March 18, selling UPRO @ $89.20 to buy TMF @ $21.13, reducing my TMF cost basis from $33.19 to $30.30. That tranche is doing nicely!

/FIRE55
User avatar
cos
Posts: 438
Joined: Fri Aug 23, 2019 7:34 pm
Location: Boston
Contact:

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

langlands wrote: Thu Jun 17, 2021 4:24 pm Well I don't think anyone is doing 100% UPRO or considering 100% UMDD, so it depends a bit what else is in your portfolio and how much leverage you plan to take.

But yes, if you think MDY has a higher Sharpe ratio than SPY, UMDD could merit a sizeable allocation in your portfolio. (I actually own some UMDD, so I should warn you that it's much less liquid than UPRO with wider bid ask spreads. If you're putting in a market order for $50,000 or less though there is nothing to worry about.)

I don't think 25 years of backtesting history is anywhere near conclusive though. We have near 100 years of stock price data now and the factor debate still rages on. Further, the strongest evidence is for SCV specifically with the small factor alone being very inconclusive. I've tried looking for a leveraged SCV fund before and came up empty handed. My best proxy is DPST and NRGU (leveraging regional banks and oil companies).
I would be pairing it with TMF. I'm currently 60/40 UPRO/TMF, and I'm hungry for more diversification. I've been considering 60/40 UMDD/TMF in the name of risk factor diversification, but you seem to be implying that I can only count on getting more exposure to size with UMDD despite the apparent loadings on value and profitability. I also agree that there isn't enough data to back up those Sharpe ratios. Might I be better diversified with 12/12/12/12/12/40 UPRO/UMDD/URTY/TQQQ/UDOW/TMF?

What do you pair with UMDD? Do you hold DPST and NRGU? What does your target portfolio look like?
parval
Posts: 66
Joined: Tue Oct 22, 2019 9:23 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by parval »

ah such vindication for TMF after a few months of sadness.

If only I stayed the course didn't let it drop to 30% of portfolio, oh wel :oops:
Hydromod
Posts: 597
Joined: Tue Mar 26, 2019 10:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

parval wrote: Fri Jun 18, 2021 3:55 pm ah such vindication for TMF after a few months of sadness.

If only I stayed the course didn't let it drop to 30% of portfolio, oh wel :oops:
I happened to end the day at 54.84% UPRO, portfolio down 0.005% on the day. Can't balance much better than that!
Bearbug
Posts: 7
Joined: Mon Aug 24, 2020 7:47 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Bearbug »

cos wrote: Fri Jun 18, 2021 3:31 pm
langlands wrote: Thu Jun 17, 2021 4:24 pm Well I don't think anyone is doing 100% UPRO or considering 100% UMDD, so it depends a bit what else is in your portfolio and how much leverage you plan to take.

But yes, if you think MDY has a higher Sharpe ratio than SPY, UMDD could merit a sizeable allocation in your portfolio. (I actually own some UMDD, so I should warn you that it's much less liquid than UPRO with wider bid ask spreads. If you're putting in a market order for $50,000 or less though there is nothing to worry about.)



I don't think 25 years of backtesting history is anywhere near conclusive though. We have near 100 years of stock price data now and the factor debate still rages on. Further, the strongest evidence is for SCV specifically with the small factor alone being very inconclusive. I've tried looking for a leveraged SCV fund before and came up empty handed. My best proxy is DPST and NRGU (leveraging regional banks and oil companies).
I would be pairing it with TMF. I'm currently 60/40 UPRO/TMF, and I'm hungry for more diversification. I've been considering 60/40 UMDD/TMF in the name of risk factor diversification, but you seem to be implying that I can only count on getting more exposure to size with UMDD despite the apparent loadings on value and profitability. I also agree that there isn't enough data to back up those Sharpe ratios. Might I be better diversified with 12/12/12/12/12/40 UPRO/UMDD/URTY/TQQQ/UDOW/TMF?

What do you pair with UMDD? Do you hold DPST and NRGU? What does your target portfolio look like?
I like the idea of pairing TQQQ with UMDD. The correlation with the S&P 500 is high, but the outperformance is amazing when backtesting 50/50 MDY and QQQ. One has picked up the slack for another over the years. Who knows whether that trend would continue. That pairing does make a lot more sense than the UPRO and TQQQ pairing - far less overlap in companies. If you are interested in 2x leverage, there is a 2xS&P Small Cap 600 ETF. Ticker SAA.
langlands
Posts: 1081
Joined: Wed Apr 03, 2019 10:05 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

cos wrote: Fri Jun 18, 2021 3:31 pm
langlands wrote: Thu Jun 17, 2021 4:24 pm Well I don't think anyone is doing 100% UPRO or considering 100% UMDD, so it depends a bit what else is in your portfolio and how much leverage you plan to take.

