HEDGEFUNDIE's excellent adventure Part II: The next journey

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

Post by taojaxx »

privatefarmer wrote: Sun May 09, 2021 9:25 am
Tonygis wrote: Fri May 07, 2021 4:28 pm I started this excellent adventure in March of 2019..well as of today I have tripled my original investment. Thanks to Hedgefunie-if he is still out there- and to all that have contributed.
Started same time as you and have had similar result. I’ve been using adaptive allocation / timing model however via PV and utilizing other LETFs like emerging markets / REITS / small cap
Interesting. Can you elaborate on how you used those LETFs? Complements or substitutes? For UPRO or TMF?
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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by privatefarmer »

I use TQQQ in place of UPRO. And then EDC/URTY//DRN for em markets / small cap / REITS. I use the adaptive allocation / minimum variance model with a 3-month look back and hold 3 assets at a time, rebalanced monthly. Doing this, with the unleveraged counterparts, back tests to 1999 and then LETFs version have tracked very nicely since inception.
taojaxx
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by taojaxx »

privatefarmer wrote: Sun May 09, 2021 10:57 am I use TQQQ in place of UPRO. And then EDC/URTY//DRN for em markets / small cap / REITS. I use the adaptive allocation / minimum variance model with a 3-month look back and hold 3 assets at a time, rebalanced monthly. Doing this, with the unleveraged counterparts, back tests to 1999 and then LETFs version have tracked very nicely since inception.
What about TMF?
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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by privatefarmer »

Yeah I use TMF as well. I’m also waiting on more data from GDXU (gold miners LETF) in hopes of adding that maybe next year. It’s too new to tell if it accurately tracks GDX. But, any way you spin it, I’ve found that using some form of risk parity with as many diversified asset classes as you can, and then applying the proper amount of leverage, is a fantastic way to invest. Dynamic asset allocation, using momentum and rebalancing monthly/quarterly etc also seems to have helped past returns/reduce max drawdowns.
rchmx1
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rchmx1 »

privatefarmer wrote: Sun May 09, 2021 9:25 am
Tonygis wrote: Fri May 07, 2021 4:28 pm I started this excellent adventure in March of 2019..well as of today I have tripled my original investment. Thanks to Hedgefunie-if he is still out there- and to all that have contributed.
Started same time as you and have had similar result. I’ve been using adaptive allocation / timing model however via PV and utilizing other LETFs like emerging markets / REITS / small cap
Have you been using this AA the whole time? Also, what experience have you had with head fakes from your timing model?
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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by privatefarmer »

No I’ve adjusted my strategy as I did more research and found other assets that seemed to add diversification. It’s worked very well for me so far, I did get screwed over in 2020 during the market crash bc I had too much margin leverage and got a margin call. But that’s my fault not the strategy’s. I have noticed that then portfolio is a LOT more volatile that PV seems to insinuate bc PV only gives monthly data not daily. So if PV says the max drawdown would’ve only been say 40%, I wouldn’t bet on that I plan on a 70-75% max DD at some point. But I’m in this with every penny i got, to me it’s an excellent alternative to being 100% equities. I do worry about the timing model taking me out of an asset that’s about ready to take off and jnto something that’s about ready to fall apart. And i know that at times it will. But, over the last 20+ years, it would’ve done a remarkable job at avoiding some of the worst drawdowns and thus dramatically increasing the CAGR. And I’ve also found that using minimum variance seems to create a portfolio that is less volatile and one that LETFs do a much better job at tracking w/o significant volatility decay
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

This is almost the same strategy I've finally fixed on. I'm going with a risk-budget flavor of minimum variance, using UPRO/TQQQ/UTSL/DRN/TMF (holding all instead of switching out). I'm tempted to drop UPRO and perhaps UTSL, backtesting results are almost identical, but I don't want too much recency bias.

I'm setting the risk budget for equities to 2/3 and TMF to 1/3, spread evenly between UPRO/TQQQ/UTSL/DRN. In effect, UPRO+TQQQ gets 1/3, UTSL+DRN gets 1/3, and TMF gets 1/3. This sounds like just about the same weighting you are using, except switching to keep one fund per risk bracket.
Ramjet
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

Hydromod wrote: Mon May 10, 2021 10:02 am This is almost the same strategy I've finally fixed on. I'm going with a risk-budget flavor of minimum variance, using UPRO/TQQQ/UTSL/DRN/TMF (holding all instead of switching out). I'm tempted to drop UPRO and perhaps UTSL, backtesting results are almost identical, but I don't want too much recency bias.

I'm setting the risk budget for equities to 2/3 and TMF to 1/3, spread evenly between UPRO/TQQQ/UTSL/DRN. In effect, UPRO+TQQQ gets 1/3, UTSL+DRN gets 1/3, and TMF gets 1/3. This sounds like just about the same weighting you are using, except switching to keep one fund per risk bracket.
Are you also doing this with your entire portfolio?
lazyinvestor30
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by lazyinvestor30 »

I am about to jump on this adventure and have a couple questions on where best to do this. I plan to do this with about 20k, which is about 10% of my current portfolio. But I DO NOT plan to add to this anymore. I already max out all tax advantaged spaces and expect that this portfolio is continue to remain at 10% or below in the future.

I currently have 2 places where I could potentially do this.

1. HSA - I am rolling over an HSA to fidelity in the next couple months and will have 20k in that.
2. Roth IRA - I currently have about 12k (2020 and 2021) contributions. Then I can potentially add another 6k early next year. Then I will not plan to add any more to this Roth. I plan to open another Roth for 2023 onwards.

Also I am in my early 30's and do not plan to withdraw from the HSA and Roth in the next 20 years. I am planning to let this ride.

Questions
1. Do people have a preference of where this should be done?
2. Also I can open 2 different Roth IRA in fidelity, if I choose strategy 2?
Ramjet
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

lazyinvestor30 wrote: Mon May 10, 2021 10:34 am I am about to jump on this adventure and have a couple questions on where best to do this. I plan to do this with about 20k, which is about 10% of my current portfolio. But I DO NOT plan to add to this anymore. I already max out all tax advantaged spaces and expect that this portfolio is continue to remain at 10% or below in the future.

I currently have 2 places where I could potentially do this.

1. HSA - I am rolling over an HSA to fidelity in the next couple months and will have 20k in that.
2. Roth IRA - I currently have about 12k (2020 and 2021) contributions. Then I can potentially add another 6k early next year. Then I will not plan to add any more to this Roth. I plan to open another Roth for 2023 onwards.

