HEDGEFUNDIE's excellent adventure Part II: The next journey

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
MotoTrojan
Posts: 6807
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Thu Oct 03, 2019 11:13 am

schismal wrote:
Thu Oct 03, 2019 10:54 am
caklim00 wrote:
Thu Oct 03, 2019 10:10 am
Anyone ever consider Pimcostocksplus small: PSCSX https://www.morningstar.com/funds/xnas/pscsx/quote
All of its outperformance came from 2009-10. After that, it's been dead even with IJR.
Russell 2000 index changes (avoid front-running) should help, but IJR's S&P600 also has the quality/earnings screen which helps too.

spefactor
Posts: 73
Joined: Tue May 12, 2009 6:44 pm

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

Post by spefactor » Thu Oct 03, 2019 7:58 pm

rascott wrote:
Tue Oct 01, 2019 10:19 am
NoviceInvestor2019 wrote:
Tue Oct 01, 2019 10:16 am
schismal wrote:
Tue Oct 01, 2019 9:58 am
NoviceInvestor2019 wrote:
Tue Oct 01, 2019 9:43 am
Has anyone run any numbers on ideal rebalancing strategy for someone in a taxable account? Right now I'm relying solely on individual contributions to rebalance (adding $1k twice a month, current balance around $12k) and plan to rely solely on that at least until a year has passed so that any gains are taxed at the long-term rate. But once a year comes around, what is optimal here?
See this post for a very rough estimate of annual re-balancing in taxable: LINK
Thank you - seems pretty bleak. Is the leveraged portfolio even worth it in a taxable account?
Use futures if you need to do this in a taxable account. 60% of gains are taxed at LTCG. Many reasons why this would work better in taxable... one can hold mainly straight equity ETFs and then toss on a few micro E mini contracts/ UPRO as needed to get to your target equity exposure.
But can't you just start with a small amount, add each quarter for one year, and then harvest 100% LTCG on only the rebalancing portion? This seems like a more tax-efficient strategy to me.

MotoTrojan
Posts: 6807
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Thu Oct 03, 2019 8:01 pm

spefactor wrote:
Thu Oct 03, 2019 7:58 pm
rascott wrote:
Tue Oct 01, 2019 10:19 am
NoviceInvestor2019 wrote:
Tue Oct 01, 2019 10:16 am
schismal wrote:
Tue Oct 01, 2019 9:58 am
NoviceInvestor2019 wrote:
Tue Oct 01, 2019 9:43 am
Has anyone run any numbers on ideal rebalancing strategy for someone in a taxable account? Right now I'm relying solely on individual contributions to rebalance (adding $1k twice a month, current balance around $12k) and plan to rely solely on that at least until a year has passed so that any gains are taxed at the long-term rate. But once a year comes around, what is optimal here?
See this post for a very rough estimate of annual re-balancing in taxable: LINK
Thank you - seems pretty bleak. Is the leveraged portfolio even worth it in a taxable account?
Use futures if you need to do this in a taxable account. 60% of gains are taxed at LTCG. Many reasons why this would work better in taxable... one can hold mainly straight equity ETFs and then toss on a few micro E mini contracts/ UPRO as needed to get to your target equity exposure.
But can't you just start with a small amount, add each quarter for one year, and then harvest 100% LTCG on only the rebalancing portion? This seems like a more tax-efficient strategy to me.
No need to start small, just do annual rebalancing at first (or forever, it actually outperforms on Portfolio Visualizers staggering except for black monday). I still wouldn't do this personally.

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Thu Oct 03, 2019 8:55 pm

Three questions on this strategy:

1. Can it be done with Mutual Funds? (If so, which please)

2. Most of the discussion is around 55% UPRO / 45% TMF, but what happens with 60% UPRO / 40% TMF? Is it not mentioned because it's more risky, or has poor returns?

3. How does this impact the usual stock/bond AA. I mean do we consider UPRO = stock and TMF = bond?

Thanks.

MotoTrojan
Posts: 6807
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Thu Oct 03, 2019 9:28 pm

get_g0ing wrote:
Thu Oct 03, 2019 8:55 pm
Three questions on this strategy:

1. Can it be done with Mutual Funds? (If so, which please)

2. Most of the discussion is around 55% UPRO / 45% TMF, but what happens with 60% UPRO / 40% TMF? Is it not mentioned because it's more risky, or has poor returns?

3. How does this impact the usual stock/bond AA. I mean do we consider UPRO = stock and TMF = bond?

Thanks.
Historically returns increased all the way up to 70%+ UPRO per my recollection, but volatility and drawdown get much worse, much more quickly, and the return is marginally better.

If you prefer Mutual Funds I would use PSLDX and be done with it. No rebalancing to be had, no volatility decay.

UPRO is 3x stock, -2x cash. TMF is 3x bonds, -2x cash. I would not look at this as a part of your overall allocation personally.

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Fri Oct 04, 2019 9:57 am

HEDGEFUNDIE wrote:
Sun Aug 11, 2019 9:41 pm
MotoTrojan wrote:
Thu Oct 03, 2019 9:28 pm
get_g0ing wrote:
Thu Oct 03, 2019 8:55 pm
Three questions on this strategy:

1. Can it be done with Mutual Funds? (If so, which please)

2. Most of the discussion is around 55% UPRO / 45% TMF, but what happens with 60% UPRO / 40% TMF? Is it not mentioned because it's more risky, or has poor returns?

3. How does this impact the usual stock/bond AA. I mean do we consider UPRO = stock and TMF = bond?

Thanks.
Historically returns increased all the way up to 70%+ UPRO per my recollection, but volatility and drawdown get much worse, much more quickly, and the return is marginally better.

If you prefer Mutual Funds I would use PSLDX and be done with it. No rebalancing to be had, no volatility decay.

UPRO is 3x stock, -2x cash. TMF is 3x bonds, -2x cash. I would not look at this as a part of your overall allocation personally.
MotoTrojan, thanks.

Are some folks doing this in taxable accounts, or is everyone doing it with tax-advantaged accounts (Roth, 401k)?
Can someone enlightenment me on how to view the difference/comparison between this strategy in Roth vs taxable please?

Thanks.

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Fri Oct 04, 2019 10:02 am

How to setup quarterly rebalancing?

1st of every 4 months based on the month you start? or should it be Jan 1, May1, Sep1 ...?

Thanks.

