HEDGEFUNDIE's excellent adventure Part II: The next journey

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

Semantics wrote: Wed Sep 15, 2021 9:39 pm
parval wrote: Wed Sep 15, 2021 8:21 pm Forget if this was discussed, but does using margin instead of the 3x ETFs trigger margin-call in the backtests?

I can only see 1985-present

And seems much cheaper than the expense ratios paid (at least on IBKR), because in a taxable the margin expense deducts against dividends right?
CASHX is an overly optimistic estimate of margin interest, given that it's 1 month t-bills. Realistically even if you use box spreads you're probably going to be paying a spread of 0.5% above that, and with actual margin at IBKR you're looking at 1-2%.

Secondly, because leveraged ETFs typically use total return swaps, they don't earn dividends for the entire "borrowed" part of the fund, so that tax is deferred until you sell and realize it as capital gains. These ETFs are very tax efficient. I'd imagine even with the expense ratio it's hard to do better on your own with a margin account.

The margin approach does let you reduce volatility decay somewhat, so there's arguably a small win there so long as monthly returns remain less volatile than daily returns (that's only been the case in the past 20-30 years).
Futures will get you very close to cashx. Commercial banks treat the basis trade (selling sp500 future and buying sp500) very much like a risk free repo.
parval
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by parval »

skierincolorado wrote: Thu Sep 16, 2021 12:38 pm
Semantics wrote: Wed Sep 15, 2021 9:39 pm
parval wrote: Wed Sep 15, 2021 8:21 pm Forget if this was discussed, but does using margin instead of the 3x ETFs trigger margin-call in the backtests?

I can only see 1985-present

And seems much cheaper than the expense ratios paid (at least on IBKR), because in a taxable the margin expense deducts against dividends right?
CASHX is an overly optimistic estimate of margin interest, given that it's 1 month t-bills. Realistically even if you use box spreads you're probably going to be paying a spread of 0.5% above that, and with actual margin at IBKR you're looking at 1-2%.

Secondly, because leveraged ETFs typically use total return swaps, they don't earn dividends for the entire "borrowed" part of the fund, so that tax is deferred until you sell and realize it as capital gains. These ETFs are very tax efficient. I'd imagine even with the expense ratio it's hard to do better on your own with a margin account.

The margin approach does let you reduce volatility decay somewhat, so there's arguably a small win there so long as monthly returns remain less volatile than daily returns (that's only been the case in the past 20-30 years).
Futures will get you very close to cashx. Commercial banks treat the basis trade (selling sp500 future and buying sp500) very much like a risk free repo.
Right I was thinking with the recent PSLDX drop in expense ratio, that it's kinda crazy we're paying 1% + borrowing costs for UPRO/TMF.

If there's no margin call possibility, futures + box spreads should be 1-2% improvement for 6 figure+ accts.
Ramjet
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

parval wrote: Thu Sep 16, 2021 2:48 pm
skierincolorado wrote: Thu Sep 16, 2021 12:38 pm
Semantics wrote: Wed Sep 15, 2021 9:39 pm
parval wrote: Wed Sep 15, 2021 8:21 pm Forget if this was discussed, but does using margin instead of the 3x ETFs trigger margin-call in the backtests?

I can only see 1985-present

And seems much cheaper than the expense ratios paid (at least on IBKR), because in a taxable the margin expense deducts against dividends right?
CASHX is an overly optimistic estimate of margin interest, given that it's 1 month t-bills. Realistically even if you use box spreads you're probably going to be paying a spread of 0.5% above that, and with actual margin at IBKR you're looking at 1-2%.

Secondly, because leveraged ETFs typically use total return swaps, they don't earn dividends for the entire "borrowed" part of the fund, so that tax is deferred until you sell and realize it as capital gains. These ETFs are very tax efficient. I'd imagine even with the expense ratio it's hard to do better on your own with a margin account.

The margin approach does let you reduce volatility decay somewhat, so there's arguably a small win there so long as monthly returns remain less volatile than daily returns (that's only been the case in the past 20-30 years).
Futures will get you very close to cashx. Commercial banks treat the basis trade (selling sp500 future and buying sp500) very much like a risk free repo.
Right I was thinking with the recent PSLDX drop in expense ratio, that it's kinda crazy we're paying 1% + borrowing costs for UPRO/TMF.