Also I am in my early 30's and do not plan to withdraw from the HSA and Roth in the next 20 years. I am planning to let this ride.

Questions
1. Do people have a preference of where this should be done?
2. Also I can open 2 different Roth IRA in fidelity, if I choose strategy 2?
1.) ROTH
2.) Not sure, but many are using M1 Finance due to one button rebalance
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

lazyinvestor30 wrote: Mon May 10, 2021 10:34 amQuestions
1. Do people have a preference of where this should be done?
2. Also I can open 2 different Roth IRA in fidelity, if I choose strategy 2?
Roth would be preference due to better flexibility in withdraws and earlier "retirement" age. You should still max out your HSA otherwise though.

What would be the purpose behind having two separate Roth accounts?
lazyinvestor30
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by lazyinvestor30 »

DMoogle wrote: Mon May 10, 2021 10:51 am
lazyinvestor30 wrote: Mon May 10, 2021 10:34 amQuestions
1. Do people have a preference of where this should be done?
2. Also I can open 2 different Roth IRA in fidelity, if I choose strategy 2?
Roth would be preference due to better flexibility in withdraws and earlier "retirement" age. You should still max out your HSA otherwise though.

What would be the purpose behind having two separate Roth accounts?
I won't have the opportunity to contribute to HSA anymore due to a change in health care plan.

The reason is that, I don't want to HEFA portfolio to have additional contributions. So I want a create 1 bucket for HFEA with about $20k (with about 3 years of Roth contributions) then going forward all future Roth contributions, 2023 onwards will be invested according to standard boglehead philosophy.
Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

Ramjet wrote: Mon May 10, 2021 10:26 am
Hydromod wrote: Mon May 10, 2021 10:02 am This is almost the same strategy I've finally fixed on. I'm going with a risk-budget flavor of minimum variance, using UPRO/TQQQ/UTSL/DRN/TMF (holding all instead of switching out). I'm tempted to drop UPRO and perhaps UTSL, backtesting results are almost identical, but I don't want too much recency bias.

I'm setting the risk budget for equities to 2/3 and TMF to 1/3, spread evenly between UPRO/TQQQ/UTSL/DRN. In effect, UPRO+TQQQ gets 1/3, UTSL+DRN gets 1/3, and TMF gets 1/3. This sounds like just about the same weighting you are using, except switching to keep one fund per risk bracket.
Are you also doing this with your entire portfolio?
Only the 5% in my Roth IRA. I can't do it in my 403(b). I'm seriously considering rolling a significant fraction over as a long-term play if I leave my employment, though. I've become pretty convinced that a minimum variance strategy is a reasonable approach overall for tax-protected portfolios, as long as we're not in an environment with long-term rising rates.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by seajay »

Wow. Great thread from what small amounts I've read so far (including some of prior thread). Striking to me is how some overlay the 2x or 3x onto the 1x to highlight the volatility and how it broadly 'at best sums to no different a reward outcome', 2x, 3x ... just scales the volatility not the rewards type highlight. I've held LETF's on a buy and hold (periodically rebalanced) basis for years to good effect. But rather from a different angle, de-leveraged. Very much felt like a outcast for using such as mention holding LETF's IME tends to result in flames.

Stocks borrow (issue corporate bonds/whatever), broadly to 50% of book value levels, so in effect are 1.5x leveraged. Some investors opt to deleverage that by opting to hold 67/33 stock/bonds, and might see 100% stock zigzag around that in a similar (but less volatile) manner to how 2x zigzags around 1x. In the one hand they might say that LETF's are madness, whilst in the other hand saying that 100% stock, 1.5x leverage, is fine!
:oops:

67/33 stock/bond is fine with me, but I hold that via a 33% 2x, 67% treasury bonds like asset allocation, yearly rebalanced. I simply prefer the lower counter party risk that way. 22/78 3x stock/Treasury would be even nicer IMO, but I've been hesitant to make such a transition given limited history. I wasn't aware of ULPIX 2x or its dating back to 1998 and dropping that into portfoliovisualizer backtest and the S&P500 has clearly zigzagged around that much like how a 2x zigzags around the 1x. And I've just found/downloaded the backtest spreadsheet with synthetic 3x data back to the 1950's :D Previously I'd used a simple estimate of T-Bill + 2% as the cost of leverage (3x stock total return - 0.66 x T-Bill + 2%) which indicated that historically it might have been OK to rotate into using 3x. Nice having independent/separate data equally indicating such :)

Thanks to all.
taojaxx
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by taojaxx »

Hydromod wrote: Mon May 10, 2021 11:34 am
Ramjet wrote: Mon May 10, 2021 10:26 am
Hydromod wrote: Mon May 10, 2021 10:02 am This is almost the same strategy I've finally fixed on. I'm going with a risk-budget flavor of minimum variance, using UPRO/TQQQ/UTSL/DRN/TMF (holding all instead of switching out). I'm tempted to drop UPRO and perhaps UTSL, backtesting results are almost identical, but I don't want too much recency bias.

I'm setting the risk budget for equities to 2/3 and TMF to 1/3, spread evenly between UPRO/TQQQ/UTSL/DRN. In effect, UPRO+TQQQ gets 1/3, UTSL+DRN gets 1/3, and TMF gets 1/3. This sounds like just about the same weighting you are using, except switching to keep one fund per risk bracket.
Are you also doing this with your entire portfolio?
Only the 5% in my Roth IRA. I can't do it in my 403(b). I'm seriously considering rolling a significant fraction over as a long-term play if I leave my employment, though. I've become pretty convinced that a minimum variance strategy is a reasonable approach overall for tax-protected portfolios, as long as we're not in an environment with long-term rising rates.
I totally understand the intellectual appeal of the min variance approach but checking the performance of min variance ETFs makes me very wary. See USMV for instance, particularly its performance in March 2020.
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Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

taojaxx wrote: Mon May 10, 2021 9:02 pm I totally understand the intellectual appeal of the min variance approach but checking the performance of min variance ETFs makes me very wary. See USMV for instance, particularly its performance in March 2020.
What we are discussing is a bit beyond something like USMV, because USMV is only dealing with equities. This makes it a partial min variance portfolio. The secret sauce is to also include TMF, which zigs when equities zag. Some would add gold for the same reason. Interestingly, USMV doesn't seem to do well with a TLT minimum variance partner, according to PV. Perhaps because the TLT component isn't weighted in from the start?