Walkure
Posts: 134
Joined: Tue Apr 11, 2017 9:59 pm

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

Post by Walkure » Fri Oct 04, 2019 10:29 am

spefactor wrote:
Thu Oct 03, 2019 7:58 pm
rascott wrote:
Tue Oct 01, 2019 10:19 am
NoviceInvestor2019 wrote:
Tue Oct 01, 2019 10:16 am
schismal wrote:
Tue Oct 01, 2019 9:58 am
NoviceInvestor2019 wrote:
Tue Oct 01, 2019 9:43 am
Has anyone run any numbers on ideal rebalancing strategy for someone in a taxable account? Right now I'm relying solely on individual contributions to rebalance (adding $1k twice a month, current balance around $12k) and plan to rely solely on that at least until a year has passed so that any gains are taxed at the long-term rate. But once a year comes around, what is optimal here?
See this post for a very rough estimate of annual re-balancing in taxable: LINK
Thank you - seems pretty bleak. Is the leveraged portfolio even worth it in a taxable account?
Use futures if you need to do this in a taxable account. 60% of gains are taxed at LTCG. Many reasons why this would work better in taxable... one can hold mainly straight equity ETFs and then toss on a few micro E mini contracts/ UPRO as needed to get to your target equity exposure.
But can't you just start with a small amount, add each quarter for one year, and then harvest 100% LTCG on only the rebalancing portion? This seems like a more tax-efficient strategy to me.
Quick question, has anyone actually tried pressing the M1 rebalance button in a taxable account? My suspicion/fear is that it may just default to average cost without giving a specific ID option. It may be necessary to do an actual two step Sell and Buy to manage things at a granular level. In any event, I just joined the adventure March 4th so it's still 6 months to the day before I have any LT gains.

TNWoods
Posts: 48
Joined: Sun Feb 10, 2019 10:04 am

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

Post by TNWoods » Fri Oct 04, 2019 10:33 am

get_g0ing wrote:
Fri Oct 04, 2019 10:02 am
How to setup quarterly rebalancing?

1st of every 4 months based on the month you start? or should it be Jan 1, May1, Sep1 ...?

Thanks.
That would be "thirdly" instead of "quarterly".

Some folks do every 3 months based on the specific date they started, others moved it to the 1st of the month to make it easier to remember, still others chose to wait for a normal calendar quarter, so it coincided with much of the financial world's use of quarters.

No one method is better than another, the one you find easiest to remember and implement is the best for you to use.

TNWoods

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Fri Oct 04, 2019 10:41 am

TNWoods wrote:
Fri Oct 04, 2019 10:33 am
get_g0ing wrote:
Fri Oct 04, 2019 10:02 am
How to setup quarterly rebalancing?

1st of every 4 months based on the month you start? or should it be Jan 1, May1, Sep1 ...?

Thanks.
That would be "thirdly" instead of "quarterly".

Some folks do every 3 months based on the specific date they started, others moved it to the 1st of the month to make it easier to remember, still others chose to wait for a normal calendar quarter, so it coincided with much of the financial world's use of quarters.

No one method is better than another, the one you find easiest to remember and implement is the best for you to use.

TNWoods
I get it now. Thank you TNWoods. So Jan 1, Apr 1, Jul 1, Oct 1 should work for quarterly rebalancing?

rascott
Posts: 1070
Joined: Wed Apr 15, 2015 10:53 am

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

Post by rascott » Fri Oct 04, 2019 11:03 am

Walkure wrote:
Fri Oct 04, 2019 10:29 am
spefactor wrote:
Thu Oct 03, 2019 7:58 pm
rascott wrote:
Tue Oct 01, 2019 10:19 am
NoviceInvestor2019 wrote:
Tue Oct 01, 2019 10:16 am
schismal wrote:
Tue Oct 01, 2019 9:58 am


See this post for a very rough estimate of annual re-balancing in taxable: LINK
Thank you - seems pretty bleak. Is the leveraged portfolio even worth it in a taxable account?
Use futures if you need to do this in a taxable account. 60% of gains are taxed at LTCG. Many reasons why this would work better in taxable... one can hold mainly straight equity ETFs and then toss on a few micro E mini contracts/ UPRO as needed to get to your target equity exposure.
But can't you just start with a small amount, add each quarter for one year, and then harvest 100% LTCG on only the rebalancing portion? This seems like a more tax-efficient strategy to me.
Quick question, has anyone actually tried pressing the M1 rebalance button in a taxable account? My suspicion/fear is that it may just default to average cost without giving a specific ID option. It may be necessary to do an actual two step Sell and Buy to manage things at a granular level. In any event, I just joined the adventure March 4th so it's still 6 months to the day before I have any LT gains.

M1 doesn't allow you to select which lots to sell.

They say the algorithm uses what they call tax minimization. If it works how they claim it should do everything automatically for you in the most tax efficient manner.

In order
1) sell losses
2) sell LTCG
3) sell STCG

https://www.m1finance.com/why/earn-more/


It's a risk, obviously... as it's a fairly new platform. You can login to their clearinghouse (Apex) for your account and I believe should be able to see what they actually did behind the scenes.

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Fri Oct 04, 2019 2:59 pm

So I've been looking a bit into this strategy. And came across this:
https://teddykoker.com/2019/04/backtest ... backtrader

who concluded that 40 / 60 UPRO/TMF was best .

Has someone here checked this data? I know HEDGEFUNDIE started with 40/60 but then switched to 55/45 UPRO/TMF.

I'm interested to know why the preferred allocation on this thread is 55/45, as opposed to:
50 / 50 UPRO/TMF
60 / 40 UPRO/TMF

Thanks.

Lee_WSP
Posts: 1205
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

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

Post by Lee_WSP » Fri Oct 04, 2019 3:11 pm

get_g0ing wrote:
Fri Oct 04, 2019 2:59 pm
So I've been looking a bit into this strategy. And came across this:
https://teddykoker.com/2019/04/backtest ... backtrader

who concluded that 40 / 60 UPRO/TMF was best .

Has someone here checked this data? I know HEDGEFUNDIE started with 40/60 but then switched to 55/45 UPRO/TMF.

I'm interested to know why the preferred allocation on this thread is 55/45, as opposed to:
50 / 50 UPRO/TMF
60 / 40 UPRO/TMF

Thanks.
The article & original strategy only goes back to ~1985. Interest rates have been on a steady decline since then. While there is still room to run, there isn't much road left, even if we go to negative rates. Therefore, it is prudent to plan for TMF not outperforming.

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Fri Oct 04, 2019 3:20 pm

Lee_WSP wrote:
Fri Oct 04, 2019 3:11 pm
get_g0ing wrote:
Fri Oct 04, 2019 2:59 pm
So I've been looking a bit into this strategy. And came across this:
https://teddykoker.com/2019/04/backtest ... backtrader

who concluded that 40 / 60 UPRO/TMF was best .

Has someone here checked this data? I know HEDGEFUNDIE started with 40/60 but then switched to 55/45 UPRO/TMF.

