HEDGEFUNDIE's excellent adventure Part II: The next journey

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

Post by RayKeynes » Wed Nov 20, 2019 7:22 am

firebirdparts wrote:
Wed Nov 20, 2019 7:14 am
They just meant TMF, had it existed, would have a bad patch about when you’d expect. The HFEAdventure portfolio does not do well in the 1970s especially.
I understand. Good to know. Thats what I expected as well. But is there any date so I can perform a recalculation to see how it would have actually performed?

I am forecasting a new area of 1940 - 1980, therefore I am very interested in older data. We had our 40 years of lower interest rates and now reached again 0% like in the 30s. This is a 90-100year long-term debt cycle, like Ray Dalio calls it. Interest rates will behave like a "pyramid scheme", where they reach their absolute high in the mid of the long-term debt cycle (1980). therefore, period 1940 - 1980 is absolutely different from period 1980 -2020. While the later period was characterized by decreasinginterest rates over decades, hence debt rising, the first period (1940-1980) was characterized by rising interest rates, hence debt was paid back.

As we are reaching record-high amount of debts, both for household and governments (measured in debt/gdp), data for this scenario is strongly supported.

I'd therefore not invest in this strategiy, at least as long as I do not know how it would have behaved in 1940 - 1980.

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

Post by MotoTrojan » Wed Nov 20, 2019 10:50 am

RayKeynes wrote:
Wed Nov 20, 2019 3:11 am
MotoTrojan wrote:
Tue Nov 19, 2019 11:49 am

The original thread has data from 1955 to present. TMF got crushed, and by present it was nearly a tie with 100% S&P500.
Two questions

Where can I find this dataset from 1955 to present?
What do you mean by "TMF got crushed"? The fund got wiped out and/or went to 0?
I don’t have the raw data handy but as stated, if you go to the 1st post of the original thread you’ll find plots of TMF and if the overall portfolio from 1955 to now. I believe the portfolio had a ~80% real drawdown.

TMF did not get wiped out and if you held 55/45 through today you’d have still beat the S&P500 but it was one hell of a ride.

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

Post by DaveG75 » Wed Nov 20, 2019 3:32 pm

MotoTrojan wrote:
Wed Nov 20, 2019 10:50 am
RayKeynes wrote:
Wed Nov 20, 2019 3:11 am
MotoTrojan wrote:
Tue Nov 19, 2019 11:49 am

The original thread has data from 1955 to present. TMF got crushed, and by present it was nearly a tie with 100% S&P500.
Two questions

Where can I find this dataset from 1955 to present?
What do you mean by "TMF got crushed"? The fund got wiped out and/or went to 0?
I don’t have the raw data handy but as stated, if you go to the 1st post of the original thread you’ll find plots of TMF and if the overall portfolio from 1955 to now. I believe the portfolio had a ~80% real drawdown.

TMF did not get wiped out and if you held 55/45 through today you’d have still beat the S&P500 but it was one hell of a ride.
Not sure if I linking correctly, but viewtopic.php?f=10&t=272007&start=1050#p4426310 has the 3x simulated funds data going back to 1955. The results are very poor during the 1955-1980 era of fast rising rates.

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

Post by get_g0ing » Thu Nov 21, 2019 2:41 pm

I wish those following the strategy are doing well.

A question in terms of staying the course with this strategy:

Starting with the portfolio balance as of today, how much it could go down and would still be considered normal/expected for this strategy? And in what time frame?

I'd like to get an idea of how bad it could get (and within what time range) and still be not much concern.

Thanks.

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

Post by MotoTrojan » Thu Nov 21, 2019 2:45 pm

get_g0ing wrote:
Thu Nov 21, 2019 2:41 pm
I wish those following the strategy are doing well.

A question in terms of staying the course with this strategy:

Starting with the portfolio balance as of today, how much it could go down and would still be considered normal/expected for this strategy? And in what time frame?

I'd like to get an idea of how bad it could get (and within what time range) and still be not much concern.

Thanks.
Historical drawdown is all we really have. This is not an answerable question.

For my 43/57 UPRO/EDV I am hoping that my drawdown in an equity related downturn would be no worse than 100% S&P500, but there are situations where that could be violated. The real risk is a slow/long period of stagflation though, where equities and bonds do poorly with increasing inflation. In that case it wouldn't be hard to imagine >90% real drawdowns.

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

Post by stormcrow » Thu Nov 21, 2019 4:22 pm

Hi all, really long time lurker, first time poster. I have been powering through this and the prior thread, and it seems solid. The only thing (to my mind) that could be discussed in a little more depth came about 8 months ago:
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Post by badapu » Mon Mar 11, 2019 12:34 am

What are the downsides of 40upro/60tmf versus 40upro/30tmf/30tdy?
Has anyone dug into this? Is anyone trying this allocation? (Note that the ITT 3x leveraged ticker is actually TYD.)

Thanks!

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

Post by MotoTrojan » Thu Nov 21, 2019 5:08 pm

stormcrow wrote:
Thu Nov 21, 2019 4:22 pm
Hi all, really long time lurker, first time poster. I have been powering through this and the prior thread, and it seems solid. The only thing (to my mind) that could be discussed in a little more depth came about 8 months ago:
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Post by badapu » Mon Mar 11, 2019 12:34 am

What are the downsides of 40upro/60tmf versus 40upro/30tmf/30tdy?
Has anyone dug into this? Is anyone trying this allocation? (Note that the ITT 3x leveraged ticker is actually TYD.)