Some of my relevant backtests are located here. TMF responded quickly to March 2020, which really cushioned the short-term behavior.

But really it seems to me that an important metric is the 3-year rolling CAGR, which is a reasonable length of time to balance short and long-term behavior. I think that this is more relevant than March 2020 by itself.
jdinatale
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jdinatale »

We're getting wrecked today boys :(
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

jdinatale wrote: Tue May 11, 2021 9:40 am We're getting wrecked today boys :(
Well, this is definitely the kind of day where VXZ and TYD can take some of the pain away. I really have to move my !$@ and re-allocate my funds (not very quick when you partially depend on new contributions to come in).
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Gui0507
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Gui0507 »

Hello! I have been recently investing in leap options on TQQQ via my taxable account with after maxing my 401k and Roth but as I have come across this thread it has sparked my curiosity!

Early 40's, wife late 30's we are heavily investing for optimal returns. Invested (Roth's: VTI) (401k's: VINIX, Principal LSV S&P500, WACSX) (Taxable: various options with cash puts and covered call income strategy.)

I wanted to take advantage of this strategy due to the leveraged part without exposing myself to time decay on options. I am aware of the volatility decay but I assume that the 40-60% of the bond levered fund is there to compensate. Is TMF the best fund for this? I read on another forum quoting a member on this forum about the EDV (Vanguard Extended Duration treasury) which has a lower expense ratio at 0.07% (yield 2.19%) vs the TMF 1.06% (yield 2.39%)? I would be doing this in my Roth's (Wife and I) due to the rebalancing tax implications.

With all the speculation around higher rates is a heavier bond allocation in this same strategy a good idea?


Also, the I see that the m1 finance is used by a lot of members due to the rebalancing ease, does this allow for backdoor roth conversions?
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

Gui0507 wrote: Tue May 11, 2021 2:53 pm Hello! I have been recently investing in leap options on TQQQ via my taxable account with after maxing my 401k and Roth but as I have come across this thread it has sparked my curiosity!

Early 40's, wife late 30's we are heavily investing for optimal returns. Invested (Roth's: VTI) (401k's: VINIX, Principal LSV S&P500, WACSX) (Taxable: various options with cash puts and covered call income strategy.)

I wanted to take advantage of this strategy due to the leveraged part without exposing myself to time decay on options. I am aware of the volatility decay but I assume that the 40-60% of the bond levered fund is there to compensate. Is TMF the best fund for this? I read on another forum quoting a member on this forum about the EDV (Vanguard Extended Duration treasury) which has a lower expense ratio at 0.07% (yield 2.19%) vs the TMF 1.06% (yield 2.39%)? I would be doing this in my Roth's (Wife and I) due to the rebalancing tax implications.

With all the speculation around higher rates is a heavier bond allocation in this same strategy a good idea?


Also, the I see that the m1 finance is used by a lot of members due to the rebalancing ease, does this allow for backdoor roth conversions?
I can't help with options/ futures comparisons or contrasts; I never played around with those.
I can't help with taxation questions; I am not a US investor.

I can provide some info about the TMF/ EDV divide and the question around bond allocation, though. :D

TMF has generally been considered the best choice, so far, as a hedge in this strategy. EDV has been suggested by some, as a cheaper alternative. Its negative correlation is almost identical but its non-leveraged nature forces one to allocate more % to it than to TMF, for the same level of volatility/ drawdown protection when equities take a tumble.

Certain people are having doubts about the usefulness of long-term treasuries (LTT), especially leveraged, in the near future (inflation fears, rate increases and no plausible rate decreases, if something happens). I'm not one of them, but I do suggest mixing it up when it comes to the hedge employed, to not rely on one reality/ set of assumptions to save your hide. There are pros and cons to diversifying your hedge, but I think it's a safer bet long-term. I wrote my thoughts on this over the last few pages.

You arrived at the right time for this sub-topic, actually, and starting 10 pages (or maybe more???) back should provide you some interesting exchanges.
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Gui0507
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Gui0507 »

OohLaLa wrote: Tue May 11, 2021 6:59 pm
Gui0507 wrote: Tue May 11, 2021 2:53 pm Hello! I have been recently investing in leap options on TQQQ via my taxable account with after maxing my 401k and Roth but as I have come across this thread it has sparked my curiosity!

Early 40's, wife late 30's we are heavily investing for optimal returns. Invested (Roth's: VTI) (401k's: VINIX, Principal LSV S&P500, WACSX) (Taxable: various options with cash puts and covered call income strategy.)

I wanted to take advantage of this strategy due to the leveraged part without exposing myself to time decay on options. I am aware of the volatility decay but I assume that the 40-60% of the bond levered fund is there to compensate. Is TMF the best fund for this? I read on another forum quoting a member on this forum about the EDV (Vanguard Extended Duration treasury) which has a lower expense ratio at 0.07% (yield 2.19%) vs the TMF 1.06% (yield 2.39%)? I would be doing this in my Roth's (Wife and I) due to the rebalancing tax implications.

With all the speculation around higher rates is a heavier bond allocation in this same strategy a good idea?


Also, the I see that the m1 finance is used by a lot of members due to the rebalancing ease, does this allow for backdoor roth conversions?
I can't help with options/ futures comparisons or contrasts; I never played around with those.
I can't help with taxation questions; I am not a US investor.

I can provide some info about the TMF/ EDV divide and the question around bond allocation, though. :D

TMF has generally been considered the best choice, so far, as a hedge in this strategy. EDV has been suggested by some, as a cheaper alternative. Its negative correlation is almost identical but its non-leveraged nature forces one to allocate more % to it than to TMF, for the same level of volatility/ drawdown protection when equities take a tumble.

Certain people are having doubts about the usefulness of long-term treasuries (LTT), especially leveraged, in the near future (inflation fears, rate increases and no plausible rate decreases, if something happens). I'm not one of them, but I do suggest mixing it up when it comes to the hedge employed, to not rely on one reality/ set of assumptions to save your hide. There are pros and cons to diversifying your hedge, but I think it's a safer bet long-term. I wrote my thoughts on this over the last few pages.