I'm interested to know why the preferred allocation on this thread is 55/45, as opposed to:
50 / 50 UPRO/TMF
60 / 40 UPRO/TMF

Thanks.
The article & original strategy only goes back to ~1985. Interest rates have been on a steady decline since then. While there is still room to run, there isn't much road left, even if we go to negative rates. Therefore, it is prudent to plan for TMF not outperforming.
Okay makes sense, thanks for sharing that. And what is the reasoning/assumptions for not bumping UPRO to 60%?

MotoTrojan
Posts: 6807
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Fri Oct 04, 2019 3:21 pm

get_g0ing wrote:
Fri Oct 04, 2019 2:59 pm
So I've been looking a bit into this strategy. And came across this:
https://teddykoker.com/2019/04/backtest ... backtrader

who concluded that 40 / 60 UPRO/TMF was best .

Has someone here checked this data? I know HEDGEFUNDIE started with 40/60 but then switched to 55/45 UPRO/TMF.

I'm interested to know why the preferred allocation on this thread is 55/45, as opposed to:
50 / 50 UPRO/TMF
60 / 40 UPRO/TMF

Thanks.
Yes, it WAS best; what will be in the future though? The more I’ve studied the less I want anything to do with TMF; I’m using EDV.

MotoTrojan
Posts: 6807
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Fri Oct 04, 2019 3:22 pm

get_g0ing wrote:
Fri Oct 04, 2019 3:20 pm
Lee_WSP wrote:
Fri Oct 04, 2019 3:11 pm
get_g0ing wrote:
Fri Oct 04, 2019 2:59 pm
So I've been looking a bit into this strategy. And came across this:
https://teddykoker.com/2019/04/backtest ... backtrader

who concluded that 40 / 60 UPRO/TMF was best .

Has someone here checked this data? I know HEDGEFUNDIE started with 40/60 but then switched to 55/45 UPRO/TMF.

I'm interested to know why the preferred allocation on this thread is 55/45, as opposed to:
50 / 50 UPRO/TMF
60 / 40 UPRO/TMF

Thanks.
The article & original strategy only goes back to ~1985. Interest rates have been on a steady decline since then. While there is still room to run, there isn't much road left, even if we go to negative rates. Therefore, it is prudent to plan for TMF not outperforming.
Okay makes sense, thanks for sharing that. And what is the reasoning/assumptions for not bumping UPRO to 60%?
Same reason you don’t just go 100% UPRO, potential for a drawdown you never crawl out of.

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Fri Oct 04, 2019 3:25 pm

MotoTrojan wrote:
Fri Oct 04, 2019 3:21 pm
get_g0ing wrote:
Fri Oct 04, 2019 2:59 pm
So I've been looking a bit into this strategy. And came across this:
https://teddykoker.com/2019/04/backtest ... backtrader

who concluded that 40 / 60 UPRO/TMF was best .

Has someone here checked this data? I know HEDGEFUNDIE started with 40/60 but then switched to 55/45 UPRO/TMF.

I'm interested to know why the preferred allocation on this thread is 55/45, as opposed to:
50 / 50 UPRO/TMF
60 / 40 UPRO/TMF

Thanks.
Yes, it WAS best; what will be in the future though? The more I’ve studied the less I want anything to do with TMF; I’m using EDV.
Yea I came across your posts as I was reading the previous pages (there's a LOT :D). So are you 55/45 UPRO/EDV?
Care to summarize your main reasons for EDV rather than TMF please?

MotoTrojan
Posts: 6807
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Fri Oct 04, 2019 3:31 pm

get_g0ing wrote:
Fri Oct 04, 2019 3:25 pm
MotoTrojan wrote:
Fri Oct 04, 2019 3:21 pm
get_g0ing wrote:
Fri Oct 04, 2019 2:59 pm
So I've been looking a bit into this strategy. And came across this:
https://teddykoker.com/2019/04/backtest ... backtrader

who concluded that 40 / 60 UPRO/TMF was best .

Has someone here checked this data? I know HEDGEFUNDIE started with 40/60 but then switched to 55/45 UPRO/TMF.

I'm interested to know why the preferred allocation on this thread is 55/45, as opposed to:
50 / 50 UPRO/TMF
60 / 40 UPRO/TMF

Thanks.
Yes, it WAS best; what will be in the future though? The more I’ve studied the less I want anything to do with TMF; I’m using EDV.
Yea I came across your posts as I was reading the previous pages (there's a LOT :D). So are you 55/45 UPRO/EDV?
Care to summarize your main reasons for EDV rather than TMF please?
43/57 UPRO/EDV actually, same equity/duration ratio as OP’s 55/45 but with a bit less leverage. My main reason; volatility decay. If rates bounce around for decades but stay around 2%, TMF will likely be down a good bit while EDV will have enjoyed a nice average 2% return plus some rebalancing bonus (which TMF also would have). TMF is great for if rates continue down, but starting from 2% doesn’t leave a lot of room for that without getting into an economic realm never before seen.

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Fri Oct 04, 2019 3:39 pm

MotoTrojan wrote:
Fri Oct 04, 2019 3:31 pm
get_g0ing wrote:
Fri Oct 04, 2019 3:25 pm
MotoTrojan wrote:
Fri Oct 04, 2019 3:21 pm
get_g0ing wrote:
Fri Oct 04, 2019 2:59 pm
So I've been looking a bit into this strategy. And came across this:
https://teddykoker.com/2019/04/backtest ... backtrader

who concluded that 40 / 60 UPRO/TMF was best .

Has someone here checked this data? I know HEDGEFUNDIE started with 40/60 but then switched to 55/45 UPRO/TMF.

I'm interested to know why the preferred allocation on this thread is 55/45, as opposed to:
50 / 50 UPRO/TMF
60 / 40 UPRO/TMF

Thanks.
Yes, it WAS best; what will be in the future though? The more I’ve studied the less I want anything to do with TMF; I’m using EDV.
Yea I came across your posts as I was reading the previous pages (there's a LOT :D). So are you 55/45 UPRO/EDV?
Care to summarize your main reasons for EDV rather than TMF please?
43/57 UPRO/EDV actually, same equity/duration ratio as OP’s 55/45 but with a bit less leverage. My main reason; volatility decay. If rates bounce around for decades but stay around 2%, TMF will likely be down a good bit while EDV will have enjoyed a nice average 2% return plus some rebalancing bonus (which TMF also would have). TMF is great for if rates continue down, but starting from 2% doesn’t leave a lot of room for that without getting into an economic realm never before seen.
That's a good succinct summary, appreciate it. Now I'll go back and spend an hour reading through the EDV discussion posts :)

Btw, if possible, can you please help me understand the difference between doing this in Roth vs taxable? Any example numbers that'll give me an idea on what to expect?