Thanks!
I personally believe that over the long-run all that truly matters is your effective duration. The reason one would use TMF is to get a lot of duration via the leverage, but that comes with downsides in volatility decay and expense ratio which eat into returns. If TMF is too much duration for you I personally would dilute it with EDV 1st (my variation only uses EDV), which will reduce duration while also reducing volatility decay and expenses.

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

Post by drock » Thu Nov 21, 2019 7:04 pm

stormcrow wrote:
Thu Nov 21, 2019 4:22 pm
Hi all, really long time lurker, first time poster. I have been powering through this and the prior thread, and it seems solid. The only thing (to my mind) that could be discussed in a little more depth came about 8 months ago:
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Post by badapu » Mon Mar 11, 2019 12:34 am

What are the downsides of 40upro/60tmf versus 40upro/30tmf/30tdy?
Has anyone dug into this? Is anyone trying this allocation? (Note that the ITT 3x leveraged ticker is actually TYD.)

Thanks!
My quick reaction to that questions is TYD's duration is around 23ish and EDV's duration is around 24 so...

Pros of TYD vs EDV:

if interest rates keep moving down then you get a bonus in volatility decay (meaning you get more than 3x upside) with a 3x fund

Cons of TYD vs EDV:

--If interest rates are sideways to up then you will have negative volatility decay
--much higher expense ratio

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

Post by get_g0ing » Thu Nov 21, 2019 7:39 pm

MotoTrojan wrote:
Thu Nov 21, 2019 2:45 pm
get_g0ing wrote:
Thu Nov 21, 2019 2:41 pm
I wish those following the strategy are doing well.

A question in terms of staying the course with this strategy:

Starting with the portfolio balance as of today, how much it could go down and would still be considered normal/expected for this strategy? And in what time frame?

I'd like to get an idea of how bad it could get (and within what time range) and still be not much concern.

Thanks.
Historical drawdown is all we really have. This is not an answerable question.

For my 43/57 UPRO/EDV I am hoping that my drawdown in an equity related downturn would be no worse than 100% S&P500, but there are situations where that could be violated. The real risk is a slow/long period of stagflation though, where equities and bonds do poorly with increasing inflation. In that case it wouldn't be hard to imagine >90% real drawdowns.
MotoTrojan, thanks, I appreciate your feedback.

One other thing, for how long can this strategy lag the S&P500?

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

Post by Lee_WSP » Thu Nov 21, 2019 7:55 pm

get_g0ing wrote:
Thu Nov 21, 2019 7:39 pm
MotoTrojan wrote:
Thu Nov 21, 2019 2:45 pm
get_g0ing wrote:
Thu Nov 21, 2019 2:41 pm
I wish those following the strategy are doing well.

A question in terms of staying the course with this strategy:

Starting with the portfolio balance as of today, how much it could go down and would still be considered normal/expected for this strategy? And in what time frame?

I'd like to get an idea of how bad it could get (and within what time range) and still be not much concern.

Thanks.
Historical drawdown is all we really have. This is not an answerable question.

For my 43/57 UPRO/EDV I am hoping that my drawdown in an equity related downturn would be no worse than 100% S&P500, but there are situations where that could be violated. The real risk is a slow/long period of stagflation though, where equities and bonds do poorly with increasing inflation. In that case it wouldn't be hard to imagine >90% real drawdowns.
MotoTrojan, thanks, I appreciate your feedback.

One other thing, for how long can this strategy lag the S&P500?
From 75 to about 1990 or 2000. Ie you're entire accumulation phase.

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

Post by MotoTrojan » Thu Nov 21, 2019 10:53 pm

drock wrote:
Thu Nov 21, 2019 7:04 pm
stormcrow wrote:
Thu Nov 21, 2019 4:22 pm
Hi all, really long time lurker, first time poster. I have been powering through this and the prior thread, and it seems solid. The only thing (to my mind) that could be discussed in a little more depth came about 8 months ago:
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Post by badapu » Mon Mar 11, 2019 12:34 am

What are the downsides of 40upro/60tmf versus 40upro/30tmf/30tdy?
Has anyone dug into this? Is anyone trying this allocation? (Note that the ITT 3x leveraged ticker is actually TYD.)

Thanks!
My quick reaction to that questions is TYD's duration is around 23ish and EDV's duration is around 24 so...

Pros of TYD vs EDV:

if interest rates keep moving down then you get a bonus in volatility decay (meaning you get more than 3x upside) with a 3x fund

Cons of TYD vs EDV:

--If interest rates are sideways to up then you will have negative volatility decay
--much higher expense ratio
Is this true? With TMF at-least I believe since inception it has returned closer to 1.5x the return of long-treasuries. I know UPRO has returned greater than 3x since inception, but rates can go down and still do so with enough volatility decay to not keep up with borrowing costs etc...