You arrived at the right time for this sub-topic, actually, and starting 10 pages (or maybe more???) back should provide you some interesting exchanges.
Interesting. This is where the bogleheads mentality checks in to stick to it i.e. TMF. That being said in Roth IRA's where 100% of it is in VTI how much should one allocate to this endeavor? I know it's not investment advice but, what is the consensus model?
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

Gui0507 wrote: Wed May 12, 2021 11:10 amInteresting. This is where the bogleheads mentality checks in to stick to it i.e. TMF. That being said in Roth IRA's where 100% of it is in VTI how much should one allocate to this endeavor? I know it's not investment advice but, what is the consensus model?
The Bogleheads consensus is to stick to a basic 3-fund portfolio that has nothing to do with this.

Hedgefundie said he put in 15% of his investable assets into this strategy; $100k. I personally have about 25% of my net worth in this strategy; maybe about 1/3 of my fund portfolio. Do whatever you're comfortable with and risk appetite can withstand.
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Gui0507
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Gui0507 »

DMoogle wrote: Wed May 12, 2021 11:50 am
Gui0507 wrote: Wed May 12, 2021 11:10 amInteresting. This is where the bogleheads mentality checks in to stick to it i.e. TMF. That being said in Roth IRA's where 100% of it is in VTI how much should one allocate to this endeavor? I know it's not investment advice but, what is the consensus model?
The Bogleheads consensus is to stick to a basic 3-fund portfolio that has nothing to do with this.

Hedgefundie said he put in 15% of his investable assets into this strategy; $100k. I personally have about 25% of my net worth in this strategy; maybe about 1/3 of my fund portfolio. Do whatever you're comfortable with and risk appetite can withstand.
I meant more in the buy and hold and stick with the plan philosophy not that I think these investments are boglehead approved. That being said, are you doing this in a tax advantaged account like a Roth? What percentage are you using of UPRO and or TMF?
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Gui0507
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Gui0507 »

So in this environment of inflationary fears, obviously the market is taking a tumble. Would this make it a good entry point into this strategy as prices are somewhat lower? Maybe a percentage of the Roth portfolio in UPRO and leaving TMF out of it until we get a better picture of rates? Wouldn’t the lower rates make the bonds perform terribly in the interim? Thanks!
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Jags4186 »

Gui0507 wrote: Wed May 12, 2021 1:34 pm So in this environment of inflationary fears, obviously the market is taking a tumble. Would this make it a good entry point into this strategy as prices are somewhat lower? Maybe a percentage of the Roth portfolio in UPRO and leaving TMF out of it until we get a better picture of rates? Wouldn’t the lower rates make the bonds perform terribly in the interim? Thanks!
The market has tumbled all the way back to April 7, 2021. If you’d like to join, there’s no time like the present, but you may want to wait until July 1 so you can get in on calendar quarter rebalancing.
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

Gui0507 wrote: Wed May 12, 2021 1:31 pmI meant more in the buy and hold and stick with the plan philosophy not that I think these investments are boglehead approved. That being said, are you doing this in a tax advantaged account like a Roth? What percentage are you using of UPRO and or TMF?
Yes, I'm only doing it in my Roth. Right now I'm about 55% UPRO 15% TQQQ (tech tilt) and 30% TMF. My 401k also allows for an SDBA, and I'm doing a SMA strategy with UPRO in that for a smaller amount (in addition to some international funds for more non-US diversification). In my taxable account, I have a mix of NTSX (a "lightly" leveraged ETF), stock from my Employee Stock Purchase Plan, some more international funds, and a few random stocks I bought a long time ago. I also use a little margin with that account.

I have a very high risk tolerance. If a month from now, I take a 90% hit... well that'll suck and I'll be sad, but it's a risk I'm OK with. I think this is fine for a buy-and-hold strategy for others with a high risk tolerance. Personally, I'm also looking for continual improvement, so I might change my approach several month or years from now.
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Gui0507
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Gui0507 »

DMoogle wrote: Wed May 12, 2021 1:52 pm
Gui0507 wrote: Wed May 12, 2021 1:31 pmI meant more in the buy and hold and stick with the plan philosophy not that I think these investments are boglehead approved. That being said, are you doing this in a tax advantaged account like a Roth? What percentage are you using of UPRO and or TMF?
Yes, I'm only doing it in my Roth. Right now I'm about 55% UPRO 15% TQQQ (tech tilt) and 30% TMF. My 401k also allows for an SDBA, and I'm doing a SMA strategy with UPRO in that for a smaller amount (in addition to some international funds for more non-US diversification). In my taxable account, I have a mix of NTSX (a "lightly" leveraged ETF), stock from my Employee Stock Purchase Plan, some more international funds, and a few random stocks I bought a long time ago. I also use a little margin with that account.

I have a very high risk tolerance. If a month from now, I take a 90% hit... well that'll suck and I'll be sad, but it's a risk I'm OK with. I think this is fine for a buy-and-hold strategy for others with a high risk tolerance. Personally, I'm also looking for continual improvement, so I might change my approach several month or years from now.
Forgive my misunderstanding, So your Roth is 100% in this strategy? The 55% upro, 15% TQQQ and 30% TMF.

Yeah I am definitely long term, I have risk tolerance considering I’ll be using this as a booster to my main buy and hold plan.

Thanks!
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Gui0507
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Gui0507 »

Jags4186 wrote: Wed May 12, 2021 1:40 pm
Gui0507 wrote: Wed May 12, 2021 1:34 pm So in this environment of inflationary fears, obviously the market is taking a tumble. Would this make it a good entry point into this strategy as prices are somewhat lower? Maybe a percentage of the Roth portfolio in UPRO and leaving TMF out of it until we get a better picture of rates? Wouldn’t the lower rates make the bonds perform terribly in the interim? Thanks!
The market has tumbled all the way back to April 7, 2021. If you’d like to join, there’s no time like the present, but you may want to wait until July 1 so you can get in on calendar quarter rebalancing.
What would be the benefit of waiting till July 1st and quarter rebalancing? I mean I know the market could continue to tumble or trade sideways but, it could also reverse. Wouldn't dollar-cost averaging make sense? Thank you for the reply!
TheDoctor91
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by TheDoctor91 »

I suspect the next couple of years are going to be horrible for this strategy with all the new retail investors driving up volatility, and now inflation that's going to be killing TMF for a while until COVID supply issues pass.
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

TheDoctor91 wrote: Wed May 12, 2021 4:00 pm I suspect the next couple of years are going to be horrible for this strategy with all the new retail investors driving up volatility, and now inflation that's going to be killing TMF for a while until COVID supply issues pass.
I'm always surprised by how much weight is assigned, by some, to retail. I know participation went up over the last few years, but why do you point to Mom and Pop as being behind these recent swings in the market?