If there's no margin call possibility, futures + box spreads should be 1-2% improvement for 6 figure+ accts.
Good info, didn't know the ER dropped
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cflannagan
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

Ramjet wrote: Thu Sep 16, 2021 3:03 pm Good info, didn't know the ER dropped
I didn't either. If I'm looking in the right place, it's 0.61% now? Compared to 1.02% ER in the past?

I have a decent portion of my NW in PSLDX, this is good news. When did it drop? I remember looking at PSLDX not too long ago (July maybe?) and seeing 1.02%.

Edit: Did some research. Looks like the ER drop occurred around August 18th - mentioned in this article https://www.optimizedportfolio.com/psldx/
occambogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by occambogle »

Nice re: PSLDX Expense ratio… I sure wish they offered it in an ETF.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

cflannagan wrote: Thu Sep 16, 2021 3:41 pm
Ramjet wrote: Thu Sep 16, 2021 3:03 pm Good info, didn't know the ER dropped
I didn't either. If I'm looking in the right place, it's 0.61% now? Compared to 1.02% ER in the past?

I have a decent portion of my NW in PSLDX, this is good news. When did it drop? I remember looking at PSLDX not too long ago (July maybe?) and seeing 1.02%.

Edit: Did some research. Looks like the ER drop occurred around August 18th - mentioned in this article https://www.optimizedportfolio.com/psldx/
Thanks for finding it. We noticed it in the 100% PSLDX thread but didn't do the research on when. :beer
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

That negative correlation between stocks and treasuries working wonders today. Love to see it!
Snerks
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Snerks »

cflannagan wrote: Wed Sep 15, 2021 7:03 am
Snerks wrote: Tue Sep 14, 2021 7:24 pm I am running a small HFEA experiment in taxable in order to understand it better.

I started with UPRO/TMF 55/45 several weeks ago.

As of today UPRO is -5.15% and TMF is +6.17%

UPRO now comprises 52.2% and TMF comprises 47.8%

I understand it is too soon to rebalance (I should rebalance quarterly, but haven't seen any suggestions for when exactly, other than first trading days of Jan, Apr, Jul, and Oct--are there any?)
There's no "right" answer but yes, first trading day in those months are often mentioned. That is what my rebalancing strategy is.

I also started small HFEA positions in taxable (and much bigger ones in my HSA at Fidelity).

In tax-advantaged accounts, I'll be straight up rebalancing (selling overperforming asset, into underperforming). But for taxable, my plan is to add new money only into the underperforming asset. Do this for 1st year at least, so if my taxable HFEA positions grow big enough where I don't have enough new money to add into underperforming asset, I'll just sell the underperforming asset, which should be long-term at this point (will be using tax lots to select right shares). M1 Finance should be doing this automatically for me I believe (I will double check on this).
Snerks wrote: Tue Sep 14, 2021 7:24 pm I understand SPXL can be used to replace UPRO when tax loss harvesting.
Yes, SPXL tracks pretty closely to UPRO as far as I can tell.
Snerks wrote: Tue Sep 14, 2021 7:24 pm Is now a good time to tax loss harvest my UPRO? If so, should I sell it all and replace SPXL with the proceeds? If not, what should I wait for or how long should I wait to do so?

Many thanks!
Can't think of reasons not to, other than as long as you're okay with being stuck with SPXL instead of UPRO if your driver ETF (SPXL) becomes positive from that point forward, but as mentioned, UPRO and SPXL seems to track each other very well when I looked at history. Also, SPXL have slightly higher expense ratio compares to UPRO (+0.07% I think?)
Thank you for the confirmation! I ended up TLH my beaten down UPRO today.
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cflannagan
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

Snerks wrote: Mon Sep 20, 2021 3:19 pm Thank you for the confirmation! I ended up TLH my beaten down UPRO today.
Good call. Just checked my UPRO position, it's still ahead of what I bought it at (on July 1st). So I'll just hold :) Glad TMF is showing up today!
chrisdds98
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by chrisdds98 »