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

Post by MotoTrojan » Thu Nov 21, 2019 10:57 pm

get_g0ing wrote:
Thu Nov 21, 2019 7:39 pm
MotoTrojan wrote:
Thu Nov 21, 2019 2:45 pm
get_g0ing wrote:
Thu Nov 21, 2019 2:41 pm
I wish those following the strategy are doing well.

A question in terms of staying the course with this strategy:

Starting with the portfolio balance as of today, how much it could go down and would still be considered normal/expected for this strategy? And in what time frame?

I'd like to get an idea of how bad it could get (and within what time range) and still be not much concern.

Thanks.
Historical drawdown is all we really have. This is not an answerable question.

For my 43/57 UPRO/EDV I am hoping that my drawdown in an equity related downturn would be no worse than 100% S&P500, but there are situations where that could be violated. The real risk is a slow/long period of stagflation though, where equities and bonds do poorly with increasing inflation. In that case it wouldn't be hard to imagine >90% real drawdowns.
MotoTrojan, thanks, I appreciate your feedback.

One other thing, for how long can this strategy lag the S&P500?
You are asking unanswerable questions. Nobody knows. It could be all downhill from here, or the S&P500 could crash 85% next year while long-rates go to -4%.

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

Post by Forester » Thu Nov 21, 2019 11:26 pm

The best idea with this at the moment is target volatility and move in & out of cash or short term bonds. I'd rather rely on reduced market exposure than higher market exposure paired with leveraged long term government promises. Possibly going forward, at best the later approach will match target vol, at worst it will get ugly. Just based on where inflation, nominal & real rates are.

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

Post by ebot » Fri Nov 22, 2019 7:44 am

Does anyone know why both SPY and TLT / UPRO & TMF went down together back in 2018? I know it doesn't happen often but I am just trying to understand why this has occurred in the past and what may cause it again.

https://www.portfoliovisualizer.com/bac ... ion2_3=100

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

Post by drock » Fri Nov 22, 2019 8:47 am

MotoTrojan wrote:
Thu Nov 21, 2019 10:53 pm
drock wrote:
Thu Nov 21, 2019 7:04 pm
stormcrow wrote:
Thu Nov 21, 2019 4:22 pm
Hi all, really long time lurker, first time poster. I have been powering through this and the prior thread, and it seems solid. The only thing (to my mind) that could be discussed in a little more depth came about 8 months ago:
Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
Post by badapu » Mon Mar 11, 2019 12:34 am

What are the downsides of 40upro/60tmf versus 40upro/30tmf/30tdy?
Has anyone dug into this? Is anyone trying this allocation? (Note that the ITT 3x leveraged ticker is actually TYD.)

Thanks!
My quick reaction to that questions is TYD's duration is around 23ish and EDV's duration is around 24 so...

Pros of TYD vs EDV:

if interest rates keep moving down then you get a bonus in volatility decay (meaning you get more than 3x upside) with a 3x fund

Cons of TYD vs EDV:

--If interest rates are sideways to up then you will have negative volatility decay
--much higher expense ratio
Is this true? With TMF at-least I believe since inception it has returned closer to 1.5x the return of long-treasuries. I know UPRO has returned greater than 3x since inception, but rates can go down and still do so with enough volatility decay to not keep up with borrowing costs etc...
Moto...as per usual you are on point. The leverage effect on the bond side hasn't been as good as the stock side so its less of a pro than I thought at first reaction and another reason I've joined you on the EDV train.

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

Post by drock » Fri Nov 22, 2019 8:50 am

ebot wrote:
Fri Nov 22, 2019 7:44 am
Does anyone know why both SPY and TLT / UPRO & TMF went down together back in 2018? I know it doesn't happen often but I am just trying to understand why this has occurred in the past and what may cause it again.

https://www.portfoliovisualizer.com/bac ... ion2_3=100
Stocks and bonds don't have a perfectly negative correlation. Bonds were going down because interest rates were going up. Stocks were going down because many reasons.

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

Post by RayKeynes » Fri Nov 22, 2019 9:46 am

Some more pictures of various strategies and some time horizons I've chosen. All graphs do have an initial investment of 10'000$ and continued investment of 3'000$ monthly assumption. Further, no inflation adjustments was made.

Conclusion of 90 year analysis: Investing in leveraged products with continued monthly investing can significantly improve returns over long investment horizons (30 years+). The longer the investment period, the more likely a leveraged portfolio is going to outperform the market. The shorter the investment period, the more likely a leveraged portfolio is going to underperform the market. This conclusion is in conflict to what most users or investment pages tell you. Most tell you to use funds like SSO, UPRO and/or TMF only for short periods of time as they have a so-called "volatility-decay". However - this is only partly due. With continued monthly contribution to a strategic asset allocation (SSA) that consists of a certain % in leveraged products, one can smoothe the statistic and achieve greater returns. The only assumption one does need to have:

1) Stock market will contintue to achieve new highs like in the last 90 years
2) No Stagflation and/or stagnation will occur in the United States in the next 30 years (similarly to the one in Japan).

If you have the above two assumptions - it does not make any sense to NOT have any long-term investment in leveraged products like SSO or UPRO.

1929 - 2019
Image

1941 - 1969
Image

1953 - 1981
Image

1989 - 2019
Image
Last edited by RayKeynes on Fri Nov 22, 2019 10:44 am, edited 1 time in total.