If the future performance is close to what we are hoping for, would it still be worth it in taxable, or does only Roth make it worthwhile?

Thanks.

caklim00
Posts: 1936
Joined: Mon May 26, 2008 10:09 am

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

Post by caklim00 » Fri Oct 04, 2019 4:10 pm

I'm not sure there is a really good way to do this in taxable. I'm considering using NTSX (Wisdomtree 90Equity/60 Int Term Treasuries) but that's nothing like this adventure. I'm currently trying to weigh out the tax consequences of using this and also the opportunity cost of not plugging more into SCV. That said I may use this as an opportunity to increase my bond allocation (even if it means some -Cash) I'm not sure what I would do though if I end upm with a large loss in this fund and need to tax loss harvest. Moto, what are your plans? Aren't u using NTSX now?

Code: Select all

NTSX uses futures contracts to construct what is effectively a leveraged 60/40 portfolio of US equities and Treasurys. The fund places 90% of its assets in US equities and the remaining 10% in Treasury futures contracts. The notional exposure of the Treasury futures equals 60% of the fund’s assets. The resulting exposure is equivalent to a 90/60 allocation to stocks and Treasurys, or a 60/40 allocation leveraged 150%. The equity allocation will generally consist of US large-caps, weighted by market cap. Treasury exposure will range in maturity between 2 and 30 years, with a target duration of 3 to 8 years.
I don't own any long terms bonds other than EDV which I have as part of my small allocation to this.

keith6014
Posts: 241
Joined: Thu Jan 02, 2014 11:58 pm

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

Post by keith6014 » Fri Oct 04, 2019 6:54 pm

after a little bit more than a month in the strategy, as of today I am beating S&P 500 benchmark by 1%.

Started the strat on Aug 13.
Total of 20 transactions. 18 buy 2 sell.
Target percentage: 55:45 (TMF/TQQQ). At the moment: %58.15,41.85

effigy98
Posts: 11
Joined: Wed Sep 25, 2019 8:57 pm

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

Post by effigy98 » Fri Oct 04, 2019 9:48 pm

Have some of this strategy in taxable as my tax sheltered is maxed. I am contributing about 70% of income to taxable each paycheck so it has been keeping up with re-balances even though I only devote about 10% of taxable to this strategy. I am using EDV/UPRO in taxable however and TMF in my roth so I don't feel like I have to rebalance on wild swings as much and can go more long-term in taxable.

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Fri Oct 04, 2019 11:05 pm

MotoTrojan wrote:
Fri Oct 04, 2019 3:31 pm
get_g0ing wrote:
Fri Oct 04, 2019 3:25 pm
MotoTrojan wrote:
Fri Oct 04, 2019 3:21 pm
get_g0ing wrote:
Fri Oct 04, 2019 2:59 pm
So I've been looking a bit into this strategy. And came across this:
https://teddykoker.com/2019/04/backtest ... backtrader

who concluded that 40 / 60 UPRO/TMF was best .

Has someone here checked this data? I know HEDGEFUNDIE started with 40/60 but then switched to 55/45 UPRO/TMF.

I'm interested to know why the preferred allocation on this thread is 55/45, as opposed to:
50 / 50 UPRO/TMF
60 / 40 UPRO/TMF

Thanks.
Yes, it WAS best; what will be in the future though? The more I’ve studied the less I want anything to do with TMF; I’m using EDV.
Yea I came across your posts as I was reading the previous pages (there's a LOT :D). So are you 55/45 UPRO/EDV?
Care to summarize your main reasons for EDV rather than TMF please?
43/57 UPRO/EDV actually, same equity/duration ratio as OP’s 55/45 but with a bit less leverage. My main reason; volatility decay. If rates bounce around for decades but stay around 2%, TMF will likely be down a good bit while EDV will have enjoyed a nice average 2% return plus some rebalancing bonus (which TMF also would have). TMF is great for if rates continue down, but starting from 2% doesn’t leave a lot of room for that without getting into an economic realm never before seen.
I saw several posts on TQQQ. Did you consider it? And if so, what were the reasons for not doing something like 43/57 TQQQ/EDV ?

Thanks.

MotoTrojan
Posts: 6807
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Fri Oct 04, 2019 11:42 pm

get_g0ing wrote:
Fri Oct 04, 2019 11:05 pm
MotoTrojan wrote:
Fri Oct 04, 2019 3:31 pm
get_g0ing wrote:
Fri Oct 04, 2019 3:25 pm
MotoTrojan wrote:
Fri Oct 04, 2019 3:21 pm
get_g0ing wrote:
Fri Oct 04, 2019 2:59 pm
So I've been looking a bit into this strategy. And came across this:
https://teddykoker.com/2019/04/backtest ... backtrader

who concluded that 40 / 60 UPRO/TMF was best .

Has someone here checked this data? I know HEDGEFUNDIE started with 40/60 but then switched to 55/45 UPRO/TMF.

I'm interested to know why the preferred allocation on this thread is 55/45, as opposed to:
50 / 50 UPRO/TMF
60 / 40 UPRO/TMF

Thanks.
Yes, it WAS best; what will be in the future though? The more I’ve studied the less I want anything to do with TMF; I’m using EDV.
Yea I came across your posts as I was reading the previous pages (there's a LOT :D). So are you 55/45 UPRO/EDV?
Care to summarize your main reasons for EDV rather than TMF please?
43/57 UPRO/EDV actually, same equity/duration ratio as OP’s 55/45 but with a bit less leverage. My main reason; volatility decay. If rates bounce around for decades but stay around 2%, TMF will likely be down a good bit while EDV will have enjoyed a nice average 2% return plus some rebalancing bonus (which TMF also would have). TMF is great for if rates continue down, but starting from 2% doesn’t leave a lot of room for that without getting into an economic realm never before seen.
I saw several posts on TQQQ. Did you consider it? And if so, what were the reasons for not doing something like 43/57 TQQQ/EDV ?

Thanks.
43% UPRO is plenty of horsepower and more likely to interact as expected with long treasury bonds than a concentrated market sector. Plus volatility decay is worse with a more volatile index.

MotoTrojan
Posts: 6807
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Fri Oct 04, 2019 11:43 pm

caklim00 wrote:
Fri Oct 04, 2019 4:10 pm
I'm not sure there is a really good way to do this in taxable. I'm considering using NTSX (Wisdomtree 90Equity/60 Int Term Treasuries) but that's nothing like this adventure. I'm currently trying to weigh out the tax consequences of using this and also the opportunity cost of not plugging more into SCV. That said I may use this as an opportunity to increase my bond allocation (even if it means some -Cash) I'm not sure what I would do though if I end upm with a large loss in this fund and need to tax loss harvest. Moto, what are your plans? Aren't u using NTSX now?