Looks like we might be getting some debt ceiling drama. I never paid attention before but I think the last time this happened treasuries went up (paradoxically) and equities stumbled. Would you guys expect that to happen again or would bitcoin or something else be a flight to safety this time?
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cflannagan
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

chrisdds98 wrote: Tue Sep 21, 2021 2:53 pm Looks like we might be getting some debt ceiling drama. I never paid attention before but I think the last time this happened treasuries went up (paradoxically) and equities stumbled. Would you guys expect that to happen again or would bitcoin or something else be a flight to safety this time?
Not the first time we have had debt ceiling drama. I write that off as "noise" as usual.
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Bentonkb
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Bentonkb »

chrisdds98 wrote: Tue Sep 21, 2021 2:53 pm Looks like we might be getting some debt ceiling drama. I never paid attention before but I think the last time this happened treasuries went up (paradoxically) and equities stumbled. Would you guys expect that to happen again or would bitcoin or something else be a flight to safety this time?
It will be a long time before Bitcoin is considered a safe asset. I expect it will always be volatile, just like gold.
kim.gold
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by kim.gold »

TMF 10% down in two days. Ouch!
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drumboy256
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by drumboy256 »

kim.gold wrote: Fri Sep 24, 2021 5:39 pm TMF 10% down in two days. Ouch!
Yes and?
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson | 20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
SuperVitalos
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by SuperVitalos »

jarjarM wrote: Tue Jul 21, 2020 7:46 pm Just food for thought, I decided to simulate several of strategies via python as a pet project described in the threads:

.........................cagr (%)......sharpe........max_drawdown (%, based on daily)
SP500x3 Baseline.......28.3.........0.7...............-76.8
60/40 Portfolio.........31.4.........0.9...............-61.6
VolatilityPortfolio......33.5.........1.3...............-43.3
MomentumPortfolio....30.7.........1.3...............-45.9
AdaptiveAssetAll........34.5.........1.3...............-43.4


Image

Note: Volatility is measured using 22 days, momentum is measured using 6 months and adaptive asset allocation is based on minimal variance from the link below.

https://www.investresolve.com/inc/uploa ... epaper.pdf
Hi! What libraries were used ? Please share your experience, thanks
Сode of this backtest publicly available?
am
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by am »

kim.gold wrote: Fri Sep 24, 2021 5:39 pm TMF 10% down in two days. Ouch!
Thought tmf was the insurance policy? Not working today much
RealHornblower
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RealHornblower »

am wrote: Tue Sep 28, 2021 9:37 am
kim.gold wrote: Fri Sep 24, 2021 5:39 pm TMF 10% down in two days. Ouch!
Thought tmf was the insurance policy? Not working today much
For the month of September, UPRO has declined from $132.35 to around $119.30 as I write this.
TMF has declined from $29.05 to $26.20 as I write this.
Both portions of the portfolio have dropped around 10% over the course of the month. And this isn't during a massive market crash, the S&P 500 has not even had a 10% correction, it's only a few % below the highs. Not enough to make me nervous but it is interesting.
kbourgu
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by kbourgu »

This is pretty painful TMF has not really done any good this year.
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tomphilly
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

I re-balance on Friday. I'm running UPRO/TQQQ/TMF/VIXY 55/15/25/5. When VIXY shines (which is rare) it really shines - like today. Still, as of today, about 3 months of gains have been wiped out for me.
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

Y'all forgetting HFEA ~-65% max drawdown? TMF didn't do much last March. It's going to help sometimes, but the entire market's also just going to be down sometimes. This is hardly a "crash" that would trigger an "insurance policy." Negative/neutral correlation helps, but nothing is guaranteed.

I'm down maybe $50k or so in the last week across my portfolio, I'm not fretting. This is far from a riskless strategy.
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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by privatefarmer »

DMoogle wrote: Tue Sep 28, 2021 10:26 am Y'all forgetting HFEA ~-65% max drawdown? TMF didn't do much last March. It's going to help sometimes, but the entire market's also just going to be down sometimes. This is hardly a "crash" that would trigger an "insurance policy." Negative/neutral correlation helps, but nothing is guaranteed.