But yes, if you think MDY has a higher Sharpe ratio than SPY, UMDD could merit a sizeable allocation in your portfolio. (I actually own some UMDD, so I should warn you that it's much less liquid than UPRO with wider bid ask spreads. If you're putting in a market order for $50,000 or less though there is nothing to worry about.)

I don't think 25 years of backtesting history is anywhere near conclusive though. We have near 100 years of stock price data now and the factor debate still rages on. Further, the strongest evidence is for SCV specifically with the small factor alone being very inconclusive. I've tried looking for a leveraged SCV fund before and came up empty handed. My best proxy is DPST and NRGU (leveraging regional banks and oil companies).
I would be pairing it with TMF. I'm currently 60/40 UPRO/TMF, and I'm hungry for more diversification. I've been considering 60/40 UMDD/TMF in the name of risk factor diversification, but you seem to be implying that I can only count on getting more exposure to size with UMDD despite the apparent loadings on value and profitability. I also agree that there isn't enough data to back up those Sharpe ratios. Might I be better diversified with 12/12/12/12/12/40 UPRO/UMDD/URTY/TQQQ/UDOW/TMF?

What do you pair with UMDD? Do you hold DPST and NRGU? What does your target portfolio look like?
Interesting, I didn't realize UMDD had such high loading on value. It makes sense given the dominance of FAANG that large cap stocks would lean growth, which by necessity forces small cap to lean value.

I find the plot of performance of AVUV, VBR, IJR, and VBK over the last year quite informative. VBR and IJR are highly overlapping right in the middle with AVUV rising above and VBK dipping below. Considering that IJR is supposed to be a small cap etf, this seems to indicate that the default amount of "valueness" of a small cap fund is at the level of VBR, which is supposed to be a SCV fund! And the distance between AVUV/RZV and VBR is about the same as the distance between VBR and VBK. Anyway, I'm sure simply doing a factor loading analysis would tell the same story.

So basically you're right, UMDD seems to give you a decent amount of value. To get both more size and value loading, you can just take URTY (3x small cap) instead which has more liquidity.

You could never go too wrong with 12/12/12/12/12/40 UPRO/UMDD/URTY/TQQQ/UDOW/TMF. It would require a little bit of effort to rebalance though. At the end of the day, you need a view on small cap, value, growth, tech, bonds etc. For instance, the vanilla Boglehead "know nothing" view would mean that you don't buy into sector or factor tilts, which would lead to a UPRO/TMF portfolio. The more you know (or think you know), the more you tilt away from this baseline.

Yes, I hold a little bit of NRGU and DPST and some UMDD/URTY. The vast majority of my leveraged ETF holdings are UPRO and TQQQ though. I also own many individual stocks as well for what it's worth which I essentially buy and hold. I don't really have a target portfolio...the main thing I care about is my leverage ratio, which I want to keep under about 2. It's currently at about 1.7 I think (keep in mind that I have essentially no bonds).
fatcoffeedrinker
Posts: 354
Joined: Mon Mar 23, 2020 2:03 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by fatcoffeedrinker »

Hydromod wrote: Fri Jun 18, 2021 4:06 pm
parval wrote: Fri Jun 18, 2021 3:55 pm ah such vindication for TMF after a few months of sadness.

If only I stayed the course didn't let it drop to 30% of portfolio, oh wel :oops:
I happened to end the day at 54.84% UPRO, portfolio down 0.005% on the day. Can't balance much better than that!
Never expected that I would have to rebalance out of TMF at the end of June, but it just might happen now. Was 57/43 earlier in the week, now 53.5/46.5.
darkcam
Posts: 1
Joined: Sun Feb 07, 2021 7:06 am

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by darkcam »

Hi all have two questions,

1) I've tried to follow most of this thread and it's quite long but I see that before Hedgefundie stopped posting the portfolio was set at 55UPRO/45TMF
Is there a reason why people now are moving towards either 60/40 or 70/30? Not sure if I missed a post outlining this strategy...