Also, I know I am starting to sound like a broken record, but I really think anybody seriously worried about scenarios like the one we are in should take a closer look at:
- ITT funds like TYD and UST, especially if you have lower amounts allocated to HFEA.
- VIX-based instruments, whether it's options or something like VIXM or VXZ for those that wish to have a "passive" approach.

The last year has made me realize something that I don't recall being really discussed much here: how LTT have long been a safe haven, but that certain macro considerations can push participants into ITT instead, or that flight to safety is basically spread between LTT and ITT. I know it might sound obvious, but I find HFEA is extremely fixated on LTT.

When people fled from equities in February and March 2020, both went up. Admittedly, LTT went up higher initially, but the uncertainty that followed did not favor it. The late 2020-beginning 2021 bizarre period, where it seems cash was flowing away from both stocks and bonds, was the the starting gun for the TMF drawdown we are in right now.

I looked back 2, and even 3 years back, and an investment in TYD would have fared better, overall. You would have to go back to earlier 2018 to see a large disparity in favor of TMF. I'm not trying to say that ITT is always better than LTT (definitely not in a pronounced dropping rate era, which I believe is behind us for the foreseeable future).

As for VIX, well, it just works... It's not directly reliant on inflation or interest rates, just purely driven by expectations for stocks. It's much more consistent and reliable, IMO. It is a more costly insurance in superb times, though.

None of the tools are perfect, which is why I feel much more comfortable, long-term and in a passive investment approach, to diversify the hedge. I find it very welcome, right about now, having 10% in VXZ and moving towards 10% in TYD. I still believe in the utility of LTT in most drawdowns, and will keep adding funds to it, more and more per year.

I would really love to read people's thoughts on why they decide to unflinchingly stick with LTT only or even go as far as start timing things, removing part of TMF funds or not rebalancing into it. It seems like a much riskier proposition, and one that demands constant watchfulness and potential action.
Jags4186
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Jags4186 »

Gui0507 wrote: Wed May 12, 2021 3:22 pm
Jags4186 wrote: Wed May 12, 2021 1:40 pm
Gui0507 wrote: Wed May 12, 2021 1:34 pm So in this environment of inflationary fears, obviously the market is taking a tumble. Would this make it a good entry point into this strategy as prices are somewhat lower? Maybe a percentage of the Roth portfolio in UPRO and leaving TMF out of it until we get a better picture of rates? Wouldn’t the lower rates make the bonds perform terribly in the interim? Thanks!
The market has tumbled all the way back to April 7, 2021. If you’d like to join, there’s no time like the present, but you may want to wait until July 1 so you can get in on calendar quarter rebalancing.
What would be the benefit of waiting till July 1st and quarter rebalancing? I mean I know the market could continue to tumble or trade sideways but, it could also reverse. Wouldn't dollar-cost averaging make sense? Thank you for the reply!

The OG strategy is predicated on a 1 time investment and quarterly rebalancing. Everything between pages say 10 and 179 is just people going on and on and guessing on how to improve the strategy.
taojaxx
Posts: 311
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by taojaxx »

OohLaLa wrote: Wed May 12, 2021 5:39 pm
TheDoctor91 wrote: Wed May 12, 2021 4:00 pm I suspect the next couple of years are going to be horrible for this strategy with all the new retail investors driving up volatility, and now inflation that's going to be killing TMF for a while until COVID supply issues pass.
I'm always surprised by how much weight is assigned, by some, to retail. I know participation went up over the last few years, but why do you point to Mom and Pop as being behind these recent swings in the market?

Also, I know I am starting to sound like a broken record, but I really think anybody seriously worried about scenarios like the one we are in should take a closer look at:
- ITT funds like TYD and UST, especially if you have lower amounts allocated to HFEA.
- VIX-based instruments, whether it's options or something like VIXM or VXZ for those that wish to have a "passive" approach.

The last year has made me realize something that I don't recall being really discussed much here: how LTT have long been a safe haven, but that certain macro considerations can push participants into ITT instead, or that flight to safety is basically spread between LTT and ITT. I know it might sound obvious, but I find HFEA is extremely fixated on LTT.

When people fled from equities in February and March 2020, both went up. Admittedly, LTT went up higher initially, but the uncertainty that followed did not favor it. The late 2020-beginning 2021 bizarre period, where it seems cash was flowing away from both stocks and bonds, was the the starting gun for the TMF drawdown we are in right now.

I looked back 2, and even 3 years back, and an investment in TYD would have fared better, overall. You would have to go back to earlier 2018 to see a large disparity in favor of TMF. I'm not trying to say that ITT is always better than LTT (definitely not in a pronounced dropping rate era, which I believe is behind us for the foreseeable future).

As for VIX, well, it just works... It's not directly reliant on inflation or interest rates, just purely driven by expectations for stocks. It's much more consistent and reliable, IMO. It is a more costly insurance in superb times, though.

None of the tools are perfect, which is why I feel much more comfortable, long-term and in a passive investment approach, to diversify the hedge. I find it very welcome, right about now, having 10% in VXZ and moving towards 10% in TYD. I still believe in the utility of LTT in most drawdowns, and will keep adding funds to it, more and more per year.

I would really love to read people's thoughts on why they decide to unflinchingly stick with LTT only or even go as far as start timing things, removing part of TMF funds or not rebalancing into it. It seems like a much riskier proposition, and one that demands constant watchfulness and potential action.
The bond allocation is here for one thing, and one thing only: save your skin when stocks crash. The most bang for your bond buck is provided by LTT, not by ITT.
As to VIX, contango minces the meat of long term holders. Only way to avoid that is playing on the volatility term structure: short front end, long back end in good times and covering the shorts as vol increases (See XVZ ETF, which unfortunately will close down). I tried to do it myself, it becomes a full time job.
Better lucky than smart.
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

Gui0507 wrote: Wed May 12, 2021 2:03 pm Forgive my misunderstanding, So your Roth is 100% in this strategy? The 55% upro, 15% TQQQ and 30% TMF.

Yeah I am definitely long term, I have risk tolerance considering I’ll be using this as a booster to my main buy and hold plan.

Thanks!
Yeah, my Roth is 100% in this. It's about $200k at the moment. I'll probably reduce TQQQ next time I rebalance. Would prefer it to be 5% or 10%.
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RovenSkyfall
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RovenSkyfall »

OohLaLa wrote: Wed May 12, 2021 5:39 pm
TheDoctor91 wrote: Wed May 12, 2021 4:00 pm I suspect the next couple of years are going to be horrible for this strategy with all the new retail investors driving up volatility, and now inflation that's going to be killing TMF for a while until COVID supply issues pass.
I'm always surprised by how much weight is assigned, by some, to retail. I know participation went up over the last few years, but why do you point to Mom and Pop as being behind these recent swings in the market?