I'm down maybe $50k or so in the last week across my portfolio, I'm not fretting. This is far from a riskless strategy.
Exactly. If people want a portfolio that won’t fall at ALL then put it all in cash. You cannot have great returns without some serious drawdowns, regardless of how diversified you are. TMF is there to prevent total wipeout by UPRO, that’s it. And maybe some long term growth.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by wfrobinette »

DMoogle wrote: Tue Sep 28, 2021 10:26 am Y'all forgetting HFEA ~-65% max drawdown? TMF didn't do much last March. It's going to help sometimes, but the entire market's also just going to be down sometimes. This is hardly a "crash" that would trigger an "insurance policy." Negative/neutral correlation helps, but nothing is guaranteed.

I'm down maybe $50k or so in the last week across my portfolio, I'm not fretting. This is far from a riskless strategy.
Been a couple of brutal days here.
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cflannagan
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

tomphilly wrote: Tue Sep 28, 2021 10:08 am I re-balance on Friday. I'm running UPRO/TQQQ/TMF/VIXY 55/15/25/5. When VIXY shines (which is rare) it really shines - like today. Still, as of today, about 3 months of gains have been wiped out for me.
I'm always on the lookout for any potential hedge candidates (but doubt I'll do anything other than stick with default UPRO/TMF positions here) but to me, it looks like VIXY, even if it shines today, doesn't seem like a good hedge candidate? I thought the idea was to have assets have low (or negative) correlation to each other, but in general, over longer period of time, have some expected returns (so moving up)?

Here, it appears VIXY would be a drag (worse than holding cash) on 5% of your portfolio over time?

https://www.portfoliovisualizer.com/bac ... ion1_1=100
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ChinchillaWhiplash »

SPXS, SQQQ, TMV :twisted:
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

cflannagan wrote: Tue Sep 28, 2021 12:00 pm
tomphilly wrote: Tue Sep 28, 2021 10:08 am I re-balance on Friday. I'm running UPRO/TQQQ/TMF/VIXY 55/15/25/5. When VIXY shines (which is rare) it really shines - like today. Still, as of today, about 3 months of gains have been wiped out for me.
I'm always on the lookout for any potential hedge candidates (but doubt I'll do anything other than stick with default UPRO/TMF positions here) but to me, it looks like VIXY, even if it shines today, doesn't seem like a good hedge candidate? I thought the idea was to have assets have low (or negative) correlation to each other, but in general, over longer period of time, have some expected returns (so moving up)?

Here, it appears VIXY would be a drag (worse than holding cash) on 5% of your portfolio over time?

https://www.portfoliovisualizer.com/bac ... ion1_1=100
I'm not tomphilly and I don't keep VIXY, but while yes, it's ideal to have assets that are both negatively correlated and have positive expected return, there can be a case for assets with negative expected return as well - IF the risk it mitigates is substantial enough and the negative return isn't too negative.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by garlandwhizzer »

Leverage works both ways, up and down. There is no strategy which seeks outperformance that does not carry the risk of underperformance. On average over long periods of time the market tends more up than down, so for those who hold on and don't abandon leverage at the worst time it, it works. Tolerating increased volatility is the price the market demands for outsized returns. On the other hand, we've had until now 12 years of a roaring bull market (2009 - 2021) with only a brief pause for the Covid bear. Leverage with the S&P 500 and Treasuries was a big time winner, two asset classes that did fabulously well in risk adjusted terms during that period. Markets however do not follow the same course forever. Past winners tend to become losers in sufficient time just as past losers tend to become winners. It's all a matter of timing and no no does it flawlessly.

For most of us, market volatility without leverage is sufficiently challenging in the risk/return tradeoff that we avoid leverage. My expectation, which is only a guess, is that the rewards of leverage in these two asset classes, LCB dominated by LCG and Treasuries, will experience going forward more of the risk side of its bets and less of the reward side than in the past. Those who hold on will probably do well long term but it is unlikely to be the same uninterrupted high return/low risk fun ride to wealth that it has been in the past couple of decades.

