HEDGEFUNDIE's excellent adventure Part II: The next journey

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get_g0ing
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by get_g0ing » Sat Oct 12, 2019 7:46 pm

MotoTrojan wrote:
Sat Oct 12, 2019 12:11 pm
get_g0ing wrote:
Sat Oct 12, 2019 10:18 am
MotoTrojan wrote:
Wed Oct 09, 2019 9:23 pm
Hi MotoTrojan,

Question about the 43/57 UPRO/EDV allocation:

In Part I, OP had 40/60 UPRO/TMF, but then realized that the UPRO wasn't enough, so gave it a huge bump to 55/45 UPRO/TMF.
In 43/57 UPRO/EDV, isn't the UPRO too low? I'm not saying that it is, I'm just wanting to understand if the expectation is for this AA to return close to 55/45 UPRO?TMF? Since the UPRO %s are significantly different, I'm guessing the expected returns would be quite different too?

Second question, why did you not consider something like 55/45 or even 50/50 UPRO/EDV?

Thanks.
It is all about the ratio of volatility of equity to volatility of treasuries. TMF moves more than EDV. The best way to think about it is that 55/45 UPRO/TMF and 43/57 UPRO/EDV are the same portfolio (same ratio of volatility over the long run) but the 55/45 UPRO/TMF one has ~28% more leverage overall. More leverage does not always mean more return, and it does always mean more risk.

40/60 UPRO/TMF was risk-parity (equal volatility in equity and bonds) which both the 55/45 and 43/57 variations are deviating from, with a tilt towards equities.

55/45 beat my approach 1955-2018 by about 1% CAGR, but during the 1982-present period that most people are focusing on they both did great with 17% and 20% CAGR. Nobody knows what the future holds but with rates where they are I feel much better with my allocation; no volatility decay on the bond side either.

One last time; I would not invest in this until you understand these nuances.
Hey Moto, thanks for the explanation. It was well written :happy

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

Post by MotoTrojan » Sat Oct 12, 2019 7:56 pm

305pelusa wrote:
Sat Oct 12, 2019 7:33 pm
Hydromod wrote:
Sat Oct 12, 2019 7:21 pm
For two assets, how does correlation make a difference? My impression is that correlation kicks in with three, but I certainly may be wrong
You're asking what difference correlation makes in with mean-variance analysis of two assets? It's one of the inputs 0_o
With only 2 assets the ratio for risk-parity is the same as inverse-volatility. All that matters is volatility. Only when 3 or more are evaluated does it change the output.

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305pelusa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 305pelusa » Sat Oct 12, 2019 7:58 pm

MotoTrojan wrote:
Sat Oct 12, 2019 7:56 pm
305pelusa wrote:
Sat Oct 12, 2019 7:33 pm
Hydromod wrote:
Sat Oct 12, 2019 7:21 pm
For two assets, how does correlation make a difference? My impression is that correlation kicks in with three, but I certainly may be wrong
You're asking what difference correlation makes in with mean-variance analysis of two assets? It's one of the inputs 0_o
With only 2 assets the ratio for risk-parity is the same as inverse-volatility. All that matters is volatility. Only when 3 or more are evaluated does it change the output.
It's not that "it doesn't matter". It's that it's inherently assuming one for you and mean-variance optimizing from there. That's what I'm trying to say haha

get_g0ing
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by get_g0ing » Wed Oct 16, 2019 2:53 pm

MotoTrojan wrote:
Sat Oct 12, 2019 12:11 pm
... 55/45 UPRO/TMF and 43/57 UPRO/EDV are the same portfolio (same ratio of volatility over the long run) but the 55/45 UPRO/TMF one has ~28% more leverage overall.
Hi MotoTrojan,

So I've been trying to learn a bit more on this. One question:

How did you calculate that 55/45 UPRO/TMF would equate 43/57 UPRO/EDV? I mean when you started with 55/45 UPRO/TMF, how did you get the equivalent AA of 43 for UPRO and 57 for EDV - what calculation did you use for that?

Thanks

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

Post by MotoTrojan » Wed Oct 16, 2019 3:31 pm

get_g0ing wrote:
Wed Oct 16, 2019 2:53 pm
MotoTrojan wrote:
Sat Oct 12, 2019 12:11 pm
... 55/45 UPRO/TMF and 43/57 UPRO/EDV are the same portfolio (same ratio of volatility over the long run) but the 55/45 UPRO/TMF one has ~28% more leverage overall.
Hi MotoTrojan,

So I've been trying to learn a bit more on this. One question:

How did you calculate that 55/45 UPRO/TMF would equate 43/57 UPRO/EDV? I mean when you started with 55/45 UPRO/TMF, how did you get the equivalent AA of 43 for UPRO and 57 for EDV - what calculation did you use for that?

Thanks
1st I got the long-term volatility of simulated UPRO, TMF, and EDV from 1955-2018 using the Simba spreadsheet. You could do the same using Portfolio Visualizer but I don't have simulated EDV data back since VEDTX inception.

Then I took (volatility_UPRO * 0.55) / (volatility_TMF * 0.45) and set that as my equity to bond volatility ratio. In this case the volatility of the bond fund is a proxy for duration as well.

Then I took (volatility_UPRO * 0.XX) / (volatility_EDV * (1-0.XX)) and iterated on XX until the ratio was equal to the 55/45 UPRO/TMF option.