Also, I know I am starting to sound like a broken record, but I really think anybody seriously worried about scenarios like the one we are in should take a closer look at:
- ITT funds like TYD and UST, especially if you have lower amounts allocated to HFEA.
- VIX-based instruments, whether it's options or something like VIXM or VXZ for those that wish to have a "passive" approach.

The last year has made me realize something that I don't recall being really discussed much here: how LTT have long been a safe haven, but that certain macro considerations can push participants into ITT instead, or that flight to safety is basically spread between LTT and ITT. I know it might sound obvious, but I find HFEA is extremely fixated on LTT.

When people fled from equities in February and March 2020, both went up. Admittedly, LTT went up higher initially, but the uncertainty that followed did not favor it. The late 2020-beginning 2021 bizarre period, where it seems cash was flowing away from both stocks and bonds, was the the starting gun for the TMF drawdown we are in right now.

I looked back 2, and even 3 years back, and an investment in TYD would have fared better, overall. You would have to go back to earlier 2018 to see a large disparity in favor of TMF. I'm not trying to say that ITT is always better than LTT (definitely not in a pronounced dropping rate era, which I believe is behind us for the foreseeable future).

As for VIX, well, it just works... It's not directly reliant on inflation or interest rates, just purely driven by expectations for stocks. It's much more consistent and reliable, IMO. It is a more costly insurance in superb times, though.

None of the tools are perfect, which is why I feel much more comfortable, long-term and in a passive investment approach, to diversify the hedge. I find it very welcome, right about now, having 10% in VXZ and moving towards 10% in TYD. I still believe in the utility of LTT in most drawdowns, and will keep adding funds to it, more and more per year.

I would really love to read people's thoughts on why they decide to unflinchingly stick with LTT only or even go as far as start timing things, removing part of TMF funds or not rebalancing into it. It seems like a much riskier proposition, and one that demands constant watchfulness and potential action.
They didnt go up because people fled to them, they went up because rates dropped (convexity). That is why LTT went up more and why it is paired with this strategy. It assumes the fed will have the same response to future market crashes.
I saved my money, but it can't save me | The Chariot
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RovenSkyfall
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RovenSkyfall »

Gui0507 wrote: Wed May 12, 2021 3:22 pm
Jags4186 wrote: Wed May 12, 2021 1:40 pm
Gui0507 wrote: Wed May 12, 2021 1:34 pm So in this environment of inflationary fears, obviously the market is taking a tumble. Would this make it a good entry point into this strategy as prices are somewhat lower? Maybe a percentage of the Roth portfolio in UPRO and leaving TMF out of it until we get a better picture of rates? Wouldn’t the lower rates make the bonds perform terribly in the interim? Thanks!
The market has tumbled all the way back to April 7, 2021. If you’d like to join, there’s no time like the present, but you may want to wait until July 1 so you can get in on calendar quarter rebalancing.
What would be the benefit of waiting till July 1st and quarter rebalancing? I mean I know the market could continue to tumble or trade sideways but, it could also reverse. Wouldn't dollar-cost averaging make sense? Thank you for the reply!
If you are in a tax advantaged account there is no benefit to waiting. If you are worried about start date sensitivity then DCA. Rebalance every quarter (calendar quarter, not from the time you invested). In an unknown future, the only thing waiting will do is keep you out of the market longer. If you are going to taxable you might not rebalance on June 1st.
I saved my money, but it can't save me | The Chariot
corp_sharecropper
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by corp_sharecropper »

taojaxx wrote: Wed May 12, 2021 7:40 pm
OohLaLa wrote: Wed May 12, 2021 5:39 pm
TheDoctor91 wrote: Wed May 12, 2021 4:00 pm I suspect the next couple of years are going to be horrible for this strategy with all the new retail investors driving up volatility, and now inflation that's going to be killing TMF for a while until COVID supply issues pass.
I'm always surprised by how much weight is assigned, by some, to retail. I know participation went up over the last few years, but why do you point to Mom and Pop as being behind these recent swings in the market?

Also, I know I am starting to sound like a broken record, but I really think anybody seriously worried about scenarios like the one we are in should take a closer look at:
- ITT funds like TYD and UST, especially if you have lower amounts allocated to HFEA.
- VIX-based instruments, whether it's options or something like VIXM or VXZ for those that wish to have a "passive" approach.

The last year has made me realize something that I don't recall being really discussed much here: how LTT have long been a safe haven, but that certain macro considerations can push participants into ITT instead, or that flight to safety is basically spread between LTT and ITT. I know it might sound obvious, but I find HFEA is extremely fixated on LTT.

When people fled from equities in February and March 2020, both went up. Admittedly, LTT went up higher initially, but the uncertainty that followed did not favor it. The late 2020-beginning 2021 bizarre period, where it seems cash was flowing away from both stocks and bonds, was the the starting gun for the TMF drawdown we are in right now.

I looked back 2, and even 3 years back, and an investment in TYD would have fared better, overall. You would have to go back to earlier 2018 to see a large disparity in favor of TMF. I'm not trying to say that ITT is always better than LTT (definitely not in a pronounced dropping rate era, which I believe is behind us for the foreseeable future).

As for VIX, well, it just works... It's not directly reliant on inflation or interest rates, just purely driven by expectations for stocks. It's much more consistent and reliable, IMO. It is a more costly insurance in superb times, though.

None of the tools are perfect, which is why I feel much more comfortable, long-term and in a passive investment approach, to diversify the hedge. I find it very welcome, right about now, having 10% in VXZ and moving towards 10% in TYD. I still believe in the utility of LTT in most drawdowns, and will keep adding funds to it, more and more per year.