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

Post by get_g0ing » Fri Nov 22, 2019 10:21 am

RayKeynes wrote:
Fri Nov 22, 2019 9:46 am

1) Stock market will contintue to achieve new highs like in the last 90 years
2) No Stagflation will occur in the United States in the next 30 years (similarly to the one in Japan).

If you have the above two assumptions - it does not make any sense to NOT have any long-term investment in leveraged products like SSO or UPRO.
With Stagflation you mean rising interest rates?

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

Post by RayKeynes » Fri Nov 22, 2019 10:42 am

get_g0ing wrote:
Fri Nov 22, 2019 10:21 am

With Stagflation you mean rising interest rates?
Stagflation occurs when the central bank needs to raise interest rates (e.g. federal funds rate) in order to prevent inflation from climbing further on the scale.
At the same time, economic stagnation happens due to various facts (e.g. creditworthiness of borrowers worsens; no more quantitative easing; profit of companies decline etc.)
Stagflation therefore means high inflation paired with very low growth rates (in gdp). This is a killer scenario for people invested in the United States.

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

Post by get_g0ing » Fri Nov 22, 2019 11:14 am

RayKeynes wrote:
Fri Nov 22, 2019 10:42 am
get_g0ing wrote:
Fri Nov 22, 2019 10:21 am

With Stagflation you mean rising interest rates?
Stagflation occurs when the central bank needs to raise interest rates (e.g. federal funds rate) in order to prevent inflation from climbing further on the scale.
At the same time, economic stagnation happens due to various facts (e.g. creditworthiness of borrowers worsens; no more quantitative easing; profit of companies decline etc.)
Stagflation therefore means high inflation paired with very low growth rates (in gdp). This is a killer scenario for people invested in the United States.
Thanks for explaining!

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

Post by DaveG75 » Fri Nov 22, 2019 3:44 pm

get_g0ing wrote:
Thu Nov 21, 2019 7:39 pm

MotoTrojan, thanks, I appreciate your feedback.

One other thing, for how long can this strategy lag the S&P500?
The real answer is that this strategy could lag the S&P 500 for the rest of your life. You could get a 99.9% draw down and never recover. Or not. You have to decide for yourself if you think we will end up with both a big stock market and a big LTT bond market crash at the same time. Globally, this is not an impossible event.

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

Post by DaveG75 » Fri Nov 22, 2019 3:45 pm

Forester wrote:
Thu Nov 21, 2019 11:26 pm
The best idea with this at the moment is target volatility and move in & out of cash or short term bonds. I'd rather rely on reduced market exposure than higher market exposure paired with leveraged long term government promises. Possibly going forward, at best the later approach will match target vol, at worst it will get ugly. Just based on where inflation, nominal & real rates are.
Many on this thread would disagree that target volatility-based timing strategies are "the best idea."

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

Post by privatefarmer » Fri Nov 22, 2019 4:24 pm

DaveG75 wrote:
Fri Nov 22, 2019 3:44 pm
get_g0ing wrote:
Thu Nov 21, 2019 7:39 pm

MotoTrojan, thanks, I appreciate your feedback.

One other thing, for how long can this strategy lag the S&P500?
The real answer is that this strategy could lag the S&P 500 for the rest of your life. You could get a 99.9% draw down and never recover. Or not. You have to decide for yourself if you think we will end up with both a big stock market and a big LTT bond market crash at the same time. Globally, this is not an impossible event.
I think mixing 3x etfs that invest in stocks/bonds/gold/REITs could provide excellent diversification which solid growth. This would be much closer to true “risk parity” and would offer hedges in most market environments. I’m doing this with my entire investment portfolio. Hopefully works out.

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

Post by DaveG75 » Fri Nov 22, 2019 5:10 pm

privatefarmer wrote:
Fri Nov 22, 2019 4:24 pm
DaveG75 wrote:
Fri Nov 22, 2019 3:44 pm
get_g0ing wrote:
Thu Nov 21, 2019 7:39 pm

MotoTrojan, thanks, I appreciate your feedback.

One other thing, for how long can this strategy lag the S&P500?
The real answer is that this strategy could lag the S&P 500 for the rest of your life. You could get a 99.9% draw down and never recover. Or not. You have to decide for yourself if you think we will end up with both a big stock market and a big LTT bond market crash at the same time. Globally, this is not an impossible event.
I think mixing 3x etfs that invest in stocks/bonds/gold/REITs could provide excellent diversification which solid growth. This would be much closer to true “risk parity” and would offer hedges in most market environments. I’m doing this with my entire investment portfolio. Hopefully works out.
In my backtesting, I could not get adding leveraged gold or REITS to show any convincing benefit to the base UPRO/TMF strategy. Did you actually test this out?

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

Post by privatefarmer » Fri Nov 22, 2019 5:25 pm

DaveG75 wrote:
Fri Nov 22, 2019 5:10 pm
privatefarmer wrote:
Fri Nov 22, 2019 4:24 pm
DaveG75 wrote:
Fri Nov 22, 2019 3:44 pm
get_g0ing wrote:
Thu Nov 21, 2019 7:39 pm

MotoTrojan, thanks, I appreciate your feedback.