55/45 was pulled out of thin-air too though, so it isn't critical to maintain this ratio, but I wanted to do it for comparison sake as it is the best way to replicate the same exact portfolio, just with reduced leverage. I was happy with how it back-tested though throughout the full history of time, so I just stuck with it.

get_g0ing
Posts: 548
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by get_g0ing » Wed Oct 16, 2019 3:50 pm

MotoTrojan wrote:
Wed Oct 16, 2019 3:31 pm
get_g0ing wrote:
Wed Oct 16, 2019 2:53 pm
MotoTrojan wrote:
Sat Oct 12, 2019 12:11 pm
... 55/45 UPRO/TMF and 43/57 UPRO/EDV are the same portfolio (same ratio of volatility over the long run) but the 55/45 UPRO/TMF one has ~28% more leverage overall.
Hi MotoTrojan,

So I've been trying to learn a bit more on this. One question:

How did you calculate that 55/45 UPRO/TMF would equate 43/57 UPRO/EDV? I mean when you started with 55/45 UPRO/TMF, how did you get the equivalent AA of 43 for UPRO and 57 for EDV - what calculation did you use for that?

Thanks
1st I got the long-term volatility of simulated UPRO, TMF, and EDV from 1955-2018 using the Simba spreadsheet. You could do the same using Portfolio Visualizer but I don't have simulated EDV data back since VEDTX inception.

Then I took (volatility_UPRO * 0.55) / (volatility_TMF * 0.45) and set that as my equity to bond volatility ratio. In this case the volatility of the bond fund is a proxy for duration as well.

Then I took (volatility_UPRO * 0.XX) / (volatility_EDV * (1-0.XX)) and iterated on XX until the ratio was equal to the 55/45 UPRO/TMF option.

55/45 was pulled out of thin-air too though, so it isn't critical to maintain this ratio, but I wanted to do it for comparison sake as it is the best way to replicate the same exact portfolio, just with reduced leverage. I was happy with how it back-tested though throughout the full history of time, so I just stuck with it.
Thanks so much! :happy

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

Post by spae » Wed Oct 16, 2019 3:57 pm

muffins14 wrote:
Thu Oct 10, 2019 11:31 pm
Not sure if covered elsewhere, but this strategy should be implementable in Fidelity IRAs now, given that commission fees are zero.
I've been doing this with Fidelity the entire time. With quarterly rebalancing, the cost savings from free trades doesn't amount to much. I certainly don't mind the cost reduction but I don't think this will affect most people much?

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

Post by Hydromod » Wed Oct 16, 2019 4:01 pm

MotoTrojan wrote:
Wed Oct 16, 2019 3:31 pm
1st I got the long-term volatility of simulated UPRO, TMF, and EDV from 1955-2018 using the Simba spreadsheet. You could do the same using Portfolio Visualizer but I don't have simulated EDV data back since VEDTX inception.

Then I took (volatility_UPRO * 0.55) / (volatility_TMF * 0.45) and set that as my equity to bond volatility ratio. In this case the volatility of the bond fund is a proxy for duration as well.

Then I took (volatility_UPRO * 0.XX) / (volatility_EDV * (1-0.XX)) and iterated on XX until the ratio was equal to the 55/45 UPRO/TMF option.

55/45 was pulled out of thin-air too though, so it isn't critical to maintain this ratio, but I wanted to do it for comparison sake as it is the best way to replicate the same exact portfolio, just with reduced leverage. I was happy with how it back-tested though throughout the full history of time, so I just stuck with it.
For grins I double-checked. Writing your balance in short notation,

(vU fU)/(vT fT) = (vE fE)/(vT (1 - fE))

If I did the math correctly, this can be rewritten as fE = (b fU) / (fT + b fU)

where v is volatility, f is fractional weight, and b is (vE/vT). Subscripts U, T, and E are for UPRO, TMF, and EDV. The UPRO volatility canceled out.

For 2010-present, PV says b = 0.5, which implies fE = 0.38. I'm guessing the historic ratio was b = 0.61.

andromeda2k12
Posts: 9
Joined: Sun Oct 13, 2019 10:22 pm

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

Post by andromeda2k12 » Wed Oct 16, 2019 9:59 pm

MotoTrojan wrote:
Wed Oct 16, 2019 3:31 pm
get_g0ing wrote:
Wed Oct 16, 2019 2:53 pm
MotoTrojan wrote:
Sat Oct 12, 2019 12:11 pm
... 55/45 UPRO/TMF and 43/57 UPRO/EDV are the same portfolio (same ratio of volatility over the long run) but the 55/45 UPRO/TMF one has ~28% more leverage overall.
Hi MotoTrojan,

So I've been trying to learn a bit more on this. One question:

How did you calculate that 55/45 UPRO/TMF would equate 43/57 UPRO/EDV? I mean when you started with 55/45 UPRO/TMF, how did you get the equivalent AA of 43 for UPRO and 57 for EDV - what calculation did you use for that?

Thanks
1st I got the long-term volatility of simulated UPRO, TMF, and EDV from 1955-2018 using the Simba spreadsheet. You could do the same using Portfolio Visualizer but I don't have simulated EDV data back since VEDTX inception.

Then I took (volatility_UPRO * 0.55) / (volatility_TMF * 0.45) and set that as my equity to bond volatility ratio. In this case the volatility of the bond fund is a proxy for duration as well.

Then I took (volatility_UPRO * 0.XX) / (volatility_EDV * (1-0.XX)) and iterated on XX until the ratio was equal to the 55/45 UPRO/TMF option.

55/45 was pulled out of thin-air too though, so it isn't critical to maintain this ratio, but I wanted to do it for comparison sake as it is the best way to replicate the same exact portfolio, just with reduced leverage. I was happy with how it back-tested though throughout the full history of time, so I just stuck with it.
Hey MotoTrojan,

You've gotten me on the non leveraged treasury bandwagon for this adventure after I looked at the comparison data from 1955-1981. But I was interested to find that ITT actually outperformed EDV from 1955-2018 by 5.78% vs. 5.26%.