I would really love to read people's thoughts on why they decide to unflinchingly stick with LTT only or even go as far as start timing things, removing part of TMF funds or not rebalancing into it. It seems like a much riskier proposition, and one that demands constant watchfulness and potential action.
The bond allocation is here for one thing, and one thing only: save your skin when stocks crash. The most bang for your bond buck is provided by LTT, not by ITT.
As to VIX, contango minces the meat of long term holders. Only way to avoid that is playing on the volatility term structure: short front end, long back end in good times and covering the shorts as vol increases (See XVZ ETF, which unfortunately will close down). I tried to do it myself, it becomes a full time job.
I keep reading people post this but have not seen any such official announcement regarding this or any citation/link to where this information came from. If someone has a source/citation/link, please post it.
Marseille07
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

deleted
Last edited by Marseille07 on Thu May 13, 2021 10:30 am, edited 1 time in total.
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

corp_sharecropper wrote: Thu May 13, 2021 9:39 am
taojaxx wrote: Wed May 12, 2021 7:40 pm (See XVZ ETF, which unfortunately will close down).
I keep reading people post this but have not seen any such official announcement regarding this or any citation/link to where this information came from. If someone has a source/citation/link, please post it.
Info on maturity date:
https://www.ipathetn.com/US/16/en/etnsn ... tId=259120

And here is the post by the member who confirmed by reaching out to Barclays:
Investing Lawyer wrote: Sun Feb 07, 2021 12:49 pm Regarding XVZ's coming maturity, I reached out to Barclays to see if there was further information about continuing the product.

Here is the response I received:

"There are no plans at the moment to issue a successor product." i.e. it's dead.

So people would have to re-create it on their own. Fortunately it should be not too difficult with the other ETNs.

Currently you'd short 30% VXX, long 70% VIXM. For shorting, I'd just use a synthetic (long put short call), the options are quite liquid.
Ramjet
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

DMoogle wrote: Wed May 12, 2021 11:44 pm
Gui0507 wrote: Wed May 12, 2021 2:03 pm Forgive my misunderstanding, So your Roth is 100% in this strategy? The 55% upro, 15% TQQQ and 30% TMF.

Yeah I am definitely long term, I have risk tolerance considering I’ll be using this as a booster to my main buy and hold plan.

Thanks!
Yeah, my Roth is 100% in this. It's about $200k at the moment. I'll probably reduce TQQQ next time I rebalance. Would prefer it to be 5% or 10%.
Do you keep the 30% TMF static
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Gui0507
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Gui0507 »

Ramjet wrote: Thu May 13, 2021 11:06 am
DMoogle wrote: Wed May 12, 2021 11:44 pm
Gui0507 wrote: Wed May 12, 2021 2:03 pm Forgive my misunderstanding, So your Roth is 100% in this strategy? The 55% upro, 15% TQQQ and 30% TMF.

Yeah I am definitely long term, I have risk tolerance considering I’ll be using this as a booster to my main buy and hold plan.

Thanks!
Yeah, my Roth is 100% in this. It's about $200k at the moment. I'll probably reduce TQQQ next time I rebalance. Would prefer it to be 5% or 10%.
Do you keep the 30% TMF static
My same question exactly, what’s the consensus here? What HF stated 55/45 UPRO/TMF? What if you didn’t want to be as levered and used SSO instead? Would TMF be appropriate or another bond?
Ramjet
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

Gui0507 wrote: Thu May 13, 2021 11:16 am
Ramjet wrote: Thu May 13, 2021 11:06 am
DMoogle wrote: Wed May 12, 2021 11:44 pm
Gui0507 wrote: Wed May 12, 2021 2:03 pm Forgive my misunderstanding, So your Roth is 100% in this strategy? The 55% upro, 15% TQQQ and 30% TMF.

Yeah I am definitely long term, I have risk tolerance considering I’ll be using this as a booster to my main buy and hold plan.

Thanks!
Yeah, my Roth is 100% in this. It's about $200k at the moment. I'll probably reduce TQQQ next time I rebalance. Would prefer it to be 5% or 10%.
Do you keep the 30% TMF static
My same question exactly, what’s the consensus here? What HF stated 55/45 UPRO/TMF? What if you didn’t want to be as levered and used SSO instead? Would TMF be appropriate or another bond?
Default recommendation is 55/45, majority using this. Rebalance quarterly
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

Gui0507 wrote: Thu May 13, 2021 11:16 am
Ramjet wrote: Thu May 13, 2021 11:06 am
DMoogle wrote: Wed May 12, 2021 11:44 pm
Gui0507 wrote: Wed May 12, 2021 2:03 pm Forgive my misunderstanding, So your Roth is 100% in this strategy? The 55% upro, 15% TQQQ and 30% TMF.

Yeah I am definitely long term, I have risk tolerance considering I’ll be using this as a booster to my main buy and hold plan.

Thanks!
Yeah, my Roth is 100% in this. It's about $200k at the moment. I'll probably reduce TQQQ next time I rebalance. Would prefer it to be 5% or 10%.
Do you keep the 30% TMF static
My same question exactly, what’s the consensus here? What HF stated 55/45 UPRO/TMF? What if you didn’t want to be as levered and used SSO instead? Would TMF be appropriate or another bond?
As Ramjet mentioned, the default strategy is 55/45. Period.

If you want to lower leverage, you can use SSO + TMF, tilting strongly in favor to SSO in order to maintain appropriate hedging on both sides. Failing to do so will throw you out of your target AA more often and open you up to potentially higher risk than you signed up for. Compare the volatility of SSO, TMF and UPRO, and you will quickly understand why this is.

I would suggest to simply lower leverage on both ends, by blending TMF + TLT (and not UST, due to liquidity limitations that were already discussed recently).
langlands
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

Correlation between SPY and TLT stably above 0 for almost 3 months now:

https://www.portfoliovisualizer.com/ass ... &months=36

I see a lot of talk about volatility and other metrics used to time/assess HFEA, but it seems to me the historical low correlation between stocks and bonds is the core assumption behind the whole strategy. If we're entering a different macro regime dominated by headlines of inflation/stagflation fears, the hedge won't work well.
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RovenSkyfall
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RovenSkyfall »

langlands wrote: Thu May 13, 2021 11:46 am Correlation between SPY and TLT stably above 0 for almost 3 months now:

https://www.portfoliovisualizer.com/ass ... &months=36

I see a lot of talk about volatility and other metrics used to time/assess HFEA, but it seems to me the historical low correlation between stocks and bonds is the core assumption behind the whole strategy. If we're entering a different macro regime dominated by headlines of inflation/stagflation fears, the hedge won't work well.
The core assumption is the importance of the correlation in market crashes.
I saved my money, but it can't save me | The Chariot
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

Gui0507 wrote: Thu May 13, 2021 11:16 amMy same question exactly, what’s the consensus here? What HF stated 55/45 UPRO/TMF? What if you didn’t want to be as levered and used SSO instead? Would TMF be appropriate or another bond?
55/45 is still the consensus for best risk:reward ratio. Last I checked, around 70/30 has performed best for maximizing return - more UPRO beyond that just ends up hurting both return AND risk profile.