One other thing, for how long can this strategy lag the S&P500?
The real answer is that this strategy could lag the S&P 500 for the rest of your life. You could get a 99.9% draw down and never recover. Or not. You have to decide for yourself if you think we will end up with both a big stock market and a big LTT bond market crash at the same time. Globally, this is not an impossible event.
I think mixing 3x etfs that invest in stocks/bonds/gold/REITs could provide excellent diversification which solid growth. This would be much closer to true “risk parity” and would offer hedges in most market environments. I’m doing this with my entire investment portfolio. Hopefully works out.
In my backtesting, I could not get adding leveraged gold or REITS to show any convincing benefit to the base UPRO/TMF strategy. Did you actually test this out?
Yeah. So I’m doing the adaptive allocation strategy via portfolio visualizer, using 20day look back and rebalancing monthly. You can go back to 2005 using unleveraged assets since GLD only goes back that far. If you then compare that with the leveraged ETFs it has worked out pretty well, the 3x leveraged etf portfolio actually tracks surprisingly well to what you’d expect. Basically, it’s gotten about a 20% CAGR with about a 45% max DD (during Great Recession).

You can also just look at a mix of the assets using portfolio visualizer asset class comparison tool and go back to the early 90s, again using unleveraged assets. Gold and REITs are both more volatile so in a risk parity portfolio you’d allocate less to them. If you did 10% each, and then maybe 45% LTTs and 35% s/p500, it’s worked out pretty well.

The big thing is that using a MIX of 3x ETFs IMO has helped the total portfolio return about what 3x the unleveraged portfolio would, after borrowing costs. The volatility decay has been relatively minor, from what I’ve seen, I think due to the fact that a true risk parity portfolio is going to be less volatile.

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

Post by Hydromod » Fri Nov 22, 2019 7:47 pm

I'm just in the process of moving to the same basic mix. Kinda like Dick Stoken's approach x3 with adaptive allocation.

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

Post by privatefarmer » Fri Nov 22, 2019 8:13 pm

Hydromod wrote:
Fri Nov 22, 2019 7:47 pm
I'm just in the process of moving to the same basic mix. Kinda like Dick Stoken's approach x3 with adaptive allocation.
Wow. Just looked up dick stoken and his strategy. Never heard of him before your post but yeah it’s basically identical to what I’m doing with my portfolio except I’m not doing any trend following. But am essentially trying to maintain a risk parity portfolio with those 4 asset classes and then leverage the hell out of it...

lcdx22
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by lcdx22 » Fri Nov 22, 2019 8:57 pm

Where is OPs quarterly update? I believe he re-balanced mid August so should have an update with latest account standing.

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

Post by Walkure » Sat Nov 23, 2019 10:51 am

lcdx22 wrote:
Fri Nov 22, 2019 8:57 pm
Where is OPs quarterly update? I believe he re-balanced mid August so should have an update with latest account standing.
I'm approaching a rebalance as well and will post the end of this month. I noticed, however, that the last trading day of the month falls on Black Friday :twisted: so it will be a shortened session (markets close 1pm) following the Thanksgiving holiday. I'm wondering if that could result in a very low volume day with large spreads, and whether it might be better, given M1's trade window and no limit orders, to execute my rebalance on Wednesday the 27th instead. Or am I overthinking this?

am
Posts: 3071
Joined: Sun Sep 30, 2007 9:55 am

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

Post by am » Sun Nov 24, 2019 3:53 pm

Read through most of both threads. Interesting.. Backtest 50s-early 80s poor. After, during big bond and stock bulls does great from low stock valuations and high bond yields.

What do we have now? The opposite. How do you address this? Why not triple international stocks with lower valuations? Just recently bond yields could only go up...

Past performance warning plastered everywhere.
Other backtests and hot alternatives blowing up and disappearing from BH forums discussions?

What is different? Very tempting to make a bet with life changing results, but is this the right one under current conditions?

MotoTrojan
Posts: 6879
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Sun Nov 24, 2019 5:22 pm

am wrote:
Sun Nov 24, 2019 3:53 pm
Read through most of both threads. Interesting.. Backtest 50s-early 80s poor. After, during big bond and stock bulls does great from low stock valuations and high bond yields.

What do we have now? The opposite. How do you address this? Why not triple international stocks with lower valuations? Just recently bond yields could only go up...

Past performance warning plastered everywhere.
Other backtests and hot alternatives blowing up and disappearing from BH forums discussions?

What is different? Very tempting to make a bet with life changing results, but is this the right one under current conditions?
I personally hope my light variant (43/57 UPRO/EDV) beats the S&P500 by 1-2% long term, but I don’t agree with hedge that life changing results are still possible.

While it may be prudent in theory I’d suggest caution about 3x international in practice; DZK has a ~3% mystery annual drag compared to its theoretical index.

am
Posts: 3071
Joined: Sun Sep 30, 2007 9:55 am

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

Post by am » Sun Nov 24, 2019 5:32 pm

MotoTrojan wrote:
Sun Nov 24, 2019 5:22 pm
am wrote:
Sun Nov 24, 2019 3:53 pm
Read through most of both threads. Interesting.. Backtest 50s-early 80s poor. After, during big bond and stock bulls does great from low stock valuations and high bond yields.