Code: Select all

NTSX uses futures contracts to construct what is effectively a leveraged 60/40 portfolio of US equities and Treasurys. The fund places 90% of its assets in US equities and the remaining 10% in Treasury futures contracts. The notional exposure of the Treasury futures equals 60% of the fund’s assets. The resulting exposure is equivalent to a 90/60 allocation to stocks and Treasurys, or a 60/40 allocation leveraged 150%. The equity allocation will generally consist of US large-caps, weighted by market cap. Treasury exposure will range in maturity between 2 and 30 years, with a target duration of 3 to 8 years.
I don't own any long terms bonds other than EDV which I have as part of my small allocation to this.
No NTSX, yet. My entire Roth is 43/57 UPRO/EDV and no plans to use that outside Roth.

rascott
Posts: 1070
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rascott » Sat Oct 05, 2019 12:30 am

caklim00 wrote:
Fri Oct 04, 2019 4:10 pm
I'm not sure there is a really good way to do this in taxable. I'm considering using NTSX (Wisdomtree 90Equity/60 Int Term Treasuries) but that's nothing like this adventure. I'm currently trying to weigh out the tax consequences of using this and also the opportunity cost of not plugging more into SCV. That said I may use this as an opportunity to increase my bond allocation (even if it means some -Cash) I'm not sure what I would do though if I end upm with a large loss in this fund and need to tax loss harvest. Moto, what are your plans? Aren't u using NTSX now?

Code: Select all

NTSX uses futures contracts to construct what is effectively a leveraged 60/40 portfolio of US equities and Treasurys. The fund places 90% of its assets in US equities and the remaining 10% in Treasury futures contracts. The notional exposure of the Treasury futures equals 60% of the fund’s assets. The resulting exposure is equivalent to a 90/60 allocation to stocks and Treasurys, or a 60/40 allocation leveraged 150%. The equity allocation will generally consist of US large-caps, weighted by market cap. Treasury exposure will range in maturity between 2 and 30 years, with a target duration of 3 to 8 years.
I don't own any long terms bonds other than EDV which I have as part of my small allocation to this.

As I stated above.... just go use Treasury futures yourself.... don't pay mgmt fees. Just find the correct duration exposure you need (TMF is roughly 53 duration right now), and find where on the yield curve it makes most sense to size to your portfolio size.

You can hold most of your equity straight up. Then toss either UPRO or some micro E- mini futures on top of your normal equity ETFs, to get to your desired equity exposure.

Doing this allows you to create the identical position as the using LETFs..... but more tax efficent if you are in taxable accounts... and likely better financing rates than what these firms are paying for their swaps.

And you get to dump paying 1% mgmt fees. I personally have an issue paying a 1% mgmt fee for something as simple as 3x leveraging a SP500 index/ treasury bonds. When you can buy the same leverage yourself via some futures contracts.

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Sat Oct 05, 2019 7:11 am

Upthread there were several mentions of:
PSLDX, PSPTX, NTSX

What's the summary on these please?
Are they interchangeable with each other?
Does OP's portfolio (55 UPRO / 45 TMF) mimic these?
Are they more suited for taxable?

Thanks for any insight.

columbia
Posts: 1978
Joined: Tue Aug 27, 2013 5:30 am

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

Post by columbia » Sat Oct 05, 2019 7:23 am

get_g0ing wrote:
Sat Oct 05, 2019 7:11 am
Upthread there were several mentions of:
PSLDX, PSPTX, NTSX

What's the summary on these please?
Are they interchangeable with each other?
Does OP's portfolio (55 UPRO / 45 TMF) mimic these?
Are they more suited for taxable?

Thanks for any insight.
PSLDX holdings:
https://markets.ft.com/data/funds/tears ... gs?s=PSLDX

I’m using 30% + treasuries. Comparison vs. 60/40 fund:

https://www.portfoliovisualizer.com/bac ... 0&total3=0

$25,000 minimum through Vanguard.

rascott
Posts: 1070
Joined: Wed Apr 15, 2015 10:53 am

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

Post by rascott » Sat Oct 05, 2019 7:40 am

columbia wrote:
Sat Oct 05, 2019 7:23 am
get_g0ing wrote:
Sat Oct 05, 2019 7:11 am
Upthread there were several mentions of:
PSLDX, PSPTX, NTSX

What's the summary on these please?
Are they interchangeable with each other?
Does OP's portfolio (55 UPRO / 45 TMF) mimic these?
Are they more suited for taxable?

Thanks for any insight.
PSLDX holdings:
https://markets.ft.com/data/funds/tears ... gs?s=PSLDX

I’m using 30% + treasuries. Comparison vs. 60/40 fund:

https://www.portfoliovisualizer.com/bac ... 0&total3=0

$25,000 minimum through Vanguard.
That's an interesting combo that is incredibly bond heavy.

30% SP500
100% Bonds (intermediate+long term)

Why did you decide to do this?

rascott
Posts: 1070
Joined: Wed Apr 15, 2015 10:53 am

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

Post by rascott » Sat Oct 05, 2019 7:47 am

get_g0ing wrote:
Sat Oct 05, 2019 7:11 am
Upthread there were several mentions of:
PSLDX, PSPTX, NTSX

What's the summary on these please?
Are they interchangeable with each other?
Does OP's portfolio (55 UPRO / 45 TMF) mimic these?
Are they more suited for taxable?

Thanks for any insight.

The Pimco funds are 2x leverage. So less leverage than OP.

100% SP500 (via futures)
100% actively managed bonds (corporate, MBS, e.t.c)

PSLDX is all long duration bonds
PSPTX is whatever bonds they want to use, but in practice shorter duration.

NTSX is 90/60... so 1.5x leverage. This is basically taking a 60/40 portfolio and lightly leveraging it.

90% SP500 (no leverage)
60% Treasuries (leveraged via futures)

They are all different.... risk/ return level would be ranked from most to least

OP's adventure
PSLDX
PSPTX
NTSX


PSLDX is most similar to this strategy. Just 2x, instead of 3x leverage. And not purely long- duration Treasuries, but some element of corporate/ credit risk on the bond side.

Freefun
Posts: 525
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Freefun » Sat Oct 05, 2019 7:53 am

rascott wrote:
Wed Oct 02, 2019 11:20 pm
caklim00 wrote:
Wed Oct 02, 2019 10:17 pm
rascott wrote:
Wed Oct 02, 2019 7:57 pm
HEDGEFUNDIE wrote:
Wed Oct 02, 2019 2:21 pm
caklim00 wrote:
Wed Oct 02, 2019 1:55 pm
Anyone else using NTSX?