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dc93
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by dc93 »

TLH'ed ~$1000 loss on UPRO in my taxable today... Switched to SPXL for now.
MatthewLM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by MatthewLM »

The markets are hardly down at all. If people are worried now, they perhaps shouldn't be doing this strategy in the first place.
constructor
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by constructor »

Worst single days for HFEA since March 2020:

2020-06-11 -7.1%
2020-02-27 -6.1%
2021-02-25 -6.0%
2020-10-28 -5.6%
2020-04-01 -5.5%
2021-09-28 -5.5% (Today)
lkar
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by lkar »

OUCH! These double dip drop days are no fun.
keith6014
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by keith6014 »

constructor wrote: Tue Sep 28, 2021 3:15 pm Worst single days for HFEA since March 2020:

2020-06-11 -7.1%
2020-02-27 -6.1%
2021-02-25 -6.0%
2020-10-28 -5.6%
2020-04-01 -5.5%
2021-09-28 -5.5% (Today)
Need few more of these days, hopefully continiously. :mrgreen:
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by keith6014 »

Does anyone have an opinion for TYA(https://www.simplify.us/etfs/tya-simpli ... easury-etf). Its expense ratio is lower (.15bps). It uses 10year future(TY) with quarterly rebalance.

Once it goes online, I am thinking it as a replacement for TMF and some cash.
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coingaroo
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by coingaroo »

keith6014 wrote: Tue Sep 28, 2021 8:01 pm Does anyone have an opinion for TYA(https://www.simplify.us/etfs/tya-simpli ... easury-etf). Its expense ratio is lower (.15bps). It uses 10year future(TY) with quarterly rebalance.

Once it goes online, I am thinking it as a replacement for TMF and some cash.
This looks like an ETF designed specifically for hedgefundie strategies, heh.

Seems like you ultimately get 3.3x exposure to intermediate duration treasuries, at a 0.15% ER. Historically, intermediate duration treasuries have done much better than longer durations in terms of sharpe ratios -- probably due to many investors being constrained in the use of leverage, and hence portfolio managers over-allocate to long duration bonds to get more duration exposure.

31.5 year duration exposure, which is about half as much as TMF (~55 years); but the significantly lower ER definitely helps make it more compelling.

Going to wait to see how it actually performs but very interesting.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

What are the advantages and the disadvantages of leveraged ETFs compared to futures?

My understanding is that futures provide great leverage at low cost but a) can only be bought in large chunks and b) generate a lot of taxable events. However, in the long run, the Treasury part is expected to lose money, so why not use futures for that?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

Hfearless wrote: Wed Sep 29, 2021 4:13 am What are the advantages and the disadvantages of leveraged ETFs compared to futures?
Most investors find ETFs easier to understand, buy, and sell. But I have often seen mentions that one can get better value with futures, but it's a bit more hands-on than going with ETFs. I could be wrong.
Hfearless wrote: Wed Sep 29, 2021 4:13 am However, in the long run, the Treasury part is expected to lose money
Is that so? That's not my understanding at all.

https://www.portfoliovisualizer.com/bac ... ion3_3=100
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by stormcrow »

keith6014 wrote: Tue Sep 28, 2021 8:01 pm Does anyone have an opinion for TYA(https://www.simplify.us/etfs/tya-simpli ... easury-etf). Its expense ratio is lower (.15bps). It uses 10year future(TY) with quarterly rebalance.

Once it goes online, I am thinking it as a replacement for TMF and some cash.
There are (a very) few of us that actually have some portion of the bond part in TYD. This new etf looks promising is for no other reason than the expense ratio. Will have to look into it a little more.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

cflannagan wrote: Tue Sep 28, 2021 12:00 pm
tomphilly wrote: Tue Sep 28, 2021 10:08 am I re-balance on Friday. I'm running UPRO/TQQQ/TMF/VIXY 55/15/25/5. When VIXY shines (which is rare) it really shines - like today. Still, as of today, about 3 months of gains have been wiped out for me.
I'm always on the lookout for any potential hedge candidates (but doubt I'll do anything other than stick with default UPRO/TMF positions here) but to me, it looks like VIXY, even if it shines today, doesn't seem like a good hedge candidate? I thought the idea was to have assets have low (or negative) correlation to each other, but in general, over longer period of time, have some expected returns (so moving up)?