What do we have now? The opposite. How do you address this? Why not triple international stocks with lower valuations? Just recently bond yields could only go up...

Past performance warning plastered everywhere.
Other backtests and hot alternatives blowing up and disappearing from BH forums discussions?

What is different? Very tempting to make a bet with life changing results, but is this the right one under current conditions?
I personally hope my light variant (43/57 UPRO/EDV) beats the S&P500 by 1-2% long term, but I don’t agree with hedge that life changing results are still possible.

While it may be prudent in theory I’d suggest caution about 3x international in practice; DZK has a ~3% mystery annual drag compared to its theoretical index.
I also feel like these triple leverage etfs are uncharted territory for most of us used to boglehead type index investing. Who knows if we will be able to stick with this, rebalance quarterly through the extremes, go through Say 8 years of crazy volatility and nothing to show for it other than an emotional roller coaster. Then there will be threads about new approaches, etc. A lot of bets have been placed by much smarter people than us that blew up. I cringed when I read about the guy earlier going all in. Hope he is just starting so he can recover from his mistake.

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

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

Post by ltdshred » Sun Nov 24, 2019 8:34 pm

https://seekingalpha.com/article/396613 ... ratio-year

Just found this article written a few years ago on SPLV + TMF. A very interesting concept. Can anyone backtest SPLV to at least the 1980s? I'm very intrigued by this index construction of low volatility stocks and convinced of the idea that I could lever a 80-20 SPLV/TMF portfolio x3 using margin. Here's my backtest from PV going back to 2012.

Image

moptop
Posts: 1
Joined: Mon May 07, 2018 8:11 pm

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

Post by moptop » Mon Nov 25, 2019 8:42 am

I'm thinking of jumping into the strategy, couple questions, sorry if they have been asked:

1. Roth or taxable? I know roth could be more beneficial, but roth space is pretty precious and limited and I'm not sure I want to risk that space. If the strategy tanks, I've basically lost my Roth space.

2. Should I wait for a market correction? I know kinda a timing question, but its feels like we are much closer to the end of a good run than the beginning right now.

3. Who is on the other side of this trade? In other words, if this keeps killing it, can these 3xetfs keep functioning? Or maybe the cost of leverage becomes too very high to keep the other side of the bet in the game?

get_g0ing
Posts: 582
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Mon Nov 25, 2019 9:14 am

MotoTrojan wrote:
Sun Nov 24, 2019 5:22 pm
am wrote:
Sun Nov 24, 2019 3:53 pm
Read through most of both threads. Interesting.. Backtest 50s-early 80s poor. After, during big bond and stock bulls does great from low stock valuations and high bond yields.

What do we have now? The opposite. How do you address this? Why not triple international stocks with lower valuations? Just recently bond yields could only go up...

Past performance warning plastered everywhere.
Other backtests and hot alternatives blowing up and disappearing from BH forums discussions?

What is different? Very tempting to make a bet with life changing results, but is this the right one under current conditions?
I personally hope my light variant (43/57 UPRO/EDV) beats the S&P500 by 1-2% long term, but I don’t agree with hedge that life changing results are still possible.
Nah, 1-2% over S&P 500 doesn't sound like it's worth it. That's missing the whole point of this strategy. Since the genesis post it's been well repeated that this strategy is for a small portion of total portfolio. So if you have a small part of your portfolio in this and it returns 1% over SP500, that's not going to change anything substantially. And how much downside you're risking for just 1%? Using a strategy that can underperform for years, and have worse drawdawns, and only hoping for 1% extra - doesn't sound too reasonable to me.

MotoTrojan
Posts: 6879
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Mon Nov 25, 2019 10:14 am

get_g0ing wrote:
Mon Nov 25, 2019 9:14 am
MotoTrojan wrote:
Sun Nov 24, 2019 5:22 pm
am wrote:
Sun Nov 24, 2019 3:53 pm
Read through most of both threads. Interesting.. Backtest 50s-early 80s poor. After, during big bond and stock bulls does great from low stock valuations and high bond yields.

What do we have now? The opposite. How do you address this? Why not triple international stocks with lower valuations? Just recently bond yields could only go up...

Past performance warning plastered everywhere.
Other backtests and hot alternatives blowing up and disappearing from BH forums discussions?

What is different? Very tempting to make a bet with life changing results, but is this the right one under current conditions?
I personally hope my light variant (43/57 UPRO/EDV) beats the S&P500 by 1-2% long term, but I don’t agree with hedge that life changing results are still possible.
Nah, 1-2% over S&P 500 doesn't sound like it's worth it. That's missing the whole point of this strategy. Since the genesis post it's been well repeated that this strategy is for a small portion of total portfolio. So if you have a small part of your portfolio in this and it returns 1% over SP500, that's not going to change anything substantially. And how much downside you're risking for just 1%? Using a strategy that can underperform for years, and have worse drawdawns, and only hoping for 1% extra - doesn't sound too reasonable to me.
Then I would run, not walk, away. Beating the S&P500 by 1-2% over decades is a big win and a lot more money. I would be willing to bet my entire stake in this that it won’t perform as well as it has in the past two decades relative to S&P; rates are far too low to provide the kind of capital gains boost it did from 1982-today.