Now obviously this is a tale of two stories where ITT outperformed from 1955-1981 3.62% vs. -3.41 whereas from 1982-2018 EDV outperformed 12.08% vs. 7.38%.

In this interest rate environment is it reasonable to consider ITT instead of EDV?

Also, I was wondering if the PV data is somewhere for UPRO/TMF that goes back to 1955? I know HEDGEFUNDIE was using it for the initial analysis but I have only been able to find the data file that goes back to 1986. Thanks

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

Post by MotoTrojan » Wed Oct 16, 2019 10:49 pm

andromeda2k12 wrote:
Wed Oct 16, 2019 9:59 pm
MotoTrojan wrote:
Wed Oct 16, 2019 3:31 pm
get_g0ing wrote:
Wed Oct 16, 2019 2:53 pm
MotoTrojan wrote:
Sat Oct 12, 2019 12:11 pm
... 55/45 UPRO/TMF and 43/57 UPRO/EDV are the same portfolio (same ratio of volatility over the long run) but the 55/45 UPRO/TMF one has ~28% more leverage overall.
Hi MotoTrojan,

So I've been trying to learn a bit more on this. One question:

How did you calculate that 55/45 UPRO/TMF would equate 43/57 UPRO/EDV? I mean when you started with 55/45 UPRO/TMF, how did you get the equivalent AA of 43 for UPRO and 57 for EDV - what calculation did you use for that?

Thanks
1st I got the long-term volatility of simulated UPRO, TMF, and EDV from 1955-2018 using the Simba spreadsheet. You could do the same using Portfolio Visualizer but I don't have simulated EDV data back since VEDTX inception.

Then I took (volatility_UPRO * 0.55) / (volatility_TMF * 0.45) and set that as my equity to bond volatility ratio. In this case the volatility of the bond fund is a proxy for duration as well.

Then I took (volatility_UPRO * 0.XX) / (volatility_EDV * (1-0.XX)) and iterated on XX until the ratio was equal to the 55/45 UPRO/TMF option.

55/45 was pulled out of thin-air too though, so it isn't critical to maintain this ratio, but I wanted to do it for comparison sake as it is the best way to replicate the same exact portfolio, just with reduced leverage. I was happy with how it back-tested though throughout the full history of time, so I just stuck with it.
Hey MotoTrojan,

You've gotten me on the non leveraged treasury bandwagon for this adventure after I looked at the comparison data from 1955-1981. But I was interested to find that ITT actually outperformed EDV from 1955-2018 by 5.78% vs. 5.26%.

Now obviously this is a tale of two stories where ITT outperformed from 1955-1981 3.62% vs. -3.41 whereas from 1982-2018 EDV outperformed 12.08% vs. 7.38%.

In this interest rate environment is it reasonable to consider ITT instead of EDV?

Also, I was wondering if the PV data is somewhere for UPRO/TMF that goes back to 1955? I know HEDGEFUNDIE was using it for the initial analysis but I have only been able to find the data file that goes back to 1986. Thanks
Even if rates rise, I personally am betting we won't see 1955-1982'esque behavior again. I prefer the volatility of EDV. Maybe split the difference with TLT :).

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

Post by AlphaLess » Wed Oct 16, 2019 11:01 pm

Brokers dropping their commissions to 0 is going to be a nice juice-up to these strategies (unless of course, you are rolling this 'strategy' with some 6 or 7 figure sum).

4 * 2 * $6 = $48, let's call this $50.

Assuming folks are doing this strategy with $25K capital, that's quite a bit, 20 bps a year.

With 3-MO LIBOR at 2.1%, and TLT yielding 2.24%, it's hard to imagine how the leveraged treasury part of the portfolio is going to make money. Likely, just serve as a hedge against steep drop(s) in equities.

Probably prudent to reduce allocation to TMF. Although that is a classic market timing move, which is a much-appreciated 'strategy' on these forums.
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.

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

Post by AlphaLess » Wed Oct 16, 2019 11:13 pm

rascott wrote:
Fri Oct 11, 2019 7:41 am
caklim00 wrote:
Thu Oct 10, 2019 10:28 pm
Wouldn't 3x Ultra treasury bond future be equivalent to 1x TMF?

Yes...... no vol decay and no expense ratio.... of course the current exposure for one Ultra 30 is $195k... so you'd need a portfolio that is roughly $130k in size ($65k bonds 3x at 50/50 equities/bonds.) Not sure how many here have allocated that kind of size to this.

Then you have issues of keeping the allocation correct. In practice, I believe what one cares about is duration..... so you've got to figure out how much exactly you need and then do some combo of contracts to get the notional exposure/duration combo accurate. For a $100k portfolio = $50k bonds x 3 = $150k desired exposure at 18.5 duration (same as TLT).... roughly one regular 30 year (not Ultra) and one 10 year contract seems to meet the purpose, right now. You've have to recalculate this each qtr and see if what you have still works.
It also comes down to granularity.

If you have just enough of a capital / portfolio to use 1 Ultra 30 and 1 ES, then what are you going to do when you need a rebalance?

I would say that in order to be free to do rebalances, you should probably have 10 Ultra 30 and 10 ES, which would make your portfolio GMV:
- 10 Ultra 30: $1.8MM
- 10 ES: $1.5MM.
- GMV: $3.3MM
- at 3x leverage, then you have a $1.1M capital portfolio.

So with those numbers, you can rebalance in sufficient granularity (e.g., if you need to reduce your treasury exposure by 10%, that is 1 contract).

The other thing is the tax implication of futures, which is different than cash equities.

If you have a $1.1MM ROTH IRA, even better.
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.

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

Post by MotoTrojan » Wed Oct 16, 2019 11:24 pm

AlphaLess wrote:
Wed Oct 16, 2019 11:01 pm
Brokers dropping their commissions to 0 is going to be a nice juice-up to these strategies (unless of course, you are rolling this 'strategy' with some 6 or 7 figure sum).