2) Is there a suggested rebalance band outside of rebalancing quarterly / monthly?
Hydromod
Posts: 597
Joined: Tue Mar 26, 2019 10:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

darkcam wrote: Fri Jun 18, 2021 6:47 pm Hi all have two questions,

1) I've tried to follow most of this thread and it's quite long but I see that before Hedgefundie stopped posting the portfolio was set at 55UPRO/45TMF
Is there a reason why people now are moving towards either 60/40 or 70/30? Not sure if I missed a post outlining this strategy...

2) Is there a suggested rebalance band outside of rebalancing quarterly / monthly?
Welcome to the board!

I'm sure you had many pleasant evenings going through the thread...

1) I don't think there is any particular consensus decision on a higher allocation. I haven't seen any discussion in particular. I suspect that folks may be down on the future prospects of TMF returns, so they are tilting away from the balanced risk profile to compensate. My calculations suggest that 55/45 gives about 3/4 of risk to UPRO at this time.

2) In my backtesting from 1986 to 2019, rebalancing at a 5 percent deviation was too frequent to be useful. I got similar long-term results trading within a band of both 10 percent and 15 percent, with a maximum of one year between rebalances. This was pretty much as effective as monthly rebalancing, if I remember correctly. I'm not aware of anyone following a band strategy, however. Probably because you have to keep closer track, I imagine.
elderwise
Posts: 417
Joined: Fri Jul 22, 2016 10:27 am

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by elderwise »

Marseille07 wrote: Fri Jun 18, 2021 9:55 am
elderwise wrote: Thu Jun 17, 2021 11:02 pm Just our of curiosity anyone else here doing this with 100% fngu?

I was doing the OG HFEA then moved to 100% tqqq In mid 2020 then found out about fngu and yes I know how risky an etn is vs an etf(etf actually holds the stock) vs etn which mirrors a specific index in this case FAANG+

Want to see how its working out or if anyone has a blended mix with a % of fngu.
I don't really subscribe to the idea that ETNs are riskier than ETFs. Pretty much everything tracks some index, the difference is whether they are notes, or actually holding the underlyings of the index.

With that said, 100% FNGU is extremely aggressive. The upside is massive but so's the downside. By "100%" I hope you mean 100% of your funny money (5%), not your entire portfolio.
the 100% i mean not of my retirement port of Roth, 401k, ira etc - but the original amount i put into the OG HFEA

at the rate this strategy is ballooning, its gonna pretty much dwarf the % of $ of my Index Funds (vtsax + fxaix) that i have in my work 401k,..

this was 5-10% now becoming 20-25% of my NW...it sure is an interesting ride.

ETN's are very very risky, unlike TQQQ which holds stock ETN is only a structured debt note (unsecured) think a unsecured bond and the credit risk is very highly relevant to the note issuer (BoM - Bank of Montreal) it did drop to $3.4 during March 2020 tho...I have an exit strategy of a Hard stop loss at my basis (below the current value) so if March 2020 were to repeat I ain't holding the FNGU bag or TQQQ bag.

I think when leveraged ETF / ETN's start a solid down trend you are *much* better of liquidating (taxes be damned) and rebuy - if you did this (i did not) in Feb 2020 the peak before it started the downtrend - and jumped back in March or April or even May - ahhh that would be perfect!
Marseille07
Posts: 4652
Joined: Fri Nov 06, 2020 1:41 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

elderwise wrote: Fri Jun 18, 2021 10:37 pm the 100% i mean not of my retirement port of Roth, 401k, ira etc - but the original amount i put into the OG HFEA

at the rate this strategy is ballooning, its gonna pretty much dwarf the % of $ of my Index Funds (vtsax + fxaix) that i have in my work 401k,..

this was 5-10% now becoming 20-25% of my NW...it sure is an interesting ride.

ETN's are very very risky, unlike TQQQ which holds stock ETN is only a structured debt note (unsecured) think a unsecured bond and the credit risk is very highly relevant to the note issuer (BoM - Bank of Montreal) it did drop to $3.4 during March 2020 tho...I have an exit strategy of a Hard stop loss at my basis (below the current value) so if March 2020 were to repeat I ain't holding the FNGU bag or TQQQ bag.