I am not missing the whole point, but you are anchoring to past returns without looking at the situation today.

get_g0ing
Posts: 582
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Mon Nov 25, 2019 2:51 pm

MotoTrojan wrote:
Mon Nov 25, 2019 10:14 am
get_g0ing wrote:
Mon Nov 25, 2019 9:14 am
MotoTrojan wrote:
Sun Nov 24, 2019 5:22 pm
am wrote:
Sun Nov 24, 2019 3:53 pm
Read through most of both threads. Interesting.. Backtest 50s-early 80s poor. After, during big bond and stock bulls does great from low stock valuations and high bond yields.

What do we have now? The opposite. How do you address this? Why not triple international stocks with lower valuations? Just recently bond yields could only go up...

Past performance warning plastered everywhere.
Other backtests and hot alternatives blowing up and disappearing from BH forums discussions?

What is different? Very tempting to make a bet with life changing results, but is this the right one under current conditions?
I personally hope my light variant (43/57 UPRO/EDV) beats the S&P500 by 1-2% long term, but I don’t agree with hedge that life changing results are still possible.
Nah, 1-2% over S&P 500 doesn't sound like it's worth it. That's missing the whole point of this strategy. Since the genesis post it's been well repeated that this strategy is for a small portion of total portfolio. So if you have a small part of your portfolio in this and it returns 1% over SP500, that's not going to change anything substantially. And how much downside you're risking for just 1%? Using a strategy that can underperform for years, and have worse drawdawns, and only hoping for 1% extra - doesn't sound too reasonable to me.
Then I would run, not walk, away. Beating the S&P500 by 1-2% over decades is a big win and a lot more money. I would be willing to bet my entire stake in this that it won’t perform as well as it has in the past two decades relative to S&P; rates are far too low to provide the kind of capital gains boost it did from 1982-today.

I am not missing the whole point, but you are anchoring to past returns without looking at the situation today.
Are you saying that the point of the introduction of this strategy/thread was to be able to beat the S&P 500 by 1-2%?

You do make some good points, and 1% extra for your total portfolio would be good - there I agree, but no one is advocating this strategy for a total portfolio. Maybe it's different for you, but I don't see much in waiting decades hoping for a small portion of portfolio to beat the S&P 500 by 1%.

The other thing you perhaps don't understand is that the future return is not knowable, maybe more useful to think in terms of (and be mentally prepared for) a range of possible outcomes - rather than aiming for a specific percentage. You appear too certain, I wish it works well for you.

MotoTrojan
Posts: 6879
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Mon Nov 25, 2019 3:16 pm

get_g0ing wrote:
Mon Nov 25, 2019 2:51 pm


Are you saying that the point of the introduction of this strategy/thread was to be able to beat the S&P 500 by 1-2%?

You do make some good points, and 1% extra for your total portfolio would be good - there I agree, but no one is advocating this strategy for a total portfolio. Maybe it's different for you, but I don't see much in waiting decades hoping for a small portion of portfolio to beat the S&P 500 by 1%.

The other thing you perhaps don't understand is that the future return is not knowable, maybe more useful to think in terms of (and be mentally prepared for) a range of possible outcomes - rather than aiming for a specific percentage. You appear too certain, I wish it works well for you.
I am not certain at all. I give my strategy an expected return in the 1-2% realm (3% perhaps if you do the OPs 55/45 UPRO/TMF), and that expected return is based on the historical return from 1955-today, when interest rates started and ended at about the same point. While I am prepared for a range of returns, saying that an expected return based on facts or history is flawed is strange to me. Historically when starting from sky-high yields this about doubled the S&P500, but when starting from yields like we had today, and over 6 decades, it was closer to a 2-3% premium.

The expected return of TMF (if it existed) was much higher in 1982 than it was today, that is a simple fact, and it ended up returning far more than it's expectation as well. Thus the expected return of this portfolio in the future is lower than what it achieved from 1982 to today. I think hedgefundie is doing everyone on this forum a disservice by promoting the idea that UPRO does all the work and 20%+ CAGR when the S&P500 is high single digit is a likely outcome.

Who cares what the "point of the introduction of this strategy/thread" was if the rationale behind that point is flawed.

get_g0ing
Posts: 582
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Mon Nov 25, 2019 8:45 pm

MotoTrojan wrote:
Mon Nov 25, 2019 3:16 pm
Who cares what the "point of the introduction of this strategy/thread" was if the rationale behind that point is flawed.
Hi MotoTrojan, okay, so if stated that way, I have no problem with that. I think judging the rationale would be most useful to anyone starting this journey today.

MotoTrojan wrote:
Mon Nov 25, 2019 3:16 pm
I give my strategy an expected return in the 1-2% realm (3% perhaps if you do the OPs 55/45 UPRO/TMF), and that expected return is based on the historical return from 1955-today, when interest rates started and ended at about the same point. While I am prepared for a range of returns, saying that an expected return based on facts or history is flawed is strange to me. Historically when starting from sky-high yields this about doubled the S&P500, but when starting from yields like we had today, and over 6 decades, it was closer to a 2-3% premium.