So, I'm highly considering using this fund. My current strategy is 85/15 Equity/Bonds split. 50/50 US/Intl for equity split. And tilt as hard to SCV(or multifactor as possible given 401k/403b constraints). I also have a very small portion in the hedgefundie (EDV/UPRO now) at M1 but I've just excluded this from analysis since I don't want that to muck things up to much.

The biggest place where I can shift things around are my 401k and DWs 403b. For mine I use
Large International (ACWI ExUs)
Small US (R2K)
TBM (Intermediate Bonds)

For DW
Small US (S&P 600)
TBM (Intermediate Bonds)

In IRAs I'm split between US SCV (SLYV) and Intl Small Multifactor (ISCF). I have a bunch of VFMF and other ETFs with unrealized gains in taxable as well.

If I was going to add NTSX I was thinking of 2 possibilities:
1) Buy in taxable
2) Sell US SCV (SLYV) in IRA. Buy NTSX with proceeds. Exchange some TBM for US SC (S&P 600) in DW's 403b.
3) Buy US SCV (VIOV/IJS) in taxable with extra money. Sell equivalent amount of US SCV (SLYV) in IRA and use proceeds to buy NTSX.

I'm leaning towards Option 3, since I wouldn't be losing any of my SCV tilt, but of course there is an opprotunity cost in that I could be adding to SCV or VFMF in taxable instead.

How does one calculate their Equity/Bond split using these derivative funds? Would I just take NTSX Value * .9 for US Equity and NTSX Value * .6 for Bonds. I've been considering moving to a 80/20 Equity/Bond split anyway and using Option 3 might help me get to 80/20 without selling equity in my 401k/403b.

Note: I really like PSLDX but I'm not sure if anyone has found a cheap way to buy it and NTSX seems very cheap.
$20 commission for PSLDX at etrade

$10 commission at Ally
I just took a look Minimum Initial Investment $1000000 yikes
IRA minimum is $100. You only would ever want this fund in an IRA anyway.
Which brokerages can I get PSLDX for $100 min in IRA? Can I do this at Schwab?
Remember when you wanted what you currently have?

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Sat Oct 05, 2019 7:54 am

columbia wrote:
Sat Oct 05, 2019 7:23 am
get_g0ing wrote:
Sat Oct 05, 2019 7:11 am
Upthread there were several mentions of:
PSLDX, PSPTX, NTSX

What's the summary on these please?
Are they interchangeable with each other?
Does OP's portfolio (55 UPRO / 45 TMF) mimic these?
Are they more suited for taxable?

Thanks for any insight.
PSLDX holdings:
https://markets.ft.com/data/funds/tears ... gs?s=PSLDX

I’m using 30% + treasuries. Comparison vs. 60/40 fund:

https://www.portfoliovisualizer.com/bac ... 0&total3=0

$25,000 minimum through Vanguard.
hmm, I didn't get it. PSLDX doesn't come close to OP's recommended portfolio:
https://www.portfoliovisualizer.com/bac ... total3=100

columbia
Posts: 1978
Joined: Tue Aug 27, 2013 5:30 am

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

Post by columbia » Sat Oct 05, 2019 8:01 am

I’m hoping for it to match (and possibly beat) a 60/40.

Frankly, I think the UPRO/TMF thing is reckless...

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Sat Oct 05, 2019 8:11 am

Freefun wrote:
Sat Oct 05, 2019 7:53 am
rascott wrote:
Wed Oct 02, 2019 11:20 pm
caklim00 wrote:
Wed Oct 02, 2019 10:17 pm
rascott wrote:
Wed Oct 02, 2019 7:57 pm
HEDGEFUNDIE wrote:
Wed Oct 02, 2019 2:21 pm


$20 commission for PSLDX at etrade

$10 commission at Ally
I just took a look Minimum Initial Investment $1000000 yikes
IRA minimum is $100. You only would ever want this fund in an IRA anyway.
Which brokerages can I get PSLDX for $100 min in IRA? Can I do this at Schwab?
Schwab minimums are very high, $100,000:

Image

rascott
Posts: 1070
Joined: Wed Apr 15, 2015 10:53 am

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

Post by rascott » Sat Oct 05, 2019 8:24 am

Freefun wrote:
Sat Oct 05, 2019 7:53 am
rascott wrote:
Wed Oct 02, 2019 11:20 pm
caklim00 wrote:
Wed Oct 02, 2019 10:17 pm
rascott wrote:
Wed Oct 02, 2019 7:57 pm
HEDGEFUNDIE wrote:
Wed Oct 02, 2019 2:21 pm


$20 commission for PSLDX at etrade

$10 commission at Ally
I just took a look Minimum Initial Investment $1000000 yikes
IRA minimum is $100. You only would ever want this fund in an IRA anyway.
Which brokerages can I get PSLDX for $100 min in IRA? Can I do this at Schwab?

Ally.

Maybe E Trade? TDA has it, but charges $50.
Last edited by rascott on Sat Oct 05, 2019 8:26 am, edited 1 time in total.

rascott
Posts: 1070
Joined: Wed Apr 15, 2015 10:53 am

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

Post by rascott » Sat Oct 05, 2019 8:25 am

rascott wrote:
Sat Oct 05, 2019 7:47 am
get_g0ing wrote:
Sat Oct 05, 2019 7:11 am
Upthread there were several mentions of:
PSLDX, PSPTX, NTSX

What's the summary on these please?
Are they interchangeable with each other?
Does OP's portfolio (55 UPRO / 45 TMF) mimic these?
Are they more suited for taxable?

Thanks for any insight.

The Pimco funds are 2x leverage. So less leverage than OP.

100% SP500 (via futures)
100% actively managed bonds (corporate, MBS, e.t.c)

PSLDX is all long duration bonds
PSPTX is whatever bonds they want to use, but in practice shorter duration.

NTSX is 90/60... so 1.5x leverage. This is basically taking a 60/40 portfolio and lightly leveraging it.

90% SP500 (no leverage)
60% Treasuries (leveraged via futures)

They are all different.... risk/ return level would be ranked from most to least

OP's adventure
PSLDX
PSPTX
NTSX


PSLDX is most similar to this strategy. Just 2x, instead of 3x leverage. And not purely long- duration Treasuries, but some element of corporate/ credit risk on the bond side.


NTSX should be fine for taxable. The PIMCO funds after most certainly not. Don't even think you can buy them outside an IRA

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Sat Oct 05, 2019 8:36 am

rascott wrote:
Sat Oct 05, 2019 7:47 am

.... risk/ return level would be ranked from most to least

OP's adventure
PSLDX
PSPTX
NTSX


PSLDX is most similar to this strategy. Just 2x, instead of 3x leverage. And not purely long- duration Treasuries, but some element of corporate/ credit risk on the bond side.
TQQQ/TMF
OP's adventure
PSLDX
PSPTX
NTSX

right? :P

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Sat Oct 05, 2019 8:42 am

columbia wrote:
Sat Oct 05, 2019 8:01 am
I’m hoping for it to match (and possibly beat) a 60/40.