4 * 2 * $6 = $48, let's call this $50.

Assuming folks are doing this strategy with $25K capital, that's quite a bit, 20 bps a year.

With 3-MO LIBOR at 2.1%, and TLT yielding 2.24%, it's hard to imagine how the leveraged treasury part of the portfolio is going to make money. Likely, just serve as a hedge against steep drop(s) in equities.

Probably prudent to reduce allocation to TMF. Although that is a classic market timing move, which is a much-appreciated 'strategy' on these forums.
OP already reduced allocation to TMF. Also most were using M1 Finance anyway, so no $50/year, although that seems like sarcasm?

AlphaLess
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Location: Kentucky

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

Post by AlphaLess » Thu Oct 17, 2019 9:53 pm

MotoTrojan wrote:
Wed Oct 16, 2019 11:24 pm
AlphaLess wrote:
Wed Oct 16, 2019 11:01 pm
Brokers dropping their commissions to 0 is going to be a nice juice-up to these strategies (unless of course, you are rolling this 'strategy' with some 6 or 7 figure sum).

4 * 2 * $6 = $48, let's call this $50.

Assuming folks are doing this strategy with $25K capital, that's quite a bit, 20 bps a year.

With 3-MO LIBOR at 2.1%, and TLT yielding 2.24%, it's hard to imagine how the leveraged treasury part of the portfolio is going to make money. Likely, just serve as a hedge against steep drop(s) in equities.

Probably prudent to reduce allocation to TMF. Although that is a classic market timing move, which is a much-appreciated 'strategy' on these forums.
OP already reduced allocation to TMF. Also most were using M1 Finance anyway, so no $50/year, although that seems like sarcasm?
The line between sarcasm and valuable information is always very thin.
Proceed accordingly.
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.

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

Post by rascott » Fri Oct 18, 2019 7:55 am

AlphaLess wrote:
Wed Oct 16, 2019 11:13 pm
rascott wrote:
Fri Oct 11, 2019 7:41 am
caklim00 wrote:
Thu Oct 10, 2019 10:28 pm
Wouldn't 3x Ultra treasury bond future be equivalent to 1x TMF?

Yes...... no vol decay and no expense ratio.... of course the current exposure for one Ultra 30 is $195k... so you'd need a portfolio that is roughly $130k in size ($65k bonds 3x at 50/50 equities/bonds.) Not sure how many here have allocated that kind of size to this.

Then you have issues of keeping the allocation correct. In practice, I believe what one cares about is duration..... so you've got to figure out how much exactly you need and then do some combo of contracts to get the notional exposure/duration combo accurate. For a $100k portfolio = $50k bonds x 3 = $150k desired exposure at 18.5 duration (same as TLT).... roughly one regular 30 year (not Ultra) and one 10 year contract seems to meet the purpose, right now. You've have to recalculate this each qtr and see if what you have still works.
It also comes down to granularity.

If you have just enough of a capital / portfolio to use 1 Ultra 30 and 1 ES, then what are you going to do when you need a rebalance?

I would say that in order to be free to do rebalances, you should probably have 10 Ultra 30 and 10 ES, which would make your portfolio GMV:
- 10 Ultra 30: $1.8MM
- 10 ES: $1.5MM.
- GMV: $3.3MM
- at 3x leverage, then you have a $1.1M capital portfolio.

So with those numbers, you can rebalance in sufficient granularity (e.g., if you need to reduce your treasury exposure by 10%, that is 1 contract).

The other thing is the tax implication of futures, which is different than cash equities.

If you have a $1.1MM ROTH IRA, even better.
1) you don't have to use the Ultra 30 to get you duration exposure. You could use higher relative leverage on a lower duration instrument

2) you can use micro e-minis ($15k each) for the equity side

3) you can use ETFs to fill in the holes with any granular issue.

One just needs to decide if doing all of that is worth the 1% mgmt fee.

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

Post by Diego_Quant » Fri Oct 18, 2019 5:12 pm

[/quote]

1) you don't have to use the Ultra 30 to get you duration exposure. You could use higher relative leverage on a lower duration instrument

[/quote]

Could you explain how that would be? Thanks

Diego_Quant
Posts: 11
Joined: Fri Jul 27, 2018 11:27 pm

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

Post by Diego_Quant » Fri Oct 18, 2019 5:14 pm

rascott wrote:
Fri Oct 18, 2019 7:55 am
AlphaLess wrote:
Wed Oct 16, 2019 11:13 pm
rascott wrote:
Fri Oct 11, 2019 7:41 am
caklim00 wrote:
Thu Oct 10, 2019 10:28 pm
Wouldn't 3x Ultra treasury bond future be equivalent to 1x TMF?

Yes...... no vol decay and no expense ratio.... of course the current exposure for one Ultra 30 is $195k... so you'd need a portfolio that is roughly $130k in size ($65k bonds 3x at 50/50 equities/bonds.) Not sure how many here have allocated that kind of size to this.

Then you have issues of keeping the allocation correct. In practice, I believe what one cares about is duration..... so you've got to figure out how much exactly you need and then do some combo of contracts to get the notional exposure/duration combo accurate. For a $100k portfolio = $50k bonds x 3 = $150k desired exposure at 18.5 duration (same as TLT).... roughly one regular 30 year (not Ultra) and one 10 year contract seems to meet the purpose, right now. You've have to recalculate this each qtr and see if what you have still works.
It also comes down to granularity.

If you have just enough of a capital / portfolio to use 1 Ultra 30 and 1 ES, then what are you going to do when you need a rebalance?