I think when leveraged ETF / ETN's start a solid down trend you are *much* better of liquidating (taxes be damned) and rebuy - if you did this (i did not) in Feb 2020 the peak before it started the downtrend - and jumped back in March or April or even May - ahhh that would be perfect!
Awesome, glad to know it was your "funny money" trade.
It's a very gutsy call on your part, HEFA's AA is actually quite conservative (40/60 or 55/45?). There was a poster who talked a lot about 3x ETF but didn't trade a single share and went all quiet. You're putting your money where your mouth is :beer
User avatar
firebirdparts
Posts: 2677
Joined: Thu Jun 13, 2019 4:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

So I did something really comical. I figured out you can use monthly options on TMF and so I sold covered calls on my TMF. You known what they say, 10 bucks is 10 bucks. Whoever bought them I imagine was just as surprised as I am.
A fool and your money are soon partners
User avatar
firebirdparts
Posts: 2677
Joined: Thu Jun 13, 2019 4:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

darkcam wrote: Fri Jun 18, 2021 6:47 pm Hi all have two questions,

1) I've tried to follow most of this thread and it's quite long but I see that before Hedgefundie stopped posting the portfolio was set at 55UPRO/45TMF
Is there a reason why people now are moving towards either 60/40 or 70/30? Not sure if I missed a post outlining this strategy...

2) Is there a suggested rebalance band outside of rebalancing quarterly / monthly?
I agree with hydromod.
A fool and your money are soon partners
adamhg
Posts: 3
Joined: Sat Apr 10, 2021 8:40 am

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by adamhg »

firebirdparts wrote: Sat Jun 19, 2021 6:59 am So I did something really comical. I figured out you can use monthly options on TMF and so I sold covered calls on my TMF. You known what they say, 10 bucks is 10 bucks. Whoever bought them I imagine was just as surprised as I am.
I've been selling CCs on both sides (TQQQ and UBT in my case). But I only use CC on UBT for the rebalance portion whereas I'm doing 100% of my TQQQ at a 20ish delta. I don't want to cap my insurance which will spike faster in the case of a meltdown which is less likely with the equity portion.
User avatar
firebirdparts
Posts: 2677
Joined: Thu Jun 13, 2019 4:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

The idea of rebalancing after quad witching day had not occurred to me, but I like it.
A fool and your money are soon partners
CrazyDesi
Posts: 1
Joined: Sun Jun 20, 2021 6:40 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by CrazyDesi »

Serious question, why would someone not use options for this? Lets say you are 60/40 UPRO/TMF and are rebalancing quarterly. You go long on options that equal what 100 percent of your portfolio would be and leave the rest in cash. Notice that last part is important. The idea is to still keep about 50 percent in cash.

The benefit of this? In a down turn, implied volatility goes up significantly. If UPRO and TMF maintain their relationship, your UPRO option would not lose as much as holding the underlying due to the increase in option price and TMF would shoot up more than usual.
TheDoctor91
Posts: 75
Joined: Thu Feb 25, 2021 12:43 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by TheDoctor91 »

firebirdparts wrote: Sat Jun 19, 2021 6:59 am So I did something really comical. I figured out you can use monthly options on TMF and so I sold covered calls on my TMF. You known what they say, 10 bucks is 10 bucks. Whoever bought them I imagine was just as surprised as I am.
Then again it was bound to reverse at some point lol. Ouch anyways!
Mickelous
Posts: 183
Joined: Mon Apr 20, 2020 11:24 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

CrazyDesi wrote: Sun Jun 20, 2021 7:18 pm Serious question, why would someone not use options for this? Lets say you are 60/40 UPRO/TMF and are rebalancing quarterly. You go long on options that equal what 100 percent of your portfolio would be and leave the rest in cash. Notice that last part is important. The idea is to still keep about 50 percent in cash.

The benefit of this? In a down turn, implied volatility goes up significantly. If UPRO and TMF maintain their relationship, your UPRO option would not lose as much as holding the underlying due to the increase in option price and TMF would shoot up more than usual.
Too hard to backtest to see prior drawdowns and such with the strategy. Could potentially blow your account up. I had an idea with 2-3 year leaps and rolling them over after 1 year and one day with QQQ and EDV/TLT, simulating the leverage of TQQQ and TMF by using OTM options with like .3 delta calls, but I don't have enough options experience to be comfortable with it.
xraygoggles
Posts: 173
Joined: Sat Sep 15, 2018 3:30 pm
Location: SoCal

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by xraygoggles »

CrazyDesi wrote: Sun Jun 20, 2021 7:18 pm Serious question, why would someone not use options for this? Lets say you are 60/40 UPRO/TMF and are rebalancing quarterly. You go long on options that equal what 100 percent of your portfolio would be and leave the rest in cash. Notice that last part is important. The idea is to still keep about 50 percent in cash.