Frankly, I think the UPRO/TMF thing is reckless...
I see. The main risk is the deep drawdowns right? Even with the EDV modification that was discussed?

MotoTrojan
Posts: 6807
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Sat Oct 05, 2019 9:03 am

get_g0ing wrote:
Sat Oct 05, 2019 8:42 am
columbia wrote:
Sat Oct 05, 2019 8:01 am
I’m hoping for it to match (and possibly beat) a 60/40.

Frankly, I think the UPRO/TMF thing is reckless...
I see. The main risk is the deep drawdowns right? Even with the EDV modification that was discussed?
You need to understand the mechanics before plunging into this and unfortunately it seems you do not.

schismal
Posts: 142
Joined: Sat Apr 13, 2019 8:53 pm

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

Post by schismal » Sat Oct 05, 2019 9:21 am

MotoTrojan wrote:
Sat Oct 05, 2019 9:03 am
You need to understand the mechanics before plunging into this and unfortunately it seems you do not.
The original thread discussed all of this in great detail, and the fact that it was split has led to a lot of confusion. I suggest that newcomers review the initial thread (link in OP).

effigy98
Posts: 11
Joined: Wed Sep 25, 2019 8:57 pm

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

Post by effigy98 » Sat Oct 05, 2019 9:25 am

MotoTrojan wrote:
Sat Oct 05, 2019 9:03 am
get_g0ing wrote:
Sat Oct 05, 2019 8:42 am
columbia wrote:
Sat Oct 05, 2019 8:01 am
I’m hoping for it to match (and possibly beat) a 60/40.

Frankly, I think the UPRO/TMF thing is reckless...
I see. The main risk is the deep drawdowns right? Even with the EDV modification that was discussed?
You need to understand the mechanics before plunging into this and unfortunately it seems you do not.
This is a gamble but seems to be tilted in our favor. You should read both the threads on this before you go for it to really know what you are getting yourself into. There is a chance your investments go to zero. It sounds like most people who are doing this are capping their total investment to 10% or under of total portfolio.

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Sat Oct 05, 2019 9:37 am

MotoTrojan wrote:
Sat Oct 05, 2019 9:03 am
get_g0ing wrote:
Sat Oct 05, 2019 8:42 am
columbia wrote:
Sat Oct 05, 2019 8:01 am
I’m hoping for it to match (and possibly beat) a 60/40.

Frankly, I think the UPRO/TMF thing is reckless...
I see. The main risk is the deep drawdowns right? Even with the EDV modification that was discussed?
You need to understand the mechanics before plunging into this and unfortunately it seems you do not.
That is what I am doing currently :)
I've spent several hours on Part I and Part II.

I don't believe anyone can claim total understanding, because research papers could be written on these topics. But if risk management is in place, i.e., limit this to play money that one is mentally okay losing all of, and knowing that it won't impact their life, then the bar would be much lower.

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Sat Oct 05, 2019 9:55 am

effigy98 wrote:
Sat Oct 05, 2019 9:25 am
MotoTrojan wrote:
Sat Oct 05, 2019 9:03 am
get_g0ing wrote:
Sat Oct 05, 2019 8:42 am
columbia wrote:
Sat Oct 05, 2019 8:01 am
I’m hoping for it to match (and possibly beat) a 60/40.

Frankly, I think the UPRO/TMF thing is reckless...
I see. The main risk is the deep drawdowns right? Even with the EDV modification that was discussed?
You need to understand the mechanics before plunging into this and unfortunately it seems you do not.
This is a gamble but seems to be tilted in our favor. You should read both the threads on this before you go for it to really know what you are getting yourself into. There is a chance your investments go to zero. It sounds like most people who are doing this are capping their total investment to 10% or under of total portfolio.
Yes, very well said. I will personally recommend keeping in mind and being prepared for the following range of outcomes:
- vastly under perform S&P 500 (or even lose it all)
- slightly under perform
- About equal
- slight over perform
- vastly over perform

Of course, someone with extraordinary understanding could even assign probability %s to the above, but risk capping would be very prudent, as OP has eloquently stated in the genesis post:
"I am risking money that is a limited amount of my net worth, and if I lost it all, would not materially change the course of my retirement savings."

Kbg
Posts: 38
Joined: Thu Mar 23, 2017 11:33 am

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

Post by Kbg » Sat Oct 05, 2019 11:04 am

pepys wrote:
Mon Sep 30, 2019 2:34 pm
Kbg wrote:
Thu Sep 26, 2019 1:45 am
privatefarmer wrote:
Thu Sep 19, 2019 10:33 am
Kbg wrote:
Wed Sep 18, 2019 10:19 pm
Long UGLD since 2014. 5 years straight in the red, overall UGLD position now up 35%. The undeniable fact is it’s a good diversifier. My version of this has slightly outperformed SPY total return by 6% points over 5yrs, lags by 12 over 3yrs and is +22% points over 1 year.

I believe this is called tracking error. :D
UGLD as a single holding would be a horrible idea. As a part of a leveraged risk parity strategy, however, it could help.
Don’t know if it will hurt or help. I do know the correlation with the other 2 is near zero and has done well when the other two have not. Personally I’ve been surprised at the total write off of about half the history of your backtests.
If it has near zero correlation, I think it would be a bad idea to hold it, unless if you expect higher long term appreciation than has been seen in the past. When considering the expense ratio (1.35%), LIBOR, and assuming the adjustment factor of around 1% for 3x funds that siamond used applies to this as well, even the relatively high real returns of ~0.8% since 1975 wouldn't seem to be worth it (and the ~0.5% real returns over a much longer period, even less so).

If it does well when stocks/bonds do really badly though, as it mostly has since 1975, and the returns aren't awful, then I agree it probably would be a good diversifier.
It amazes me at how little people check out things for themselves...the data is there for all to see in terms of performance and volatility. If one invested in the 80s gold was a popular choice in portfolios, if one invested in the 90s through mid 00s gold was anathema. Why is that? I've long since learned two things when investing: A) Ignore opinion, look at the data, B) recency bias is a real thing and we have to be patient.