I would say that in order to be free to do rebalances, you should probably have 10 Ultra 30 and 10 ES, which would make your portfolio GMV:
- 10 Ultra 30: $1.8MM
- 10 ES: $1.5MM.
- GMV: $3.3MM
- at 3x leverage, then you have a $1.1M capital portfolio.

So with those numbers, you can rebalance in sufficient granularity (e.g., if you need to reduce your treasury exposure by 10%, that is 1 contract).

The other thing is the tax implication of futures, which is different than cash equities.

If you have a $1.1MM ROTH IRA, even better.


1) you don't have to use the Ultra 30 to get you duration exposure. You could use higher relative leverage on a lower duration instrument



Could you explain how that would be? Thanks

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

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

Post by MotoTrojan » Sat Oct 19, 2019 5:59 pm

https://www.reddit.com/r/wallstreetbets ... ame=iossmf

Guy didn’t even need bonds! Held 3x equity almost the last decade.

assetalloc
Posts: 59
Joined: Tue Nov 13, 2018 8:45 pm

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

Post by assetalloc » Sun Oct 20, 2019 9:46 am

MotoTrojan wrote:
Sat Oct 19, 2019 5:59 pm
https://www.reddit.com/r/wallstreetbets ... ame=iossmf

Guy didn’t even need bonds! Held 3x equity almost the last decade.
The guy you reference, is selling now. He talks about his bad luck during the 2008 meltdown and got lucky to buy 3X at the right time. And what is he doing NOW? Selling and making up reasons to sell. That's called classic - buy low and sell high. If you really want to speculate with market timing, would you go with the energy sector & buy 3X?

Hedgefundie strategy used is called risk-parity portfolio popularized by Tony Robins and is not truly a fully speculative portfolio.

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

Post by rascott » Sun Oct 20, 2019 12:09 pm

MotoTrojan wrote:
Sat Oct 19, 2019 5:59 pm
https://www.reddit.com/r/wallstreetbets ... ame=iossmf

Guy didn’t even need bonds! Held 3x equity almost the last decade.
I'm holding some TQQQ straight up in a Roth.

DaveG75
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DaveG75 » Tue Oct 22, 2019 12:22 am

EDV and various other unleveraged flavors make sense for those worried about decay (at least to me). I'm curious if anyone has any thoughts on ZROZ. ZROZ seems to have a bit more duration than EDV (27.4 years as of 10/18 for ZROZ and 24.3 years as of 9/30 for EDV) . The expense ratios are very close. ZROZ is invested in zero coupons, but I'm not sure whether that is a plus or a negative for hedging UPRO as compared to EDV. PV says they are essentially 100% correlated and zroz has a slight edge in total return and higher volatility. It seems if you want as much unlevered duration as possible, ZROZ is a better ETF than EDV. Thoughts?

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

Post by BullHouse_BearMarket » Tue Oct 22, 2019 8:43 am

I may have missed this, but do you use some sort of stop loss?

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

Post by MotoTrojan » Tue Oct 22, 2019 9:35 am

BullHouse_BearMarket wrote:
Tue Oct 22, 2019 8:43 am
I may have missed this, but do you use some sort of stop loss?
No. TMF is the stop loss.

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

Post by MotoTrojan » Tue Oct 22, 2019 9:35 am

DaveG75 wrote:
Tue Oct 22, 2019 12:22 am
EDV and various other unleveraged flavors make sense for those worried about decay (at least to me). I'm curious if anyone has any thoughts on ZROZ. ZROZ seems to have a bit more duration than EDV (27.4 years as of 10/18 for ZROZ and 24.3 years as of 9/30 for EDV) . The expense ratios are very close. ZROZ is invested in zero coupons, but I'm not sure whether that is a plus or a negative for hedging UPRO as compared to EDV. PV says they are essentially 100% correlated and zroz has a slight edge in total return and higher volatility. It seems if you want as much unlevered duration as possible, ZROZ is a better ETF than EDV. Thoughts?
I'll have to do some more research here. I am pretty happy with the overall exposure of 43/57 UPRO/EDV but a little more "free leverage" (no decay or borrowing costs) is always nice.

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

Not much difference overall. EDV was quite a bit more efficient even over a timeframe with steeply dropping rates.

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

Post by DaveG75 » Tue Oct 22, 2019 11:29 am

I see ZROZ has a worse sortino ratio, perhaps that is what you mean by EDV being more efficient. I'm not sure that is the right measure though. Both assets are equally uncorrelated with the market. ZROZ has a higher market-uncorrelated return. Maybe I'm just failing to appreciate what the sortino ratio is telling us?

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

Post by MotoTrojan » Tue Oct 22, 2019 1:13 pm

DaveG75 wrote:
Tue Oct 22, 2019 11:29 am
I see ZROZ has a worse sortino ratio, perhaps that is what you mean by EDV being more efficient. I'm not sure that is the right measure though. Both assets are equally uncorrelated with the market. ZROZ has a higher market-uncorrelated return. Maybe I'm just failing to appreciate what the sortino ratio is telling us?
Sharpe ratio was worse too. Just means more volatility for each unit of return; not a big deal or even a surprise. They are nearly identical though and it does seem ZROZ would be an appropriate substitute for EDV. I'll have to poke around a bit more but would consider a direct swap (still 43/57) just to get some more bond volatility and nudge closer to risk-parity.

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

Post by Lee_WSP » Tue Oct 22, 2019 2:34 pm

While it has a higher expense ratio, my quick & dirty analysis indicates that ZROZ would still be a better "ballast" than EDV.