Here, it appears VIXY would be a drag (worse than holding cash) on 5% of your portfolio over time?

https://www.portfoliovisualizer.com/bac ... ion1_1=100
Yeh, VIXY alone is a slow death, but part of a package, you can see here that UPRO/TMF/VIXY 70/25/5 has virtually identical results to UPRO/TMF 60/40 in a backtest to 2012.

As I understand it, VIXY has the effect of de-leveraging UPRO - dampening the higher ratio UPRO (70%) return on its green days, and being a very reliable hedge on its red days. It behaves quite predictably. In contrast, TMF's behaves less predictably - it can move with UPRO on red days. So despite VIXY's negative return, the end result is similar, at least back to 2012. I moved to this from UPRO/TMF because thinking about TMF's future gives me a headache.

If you don't like seeing any component of a strategy yielding a negative return, you could try UPRO/TMF/VIRT 60/20/20 - but it's a bit experimental.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by adamhg »

coingaroo wrote: Wed Sep 29, 2021 2:13 am
keith6014 wrote: Tue Sep 28, 2021 8:01 pm Does anyone have an opinion for TYA(https://www.simplify.us/etfs/tya-simpli ... easury-etf). Its expense ratio is lower (.15bps). It uses 10year future(TY) with quarterly rebalance.

Once it goes online, I am thinking it as a replacement for TMF and some cash.
This looks like an ETF designed specifically for hedgefundie strategies, heh.

Seems like you ultimately get 3.3x exposure to intermediate duration treasuries, at a 0.15% ER. Historically, intermediate duration treasuries have done much better than longer durations in terms of sharpe ratios -- probably due to many investors being constrained in the use of leverage, and hence portfolio managers over-allocate to long duration bonds to get more duration exposure.

31.5 year duration exposure, which is about half as much as TMF (~55 years); but the significantly lower ER definitely helps make it more compelling.

Going to wait to see how it actually performs but very interesting.
Agreed. I was planning on moving to 108/294 using box spreads, so this would almost fit my need perfectly except that I can't figure out their effective (or even target since it's so new) duration. The fact sheet seems to indicate they're only buying 10yr treasury futures whereas my allocation was based off fvitx which has an effective duration of 5.30 years
investor.was.here
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by investor.was.here »

keith6014 wrote: Tue Sep 28, 2021 8:01 pm Does anyone have an opinion for TYA(https://www.simplify.us/etfs/tya-simpli ... easury-etf). Its expense ratio is lower (.15bps). It uses 10year future(TY) with quarterly rebalance.

Once it goes online, I am thinking it as a replacement for TMF and some cash.
I'm a fan of Simplify products in general, though I don't currently own any. I'd been following SPD as a replacement for my balanced fund, to get near-equity returns with balanced fund drawdowns. I see now there's CYA, enabling purchase of protection separate from assets. That's better since it enables you to hold your equity portion for a better cost basis, if switching to upside convexity during a drawdown. Granted, this is market timing and not really my style and I know many here have reservations about using options as a hedge.

With both products, I'm trying to figure out how to use them. What's the effective leverage of TYA? It's not a direct substitute for TMF unless there's the same effective leverage and tracking ITT isn't a great start at that.

Another option to consider, doing a all-weather portfolio but replacing gold with an options overlay. Both provide downside protection but the options overlay is more reliable. I guess it doesn't benefit from high inflation.
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dc93
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by dc93 »

coingaroo wrote: Wed Sep 29, 2021 2:13 am
keith6014 wrote: Tue Sep 28, 2021 8:01 pm Does anyone have an opinion for TYA(https://www.simplify.us/etfs/tya-simpli ... easury-etf). Its expense ratio is lower (.15bps). It uses 10year future(TY) with quarterly rebalance.