The benefit of this? In a down turn, implied volatility goes up significantly. If UPRO and TMF maintain their relationship, your UPRO option would not lose as much as holding the underlying due to the increase in option price and TMF would shoot up more than usual.
When UPRO crashes, your options would even more so, and the increase in IV would not offset the decrease at all. And if they are still OTM at that current time, it will drop even more so, compared to ITM options... the TMF options would increase, that's true, but not sure enough to offset the losses...

Also, if the market flatlines or is down during the options time period, they will drop greatly as well, due to volatility decay, which is leveraged in the options.
User avatar
firebirdparts
Posts: 2677
Joined: Thu Jun 13, 2019 4:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

Continuing along this idea, I noticed today that UPRO options have IV of about 43%. That seems ridiculously low to me. I am missing something. If the options are systematically underpriced, then we should be using long options. I was using a short option on TMF but thereby I didn't intend to deviate from the strategy. TMF today is lower than I sold it for Friday, so no harm done.

I had, about a year and a half ago, set up a short 3X bear position using options. There is a long discussion of that (by other folks) in this thread. Trying to keep up with where you were was pretty maddening, so I didn't do it again.
A fool and your money are soon partners
Semantics
Posts: 296
Joined: Tue Mar 10, 2020 1:42 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Semantics »

CrazyDesi wrote: Sun Jun 20, 2021 7:18 pm Serious question, why would someone not use options for this? Lets say you are 60/40 UPRO/TMF and are rebalancing quarterly. You go long on options that equal what 100 percent of your portfolio would be and leave the rest in cash. Notice that last part is important. The idea is to still keep about 50 percent in cash.

The benefit of this? In a down turn, implied volatility goes up significantly. If UPRO and TMF maintain their relationship, your UPRO option would not lose as much as holding the underlying due to the increase in option price and TMF would shoot up more than usual.
It's been discussed a few times earlier in the thread. That downside protection is not going to be free, it will also come with a loss of upside due to theta decay, etc. I don't think it's worth the extra complexity to manage, the extra trading costs, and for those running this in taxable it's not as efficient. If one wants less volatility, I think a similar effect can be achieved without options by just reducing the leverage ratio, no?
Z33
Posts: 4
Joined: Fri Jun 11, 2021 11:21 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Z33 »

Just wanted to update the thread that I pulled the trigger last night. 55/45 and planning quarterly rebalancing.

Let’s see where this adventure takes me!
LeverageWBeverage
Posts: 24
Joined: Fri Jan 01, 2021 5:25 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LeverageWBeverage »

Z33 wrote: Mon Jun 21, 2021 10:35 pm Just wanted to update the thread that I pulled the trigger last night. 55/45 and planning quarterly rebalancing.

Let’s see where this adventure takes me!
Welcome aboard!
Ramjet
Posts: 1004
Joined: Thu Feb 06, 2020 11:45 am
Location: Ohio

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

Z33 wrote: Mon Jun 21, 2021 10:35 pm Just wanted to update the thread that I pulled the trigger last night. 55/45 and planning quarterly rebalancing.

Let’s see where this adventure takes me!
Nice. How much of your portfolio did you jump in with?
VT & HFEA
perfectuncertainty
Posts: 306
Joined: Sun Feb 04, 2018 7:44 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

Semantics wrote: Mon Jun 21, 2021 3:56 pm
CrazyDesi wrote: Sun Jun 20, 2021 7:18 pm Serious question, why would someone not use options for this? Lets say you are 60/40 UPRO/TMF and are rebalancing quarterly. You go long on options that equal what 100 percent of your portfolio would be and leave the rest in cash. Notice that last part is important. The idea is to still keep about 50 percent in cash.

The benefit of this? In a down turn, implied volatility goes up significantly. If UPRO and TMF maintain their relationship, your UPRO option would not lose as much as holding the underlying due to the increase in option price and TMF would shoot up more than usual.
It's been discussed a few times earlier in the thread. That downside protection is not going to be free, it will also come with a loss of upside due to theta decay, etc. I don't think it's worth the extra complexity to manage, the extra trading costs, and for those running this in taxable it's not as efficient. If one wants less volatility, I think a similar effect can be achieved without options by just reducing the leverage ratio, no?
Better to use ITM than OTM if you want to play this for an extended period. Less extrinsic value. And if a decline in the intrinsic value will mean it will rebound more easily. If you want to use options for this type of strategy the rule is ITM investments and OTM insurance (more instances and greater leverage and quicker rise)
Post Reply