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

Post by rascott » Tue Oct 22, 2019 3:04 pm

MotoTrojan wrote:
Tue Oct 22, 2019 1:13 pm
DaveG75 wrote:
Tue Oct 22, 2019 11:29 am
I see ZROZ has a worse sortino ratio, perhaps that is what you mean by EDV being more efficient. I'm not sure that is the right measure though. Both assets are equally uncorrelated with the market. ZROZ has a higher market-uncorrelated return. Maybe I'm just failing to appreciate what the sortino ratio is telling us?
Sharpe ratio was worse too. Just means more volatility for each unit of return; not a big deal or even a surprise. They are nearly identical though and it does seem ZROZ would be an appropriate substitute for EDV. I'll have to poke around a bit more but would consider a direct swap (still 43/57) just to get some more bond volatility and nudge closer to risk-parity.

Is Sharpe ratio really relevant here...when what you are really looking for is the most duration possible without going to leverage?

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

Post by MotoTrojan » Tue Oct 22, 2019 3:24 pm

rascott wrote:
Tue Oct 22, 2019 3:04 pm
MotoTrojan wrote:
Tue Oct 22, 2019 1:13 pm
DaveG75 wrote:
Tue Oct 22, 2019 11:29 am
I see ZROZ has a worse sortino ratio, perhaps that is what you mean by EDV being more efficient. I'm not sure that is the right measure though. Both assets are equally uncorrelated with the market. ZROZ has a higher market-uncorrelated return. Maybe I'm just failing to appreciate what the sortino ratio is telling us?
Sharpe ratio was worse too. Just means more volatility for each unit of return; not a big deal or even a surprise. They are nearly identical though and it does seem ZROZ would be an appropriate substitute for EDV. I'll have to poke around a bit more but would consider a direct swap (still 43/57) just to get some more bond volatility and nudge closer to risk-parity.

Is Sharpe ratio really relevant here...when what you are really looking for is the most duration possible without going to leverage?
Totally agree with you. I guess I was just intrigued that during a period of dropping rates the extra duration increased volatility more than return.

I will be taking a harder look at this for my next rebalance end of year. Is there information in how Vanguard and Pimco pick/set their actual durations? Are they tracking different indices? Just want to make sure that this extra duration is here to stay.

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

Post by Lee_WSP » Tue Oct 22, 2019 3:28 pm

The PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund is an exchange-traded fund (ETF) that aims to capture the returns of The ICE BofAML Long US Treasury Principal STRIPS IndexSM. By tracking the index, the fund aims to achieve, before fees and expenses, the yield and duration exposure inherent in this index.

EDV - Seeks to track the performance of the Bloomberg Barclays U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index.

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

Post by MetaPhysician » Wed Oct 23, 2019 12:58 am

Serious question...would anyone be interested in reading a guide with all the Excellent Adventure information in one place so you wouldn't have read through 75+ pages of the thread?

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

Post by Meaty » Wed Oct 23, 2019 8:30 am

MetaPhysician wrote:
Wed Oct 23, 2019 12:58 am
Serious question...would anyone be interested in reading a guide with all the Excellent Adventure information in one place so you wouldn't have read through 75+ pages of the thread?
Absolutely
"Discipline equals Freedom" - Jocko Willink

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

Post by caklim00 » Wed Oct 23, 2019 9:04 am

Current bid/ask per M* at 10:02am

ZROZ
Bid / Ask / Spread
139.08 / 139.70 / 0.44%

EDV
Bid / Ask / Spread
136.88 / 137.05 / 0.12%

TMF
Bid / Ask / Spread
28.68 / 28.69 / 0.03%

Not sure I'd want M1 managing buys/sells on ZROZ

EDIT:
Just checked again at 10:04

ZROZ
Bid / Ask / Spread
139.16 / 140.42 / 0.90%

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

Post by MotoTrojan » Wed Oct 23, 2019 9:32 am

caklim00 wrote:
Wed Oct 23, 2019 9:04 am
Current bid/ask per M* at 10:02am

ZROZ
Bid / Ask / Spread
139.08 / 139.70 / 0.44%

EDV
Bid / Ask / Spread
136.88 / 137.05 / 0.12%

TMF
Bid / Ask / Spread
28.68 / 28.69 / 0.03%

Not sure I'd want M1 managing buys/sells on ZROZ

EDIT:
Just checked again at 10:04

ZROZ
Bid / Ask / Spread
139.16 / 140.42 / 0.90%
I noticed the average was worse but this is far worse. Yup, I’m fine with EDV.

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

Post by Lee_WSP » Wed Oct 23, 2019 12:04 pm

Right!?

It makes TMF look cash-like.

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

Post by get_g0ing » Wed Oct 23, 2019 7:20 pm

MetaPhysician wrote:
Wed Oct 23, 2019 12:58 am
Serious question...would anyone be interested in reading a guide with all the Excellent Adventure information in one place so you wouldn't have read through 75+ pages of the thread?
Yes, I think it would be very useful.

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

Post by MetaPhysician » Wed Oct 23, 2019 8:31 pm

get_g0ing wrote:
Wed Oct 23, 2019 7:20 pm
Yes, I think it would be very useful.
Meaty wrote:
Wed Oct 23, 2019 8:30 am
Absolutely
All right!

What other topics would be high yield?
-The fundamentals behind the strategy
-How exactly to implement the strategy step-by-step
-Top concerns addressed
-The academic literature behind it
-Who the strategy is ideal for and who shouldn’t implement it
-Taxable or Tax Sheltered Account
-Optimizing when to rebalance
-Eureka! When to get out successfully
-Reasons why the original portfolio changed
-Discover the reasons why this wasn’t done before

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

Post by Lee_WSP » Wed Oct 23, 2019 8:57 pm

If you just edited out the not so useful commentary that would be valuable in and of itself.