There's been a lot of talk about TMF having limited upside lately, and I decide to forgo to rebalancing last quarter and just let it ride for a bit.

As for 2x funds vs. 3x funds... I know it's been discussed in the thread, but I'm not as familiar with the nuances. I know there was talk that the fact that the ER of SSO vs. UPRO was about the same, so you might be better off just putting less of your portfolio into 3x (holding the rest as cash) and just skipping 2x altogether.

Personally, if I wanted lower leverage, I'd just go PSLDX for 2x, or NTSX for 1.5x. PSLDX is not recommended for taxable accounts, but NTSX is fine.
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

RovenSkyfall wrote: Thu May 13, 2021 12:01 pm
langlands wrote: Thu May 13, 2021 11:46 am Correlation between SPY and TLT stably above 0 for almost 3 months now:

https://www.portfoliovisualizer.com/ass ... &months=36

I see a lot of talk about volatility and other metrics used to time/assess HFEA, but it seems to me the historical low correlation between stocks and bonds is the core assumption behind the whole strategy. If we're entering a different macro regime dominated by headlines of inflation/stagflation fears, the hedge won't work well.
The core assumption is the importance of the correlation in market crashes.
I think it's premature to take any action based on what's happening in the past 6 months or so.

I would start worrying if long-term core inflation hovers at something like 3%, based on studies.

Let me know if I am underestimating the issue, but correlation hovering around 0 is still good, if no consistent alternatives exist.
langlands
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

RovenSkyfall wrote: Thu May 13, 2021 12:01 pm
langlands wrote: Thu May 13, 2021 11:46 am Correlation between SPY and TLT stably above 0 for almost 3 months now:

https://www.portfoliovisualizer.com/ass ... &months=36

I see a lot of talk about volatility and other metrics used to time/assess HFEA, but it seems to me the historical low correlation between stocks and bonds is the core assumption behind the whole strategy. If we're entering a different macro regime dominated by headlines of inflation/stagflation fears, the hedge won't work well.
The core assumption is the importance of the correlation in market crashes.
The efficiency of the portfolio is due to the low correlation at all times. But of course correlation during crashes is particularly important. If the crash is at all related to inflation fears however, stocks and bonds will crash together.

The classic risk-on/risk-off dynamic between stocks and bonds is when macroeconomic policy is in a sustainable range. If the crash in stocks is due to loss of faith in macroeconomic policy, that dynamic breaks.
langlands
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

OohLaLa wrote: Thu May 13, 2021 12:22 pm
RovenSkyfall wrote: Thu May 13, 2021 12:01 pm
langlands wrote: Thu May 13, 2021 11:46 am Correlation between SPY and TLT stably above 0 for almost 3 months now:

https://www.portfoliovisualizer.com/ass ... &months=36

I see a lot of talk about volatility and other metrics used to time/assess HFEA, but it seems to me the historical low correlation between stocks and bonds is the core assumption behind the whole strategy. If we're entering a different macro regime dominated by headlines of inflation/stagflation fears, the hedge won't work well.
The core assumption is the importance of the correlation in market crashes.
I think it's premature to take any action based on what's happening in the past 6 months or so.

I would start worrying if long-term core inflation hovers at something like 3%, based on studies.

Let me know if I am underestimating the issue, but correlation hovering around 0 is still good, if no consistent alternatives exist.
Pretty sure RovenSkyfall agrees with you and that your disagreement is with me.

Zero correlation could be fine. I think 6 months is a good chunk of time to measure correlation though. In the past 6-7 years, SPY/TLT correlation has never stayed above 0 for that long. So if the correlation stays above 0 into the summer, I definitely think it's noteworthy.

People like bonds because they have low correlation to stocks and because they have positive yield. If that low correlation dissipates and the yield is miniscule (as it is now), their value in the portfolio becomes questionable. Gold's correlation with stocks is also quite high now however so it's not clear what the alternative would be. Just something to be on the watch out for.
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RovenSkyfall
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RovenSkyfall »

langlands wrote: Thu May 13, 2021 12:23 pm The efficiency of the portfolio is due to the low correlation at all times. But of course correlation during crashes is particularly important. If the crash is at all related to inflation fears however, stocks and bonds will crash together.

The classic risk-on/risk-off dynamic between stocks and bonds is when macroeconomic policy is in a sustainable range. If the crash in stocks is due to loss of faith in macroeconomic policy, that dynamic breaks.
If rates are not reduced in the next crash, then the insurance of TMF will not pay out. I think we agree on this. The TMF portion would then only be a possible benefit with a "flight to safety" which is what you are referencing (and think is unlikely).

It matters more how the FED responds to the next big dip. If I understood them correctly, this is the bet Hedgefundie was making when constructing HFEA. Specifically that the correlation in large drawdowns of UPRO (which is a result of the recent monetary policy of lowering rates in crashes) will persist. The bet was on convexity not flight to safety.
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Semantics
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Semantics »

DMoogle wrote: Thu May 13, 2021 12:13 pm
Gui0507 wrote: Thu May 13, 2021 11:16 amMy same question exactly, what’s the consensus here? What HF stated 55/45 UPRO/TMF? What if you didn’t want to be as levered and used SSO instead? Would TMF be appropriate or another bond?
55/45 is still the consensus for best risk:reward ratio. Last I checked, around 70/30 has performed best for maximizing return - more UPRO beyond that just ends up hurting both return AND risk profile.

There's been a lot of talk about TMF having limited upside lately, and I decide to forgo to rebalancing last quarter and just let it ride for a bit.

As for 2x funds vs. 3x funds... I know it's been discussed in the thread, but I'm not as familiar with the nuances. I know there was talk that the fact that the ER of SSO vs. UPRO was about the same, so you might be better off just putting less of your portfolio into 3x (holding the rest as cash) and just skipping 2x altogether.
I think it was shown this doesn't hold? In past performance it didn't really matter whether you hold 50% SSO or 33% UPRO to get 100% S&P 500 exposure.

Reason being the extra ER is offset by the extra compounding loss and borrowing fees in the 3x fund.
Personally, if I wanted lower leverage, I'd just go PSLDX for 2x, or NTSX for 1.5x. PSLDX is not recommended for taxable accounts, but NTSX is fine.
Agreed.
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