Since GLD came around in 2005 it has slightly under performed stocks and outperformed bonds with more volatility. Those are the facts.

ltdshred
Posts: 19
Joined: Sun Jul 07, 2019 9:41 pm

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

Post by ltdshred » Sat Oct 05, 2019 11:13 am

Does someone know how to create the TQQQ and TMF simulations in PV? I want to backtest these strategies against the 90s and lost decade of 2000s doing a 40-60, 55-45, 60-40 w/ NASDAQ.

sfmurph
Posts: 13
Joined: Mon Aug 12, 2019 8:15 pm

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

Post by sfmurph » Sat Oct 05, 2019 11:16 am

MotoTrojan wrote:
Fri Oct 04, 2019 3:31 pm
43/57 UPRO/EDV actually, same equity/duration ratio as OP’s 55/45 but with a bit less leverage. My main reason; volatility decay. If rates bounce around for decades but stay around 2%, TMF will likely be down a good bit while EDV will have enjoyed a nice average 2% return plus some rebalancing bonus (which TMF also would have). TMF is great for if rates continue down, but starting from 2% doesn’t leave a lot of room for that without getting into an economic realm never before seen.
What's the calculation to see that 43/57 UPRO/EDV and 55/45 UPRO/TMF have same equity/duration ratio? I see that EDV has an effective duration of 24.4 years (from e*trade) and someone else here has said that TMF has an effective duration of 53 years (though I don't know where that number comes from). I would think this would be a straightforward calculation, but I don't see it.

caklim00
Posts: 1936
Joined: Mon May 26, 2008 10:09 am

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

Post by caklim00 » Sat Oct 05, 2019 11:38 am

rascott wrote:
Sat Oct 05, 2019 12:30 am
caklim00 wrote:
Fri Oct 04, 2019 4:10 pm
I'm not sure there is a really good way to do this in taxable. I'm considering using NTSX (Wisdomtree 90Equity/60 Int Term Treasuries) but that's nothing like this adventure. I'm currently trying to weigh out the tax consequences of using this and also the opportunity cost of not plugging more into SCV. That said I may use this as an opportunity to increase my bond allocation (even if it means some -Cash) I'm not sure what I would do though if I end upm with a large loss in this fund and need to tax loss harvest. Moto, what are your plans? Aren't u using NTSX now?

Code: Select all

NTSX uses futures contracts to construct what is effectively a leveraged 60/40 portfolio of US equities and Treasurys. The fund places 90% of its assets in US equities and the remaining 10% in Treasury futures contracts. The notional exposure of the Treasury futures equals 60% of the fund’s assets. The resulting exposure is equivalent to a 90/60 allocation to stocks and Treasurys, or a 60/40 allocation leveraged 150%. The equity allocation will generally consist of US large-caps, weighted by market cap. Treasury exposure will range in maturity between 2 and 30 years, with a target duration of 3 to 8 years.
I don't own any long terms bonds other than EDV which I have as part of my small allocation to this.

As I stated above.... just go use Treasury futures yourself.... don't pay mgmt fees. Just find the correct duration exposure you need (TMF is roughly 53 duration right now), and find where on the yield curve it makes most sense to size to your portfolio size.

You can hold most of your equity straight up. Then toss either UPRO or some micro E- mini futures on top of your normal equity ETFs, to get to your desired equity exposure.

Doing this allows you to create the identical position as the using LETFs..... but more tax efficent if you are in taxable accounts... and likely better financing rates than what these firms are paying for their swaps.

And you get to dump paying 1% mgmt fees. I personally have an issue paying a 1% mgmt fee for something as simple as 3x leveraging a SP500 index/ treasury bonds. When you can buy the same leverage yourself via some futures contracts.
Are you doing this strategy yourself? If so where/hiw are you buying treasury futures? I could see myself moving from 85/15 to 85/25/-10 if there is an easy way to do a treasury ladder. It would actually be ideal for me instead of using ntsx as I could continue using scv/multifactor instead of adding on a bunch of s&p 500.

MotoTrojan
Posts: 6807
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Sat Oct 05, 2019 11:57 am

sfmurph wrote:
Sat Oct 05, 2019 11:16 am
MotoTrojan wrote:
Fri Oct 04, 2019 3:31 pm
43/57 UPRO/EDV actually, same equity/duration ratio as OP’s 55/45 but with a bit less leverage. My main reason; volatility decay. If rates bounce around for decades but stay around 2%, TMF will likely be down a good bit while EDV will have enjoyed a nice average 2% return plus some rebalancing bonus (which TMF also would have). TMF is great for if rates continue down, but starting from 2% doesn’t leave a lot of room for that without getting into an economic realm never before seen.
What's the calculation to see that 43/57 UPRO/EDV and 55/45 UPRO/TMF have same equity/duration ratio? I see that EDV has an effective duration of 24.4 years (from e*trade) and someone else here has said that TMF has an effective duration of 53 years (though I don't know where that number comes from). I would think this would be a straightforward calculation, but I don't see it.
I showed the numbers a while back but to be fair I actually used annual volatility of EDV and TMF data in the Simba spreadsheet as a proxy of duration (volatility is what really matters anyways) from 1955-2018, then from there it’s simple math (used Excel) to adjust the allocation until the ratio of volatility is equal.

Volatility decay of 3x daily rebalancing funds actually helps you beat a pure 3x index when the index is going both up AND down steadily; it only loses out in flat markets. I see a high likelihood of rates staying in the 0-4% realm over my investing lifetime and that would crush TMF, even if rates end right where they started. The S&P500 on the other hand is likely to go up and down, but mostly up of course. I’d rather use the LETF on equity side and then use EDV’s zero coupon nature to get some synthetic leverage over other long bond options.

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

Post by MotoTrojan » Sat Oct 05, 2019 11:58 am

ltdshred wrote:
Sat Oct 05, 2019 11:13 am
Does someone know how to create the TQQQ and TMF simulations in PV? I want to backtest these strategies against the 90s and lost decade of 2000s doing a 40-60, 55-45, 60-40 w/ NASDAQ.
TMF exists back to 1955 (see thread 1).

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

Post by MotoTrojan » Sat Oct 05, 2019 11:58 am

get_g0ing wrote:
Sat Oct 05, 2019 9:37 am
MotoTrojan wrote:
Sat Oct 05, 2019 9:03 am
get_g0ing wrote:
Sat Oct 05, 2019 8:42 am
columbia wrote:
Sat Oct 05, 2019 8:01 am
I’m hoping for it to match (and possibly beat) a 60/40.

Frankly, I think the UPRO/TMF thing is reckless...
I see. The main risk is the deep drawdowns right? Even with the EDV modification that was discussed?
You need to understand the mechanics before plunging into this and unfortunately it seems you do not.
That is what I am doing currently :)
I've spent several hours on Part I and Part II.

I don't believe anyone can claim total understanding, because research papers could be written on these topics. But if risk management is in place, i.e., limit this to play money that one is mentally okay losing all of, and knowing that it won't impact their life, then the bar would be much lower.
Awesome. I’d focus on duration/volatility of the various bond options and also volatility decay of the leveraged funds.

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