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

Post by hdas » Wed Oct 23, 2019 9:06 pm

caklim00 wrote:
Wed Oct 23, 2019 9:04 am
Current bid/ask per M* at 10:02am

ZROZ
Bid / Ask / Spread
139.08 / 139.70 / 0.44%

EDV
Bid / Ask / Spread
136.88 / 137.05 / 0.12%

TMF
Bid / Ask / Spread
28.68 / 28.69 / 0.03%

Not sure I'd want M1 managing buys/sells on ZROZ

EDIT:
Just checked again at 10:04

ZROZ
Bid / Ask / Spread
139.16 / 140.42 / 0.90%
Ultrabond Futures >> 0.016% per each 188k. Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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

Post by MetaPhysician » Wed Oct 23, 2019 9:15 pm

Lee_WSP wrote:
Wed Oct 23, 2019 8:57 pm
If you just edited out the not so useful commentary that would be valuable in and of itself.
Yeah essentially editing out the side conversations and tangents and sticking to easy to read high yield points. I'm just trying to see what other questions people would want answered besides the ones I listed.

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

Post by get_g0ing » Thu Oct 24, 2019 11:22 am

HEDGEFUNDIE wrote:
Sun Aug 11, 2019 9:41 pm
Question for OP and others who (believe to) have a good understanding.

Can we summarize and state the primary assumptions that would make this strategy work - i.e. what needs to happen over the next years to make this strategy a big hit?

And also, what would need to happen to make this a big flop?

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

Post by MotoTrojan » Thu Oct 24, 2019 1:56 pm

get_g0ing wrote:
Thu Oct 24, 2019 11:22 am
HEDGEFUNDIE wrote:
Sun Aug 11, 2019 9:41 pm
Question for OP and others who (believe to) have a good understanding.

Can we summarize and state the primary assumptions that would make this strategy work - i.e. what needs to happen over the next years to make this strategy a big hit?

And also, what would need to happen to make this a big flop?
US equity continues to perform well with modest volatility. Inflation stays in-check. US treasury remains the safe-haven asset when equity markets are distressed (uncorrelation or better yet negative correlcation). It will really do well if the US adopts (as the world has) negative interest rate policy; without that you will not see performance in-line with 1982-present, but you may still out-perform the S&P500 by a few points.

US equities have prolonged decline or even just low growth with high volatility. Inflation rises. Another nations currency becomes the world-wide safe-haven asset. Bonds become correlated with equities; stagflation.

In summary though, I strongly believe that the outperformance seen since 1982 (double the S&P500's CAGR) cannot possibly repeat. OP disagrees. I still have money invested in my less aggressive variant though, but have more modest goal of 1-3% outperformance over the next 20 years. I will not be disappointed if I am wrong.

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

Post by caklim00 » Thu Oct 24, 2019 2:04 pm

hdas wrote:
Wed Oct 23, 2019 9:06 pm
caklim00 wrote:
Wed Oct 23, 2019 9:04 am
Current bid/ask per M* at 10:02am

ZROZ
Bid / Ask / Spread
139.08 / 139.70 / 0.44%

EDV
Bid / Ask / Spread
136.88 / 137.05 / 0.12%

TMF
Bid / Ask / Spread
28.68 / 28.69 / 0.03%

Not sure I'd want M1 managing buys/sells on ZROZ

EDIT:
Just checked again at 10:04

ZROZ
Bid / Ask / Spread
139.16 / 140.42 / 0.90%
Ultrabond Futures >> 0.016% per each 188k. Cheers :greedy
I'm beginning to think the same thing. 95% vti or funds of choice, 5% tied up for cash margins, 95% ultrabond futures

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

Post by MotoTrojan » Thu Oct 24, 2019 2:10 pm

caklim00 wrote:
Thu Oct 24, 2019 2:04 pm
hdas wrote:
Wed Oct 23, 2019 9:06 pm
caklim00 wrote:
Wed Oct 23, 2019 9:04 am
Current bid/ask per M* at 10:02am

ZROZ
Bid / Ask / Spread
139.08 / 139.70 / 0.44%

EDV
Bid / Ask / Spread
136.88 / 137.05 / 0.12%

TMF
Bid / Ask / Spread
28.68 / 28.69 / 0.03%

Not sure I'd want M1 managing buys/sells on ZROZ

EDIT:
Just checked again at 10:04

ZROZ
Bid / Ask / Spread
139.16 / 140.42 / 0.90%
Ultrabond Futures >> 0.016% per each 188k. Cheers :greedy
I'm beginning to think the same thing. 95% vti or funds of choice, 5% tied up for cash margins, 95% ultrabond futures
NTSX with a bit more extreme bond exposure, I like it!

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

Post by Forester » Thu Oct 24, 2019 2:35 pm

MotoTrojan wrote:
Thu Oct 24, 2019 1:56 pm
get_g0ing wrote:
Thu Oct 24, 2019 11:22 am
HEDGEFUNDIE wrote:
Sun Aug 11, 2019 9:41 pm
Question for OP and others who (believe to) have a good understanding.

Can we summarize and state the primary assumptions that would make this strategy work - i.e. what needs to happen over the next years to make this strategy a big hit?

And also, what would need to happen to make this a big flop?
US equity continues to perform well with modest volatility. Inflation stays in-check. US treasury remains the safe-haven asset when equity markets are distressed (uncorrelation or better yet negative correlcation). It will really do well if the US adopts (as the world has) negative interest rate policy; without that you will not see performance in-line with 1982-present, but you may still out-perform the S&P500 by a few points.

US equities have prolonged decline or even just low growth with high volatility. Inflation rises. Another nations currency becomes the world-wide safe-haven asset. Bonds become correlated with equities; stagflation.