Once it goes online, I am thinking it as a replacement for TMF and some cash.
This looks like an ETF designed specifically for hedgefundie strategies, heh.

Seems like you ultimately get 3.3x exposure to intermediate duration treasuries, at a 0.15% ER. Historically, intermediate duration treasuries have done much better than longer durations in terms of sharpe ratios -- probably due to many investors being constrained in the use of leverage, and hence portfolio managers over-allocate to long duration bonds to get more duration exposure.

31.5 year duration exposure, which is about half as much as TMF (~55 years); but the significantly lower ER definitely helps make it more compelling.

Going to wait to see how it actually performs but very interesting.
From my reading (please correct me if I am wrong)
TYA has ~31.5 years average duration (280% * 10 + 50%*7), leveraged, quarterly rebalancing, 0.15% ER
EDV has ~24.7 years, unleveraged, 0.07% ER
TMF has ~57.6 years (about 300% * 19.2), leveraged, daily rebalancing, 1.06% ER
TYD has ~24 years (about 300% * 8), leveraged, daily rebalancing, 1.09% ER

So if I am understanding correctly, TYA is somewhere between EDV and TMF - so the TYA version of HFEA allocation should be in between 55/45 (UPRO/TMF) and 43/57 (UPRO/EDV), perhaps roughly 50/50? What's the best way to backtest this?
breeze
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by breeze »

- Long time lurker -

Since the forum is on the topic of Simplify ETFs, has anyone considered a small allocation to PFIX as an inflation hedge?

PFIX holds a portion of their fund in ITTs and the rest in 7-year OTC OTM swaptions linked to the 20-year treasury interest rates. Since these options are so far out, decay is slow if interest rates don't move. The swaps aren't ITM until the 20-year treasury interest exceeds 3.5%. This ETF hasn't been out for very long so it doesn't have a proven track record and the long-term drag under flat or falling interest rates hasn't been established but it seems to address one of the main concerns with HFEA in a highly leveraged way.

Maybe worth a look? I am currently transitioning one of my accounts into something HFEA-like and am considering this as a component (something like 25% UMDD/ 25% TQQQ/ 45% TMF/ 5% PFIX).
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

dc93 wrote: Wed Sep 29, 2021 12:02 pm
From my reading (please correct me if I am wrong)
TYA has ~31.5 years average duration (280% * 10 + 50%*7), leveraged, quarterly rebalancing, 0.15% ER
EDV has ~24.7 years, unleveraged, 0.07% ER
TMF has ~57.6 years (about 300% * 19.2), leveraged, daily rebalancing, 1.06% ER
TYD has ~24 years (about 300% * 8), leveraged, daily rebalancing, 1.09% ER

So if I am understanding correctly, TYA is somewhere between EDV and TMF - so the TYA version of HFEA allocation should be in between 55/45 (UPRO/TMF) and 43/57 (UPRO/EDV), perhaps roughly 50/50? What's the best way to backtest this?
I believe the 10 yr treasury future has a duration of 7 years. So TYA has 280*7+50*7 = 23.1 years of duration, similar to TYD but with lower fees.

If someone were comfortable with the management of the ETF, I think 45/55 UPRO/TYA or 50/50 UPRO/TYA would be an excellent allocation with less risk but similar return to HFEA. Lower fees than HFEA, and more return from roll&carry on TYA than TMF. I'd still prefer to use futures to cut out the fees on UPRO, but this makes the decision a lot closer.
Last edited by skierincolorado on Wed Sep 29, 2021 6:32 pm, edited 1 time in total.
constructor
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by constructor »

skierincolorado wrote: Wed Sep 29, 2021 12:57 pm
dc93 wrote: Wed Sep 29, 2021 12:02 pm
From my reading (please correct me if I am wrong)
TYA has ~31.5 years average duration (280% * 10 + 50%*7), leveraged, quarterly rebalancing, 0.15% ER
EDV has ~24.7 years, unleveraged, 0.07% ER
TMF has ~57.6 years (about 300% * 19.2), leveraged, daily rebalancing, 1.06% ER
TYD has ~24 years (about 300% * 8), leveraged, daily rebalancing, 1.09% ER

So if I am understanding correctly, TYA is somewhere between EDV and TMF - so the TYA version of HFEA allocation should be in between 55/45 (UPRO/TMF) and 43/57 (UPRO/EDV), perhaps roughly 50/50? What's the best way to backtest this?
I believe the 10 yr treasury future has a duration of 7 years. So TYA has 280*7+50*7 = 23.1 years of duration, similar to TYD but with lower fees.