In summary though, I strongly believe that the outperformance seen since 1982 (double the S&P500's CAGR) cannot possibly repeat. OP disagrees. I still have money invested in my less aggressive variant though, but have more modest goal of 1-3% outperformance over the next 20 years. I will not be disappointed if I am wrong.
There's every chance a bunch of Emerging Markets ETFs will outperform this strategy in the 2020s. I would put money on DGS (WisdomTree Emerging Markets SmallCap Dividend Fund) being ahead of OP from now until 24th Oct 2024 :sharebeer

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

Post by software » Thu Oct 24, 2019 2:43 pm

Forester wrote:
Thu Oct 24, 2019 2:35 pm
MotoTrojan wrote:
Thu Oct 24, 2019 1:56 pm
get_g0ing wrote:
Thu Oct 24, 2019 11:22 am
HEDGEFUNDIE wrote:
Sun Aug 11, 2019 9:41 pm
Question for OP and others who (believe to) have a good understanding.

Can we summarize and state the primary assumptions that would make this strategy work - i.e. what needs to happen over the next years to make this strategy a big hit?

And also, what would need to happen to make this a big flop?
US equity continues to perform well with modest volatility. Inflation stays in-check. US treasury remains the safe-haven asset when equity markets are distressed (uncorrelation or better yet negative correlcation). It will really do well if the US adopts (as the world has) negative interest rate policy; without that you will not see performance in-line with 1982-present, but you may still out-perform the S&P500 by a few points.

US equities have prolonged decline or even just low growth with high volatility. Inflation rises. Another nations currency becomes the world-wide safe-haven asset. Bonds become correlated with equities; stagflation.

In summary though, I strongly believe that the outperformance seen since 1982 (double the S&P500's CAGR) cannot possibly repeat. OP disagrees. I still have money invested in my less aggressive variant though, but have more modest goal of 1-3% outperformance over the next 20 years. I will not be disappointed if I am wrong.
There's every chance a bunch of Emerging Markets ETFs will outperform this strategy in the 2020s. I would put money on DGS (WisdomTree Emerging Markets SmallCap Dividend Fund) being ahead of OP from now until 24th Oct 2024 :sharebeer
Put money on it then...

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

Post by MotoTrojan » Thu Oct 24, 2019 2:45 pm

Forester wrote:
Thu Oct 24, 2019 2:35 pm
MotoTrojan wrote:
Thu Oct 24, 2019 1:56 pm
get_g0ing wrote:
Thu Oct 24, 2019 11:22 am
HEDGEFUNDIE wrote:
Sun Aug 11, 2019 9:41 pm
Question for OP and others who (believe to) have a good understanding.

Can we summarize and state the primary assumptions that would make this strategy work - i.e. what needs to happen over the next years to make this strategy a big hit?

And also, what would need to happen to make this a big flop?
US equity continues to perform well with modest volatility. Inflation stays in-check. US treasury remains the safe-haven asset when equity markets are distressed (uncorrelation or better yet negative correlcation). It will really do well if the US adopts (as the world has) negative interest rate policy; without that you will not see performance in-line with 1982-present, but you may still out-perform the S&P500 by a few points.

US equities have prolonged decline or even just low growth with high volatility. Inflation rises. Another nations currency becomes the world-wide safe-haven asset. Bonds become correlated with equities; stagflation.

In summary though, I strongly believe that the outperformance seen since 1982 (double the S&P500's CAGR) cannot possibly repeat. OP disagrees. I still have money invested in my less aggressive variant though, but have more modest goal of 1-3% outperformance over the next 20 years. I will not be disappointed if I am wrong.
There's every chance a bunch of Emerging Markets ETFs will outperform this strategy in the 2020s. I would put money on DGS (WisdomTree Emerging Markets SmallCap Dividend Fund) being ahead of OP from now until 24th Oct 2024 :sharebeer
Of course. Just hold cash might outperform both of those strategies. I only hold EM in my Total International (25% of portfolio) but I do tilt a good bit to domestic small-value... I consider my portfolio quite diversified.

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

Post by Lee_WSP » Thu Oct 24, 2019 3:35 pm

get_g0ing wrote:
Thu Oct 24, 2019 11:22 am
HEDGEFUNDIE wrote:
Sun Aug 11, 2019 9:41 pm
Question for OP and others who (believe to) have a good understanding.

Can we summarize and state the primary assumptions that would make this strategy work - i.e. what needs to happen over the next years to make this strategy a big hit?

And also, what would need to happen to make this a big flop?
The necessary ingredients are: stocks going up without a lot of volatility decay, where there are a bunch of large single day drops and all the gains are tiny daily gains. Or even up & down with a net zero gain/loss on the S&P.

Bonds moving in the opposite direction when stocks tank.

Interest rates declining or not increasing.

No black Monday black swan events.

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

Post by rascott » Thu Oct 24, 2019 4:26 pm

caklim00 wrote:
Thu Oct 24, 2019 2:04 pm
hdas wrote:
Wed Oct 23, 2019 9:06 pm
caklim00 wrote:
Wed Oct 23, 2019 9:04 am
Current bid/ask per M* at 10:02am

ZROZ
Bid / Ask / Spread
139.08 / 139.70 / 0.44%

EDV
Bid / Ask / Spread
136.88 / 137.05 / 0.12%

TMF
Bid / Ask / Spread
28.68 / 28.69 / 0.03%

Not sure I'd want M1 managing buys/sells on ZROZ

EDIT:
Just checked again at 10:04

ZROZ
Bid / Ask / Spread
139.16 / 140.42 / 0.90%
Ultrabond Futures >> 0.016% per each 188k. Cheers :greedy
I'm beginning to think the same thing. 95% vti or funds of choice, 5% tied up for cash margins, 95% ultrabond futures


Sounds like PSLDX.

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

Post by keith6014 » Fri Oct 25, 2019 6:03 am

has hedgefundie recently posted his recent performance?

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