If someone were comfortable with the management of the ETF, I think 45/55 UPRO/TYA or 50/50 UPRO/TYA would be an excellent allocation with less risk but similar return to HFEA. Lower fees than HFEA, and more return from roll&carry on TYA than TMF. I'd still prefer to use futures to cut out the fees on UPRO, but this makes the decision a lot closer.
Just to be a bit more precise: The duration of ZN is 6.3 years. The duration of 1% 07/31/28 is about 6.6 years. This creates 21 years of duration.
The Simplify Risk Parity Treasury ETF seeks to target the duration of the ICE 20+ Year US Treasury Index by investing in Treasuries and Treasury futures in the intermediate portion of the curve.
Z33
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Z33 »

Glad you guys found simplify products. A new but interesting provider.

I am invested in PFIX as insurance for mega move in LT rates. But down MTM at the moment but I consider it as my portfolio insurance so I just leave it alone mostly.

Still running HEFA, rebalancing not due till end October (quarterly). My HEFA is still up a bit but Sept has wiped out most of the gains since I started. TMF suffered as yields went back over 2% handle (as did the 10s above 1.5%).

Going to keep running it till year end to re-assess if it still makes sense in our current market.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hainleyd »

Does anyone have a link to the discussion page about rebalancing dates and frequencies? Thanks
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

Hainleyd wrote: Thu Sep 30, 2021 1:26 pm Does anyone have a link to the discussion page about rebalancing dates and frequencies? Thanks
Hedgefundie himself rebalances quarterly. The standard many (if not most) HFEA followers (including myself) also use quarterly rebalancing.

I could not find exactly what "rebalancing dates" Hedgeundie himself uses (maybe someone else knows) but I trade on first trading day in January, April, July, and October.

I think you might want to do a bit of reading starting from the beginning. Don't necessarily have to read every post, but try to skim through and pause on anything that catch your eyes. Go to the 1st post fo this thread, there will be links there that takes you to Part 1 of Hedgefundie's Excellent Adventure.
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hillclimber
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hillclimber »

Hainleyd wrote: Thu Sep 30, 2021 1:26 pm Does anyone have a link to the discussion page about rebalancing dates and frequencies? Thanks
A quarter of this thread is discussing rebalancing. It's something that comes up off and on, so I wouldn't say there is a specific page it comes up on. You could search for "rebalance" and get a decent idea, if you want to use the thread search bar. People tried out monthly, quarterly, and yearly, and quarterly worked best. Some think that monthly rebalancing is too aggressive while yearly is too lax.
000
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

Not in the "excellent adventure", but why not use rebalancing bands to try to capture more of the volatility?
constructor
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by constructor »

000 wrote: Thu Sep 30, 2021 9:38 pm Not in the "excellent adventure", but why not use rebalancing bands to try to capture more of the volatility?
I think if you believe in efficient market hypothesis the only reason not to balance frequently is friction. Quarterly is just for convenience.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

Since Hedgefundie is no longer around to post his quarterly updates, I thought for fun, I would take a stab at it to see where his portfolio would be at

The methodology I used in Portfolio Visualizer is as follows:
Start date: Feb 2019, i.e., when the original thread was created
Initial Allocation: 40% UPRO/60% TMF through July 2019
Updated Allocation: 55% URPO/45% TMF beginning Aug 2019, i.e., when HFEA Part 2 was established


Results
Initial Balance: $100,000
Current Balance: $291,139 (reached as high as $330,000 in August 2021)
CAGR: 45% (since 55/45 update)

If I remember, I may keep posting this every quarter, next time with pictures, etc.
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