The expected return of TMF (if it existed) was much higher in 1982 than it was today, that is a simple fact, and it ended up returning far more than it's expectation as well. Thus the expected return of this portfolio in the future is lower than what it achieved from 1982 to today.
Based on this portrayal, I can concur with you that this line of thinking can be reasonable. You've made good contributions to the discussion, which I'm thankful for :happy

Lee_WSP
Posts: 1208
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

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

Post by Lee_WSP » Mon Nov 25, 2019 9:06 pm

get_g0ing wrote:
Mon Nov 25, 2019 8:45 pm
MotoTrojan wrote:
Mon Nov 25, 2019 3:16 pm
Who cares what the "point of the introduction of this strategy/thread" was if the rationale behind that point is flawed.
Hi MotoTrojan, okay, so if stated that way, I have no problem with that. I think judging the rationale would be most useful to anyone starting this journey today.

No one should jump on this train without thoroughly understanding what drove the previous 20 year's backtest, what happened before that, and the total range of possibilities.

RayKeynes
Posts: 47
Joined: Mon Nov 11, 2019 2:14 am

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

Post by RayKeynes » Tue Nov 26, 2019 4:22 am

Lee_WSP wrote:
Mon Nov 25, 2019 9:06 pm
get_g0ing wrote:
Mon Nov 25, 2019 8:45 pm
MotoTrojan wrote:
Mon Nov 25, 2019 3:16 pm
Who cares what the "point of the introduction of this strategy/thread" was if the rationale behind that point is flawed.
Hi MotoTrojan, okay, so if stated that way, I have no problem with that. I think judging the rationale would be most useful to anyone starting this journey today.

No one should jump on this train without thoroughly understanding what drove the previous 20 year's backtest, what happened before that, and the total range of possibilities.
Absolutely true. I will only post one mickey-mouse style graphic which explains why the strategy 55% UPRO 45% TMF has worked so well from 1980 to 2020 and WHY it will not work going forward:

Image

spae
Posts: 68
Joined: Tue Oct 08, 2019 9:29 pm

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

Post by spae » Tue Nov 26, 2019 5:53 am

RayKeynes wrote:
Tue Nov 26, 2019 4:22 am
Absolutely true. I will only post one mickey-mouse style graphic which explains why the strategy 55% UPRO 45% TMF has worked so well from 1980 to 2020 and WHY it will not work going forward:

Image
I agree with MT that it's unrealistic to expect performance like we saw in the original post, which uses a backtest from 1987 to 2018, but I think it's a bit much to assume that the up arrow on the right side of the quoted graph is indicative of the future and we'll see another cycle that results in much higher interest rates going forward. We might, but we might also see something more like

Image

RayKeynes
Posts: 47
Joined: Mon Nov 11, 2019 2:14 am

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

Post by RayKeynes » Tue Nov 26, 2019 7:13 am

spae wrote:
Tue Nov 26, 2019 5:53 am

I agree with MT that it's unrealistic to expect performance like we saw in the original post, which uses a backtest from 1987 to 2018, but I think it's a bit much to assume that the up arrow on the right side of the quoted graph is indicative of the future and we'll see another cycle that results in much higher interest rates going forward. We might, but we might also see something more like

Image
Even if a scenario like in Japan of rates at 0% for decades would not let the strategy work out as it should. Interest rates can simply not fall below 0% as monetary systems do not work anymore.

If interest rates cant go lower, TMF also will not rise anymore.

elderwise
Posts: 206
Joined: Fri Jul 22, 2016 10:27 am

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

Post by elderwise » Tue Nov 26, 2019 10:17 am

What is the outcome if stocks keep going up and up (albeit gradually) and thus DJIA / S&P / Nasdaq etc..

and Interest rates stagnate at or near 0%..and dont rise.

Does this strategy fail then or still beat the S&P or Nasdaq (UPRO / TQQQ)

Lee_WSP
Posts: 1208
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

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

Post by Lee_WSP » Tue Nov 26, 2019 10:33 am

RayKeynes wrote:
Tue Nov 26, 2019 7:13 am
spae wrote:
Tue Nov 26, 2019 5:53 am

I agree with MT that it's unrealistic to expect performance like we saw in the original post, which uses a backtest from 1987 to 2018, but I think it's a bit much to assume that the up arrow on the right side of the quoted graph is indicative of the future and we'll see another cycle that results in much higher interest rates going forward. We might, but we might also see something more like

Image
Even if a scenario like in Japan of rates at 0% for decades would not let the strategy work out as it should. Interest rates can simply not fall below 0% as monetary systems do not work anymore.

If interest rates cant go lower, TMF also will not rise anymore.
TMF is only there as a hedge against a run on equities. It will still work as a hedge even in a flat rate environment.

RayKeynes
Posts: 47
Joined: Mon Nov 11, 2019 2:14 am

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

Post by RayKeynes » Tue Nov 26, 2019 10:34 am

elderwise wrote:
Tue Nov 26, 2019 10:17 am
What is the outcome if stocks keep going up and up (albeit gradually) and thus DJIA / S&P / Nasdaq etc..

and Interest rates stagnate at or near 0%..and dont rise.

Does this strategy fail then or still beat the S&P or Nasdaq (UPRO / TQQQ)
In this very unlikely case - the strategy might perform "ok". UPRO does go up with 55% * X the SP500. TMF will go more or less sideways or loosing some money, but not too much. Therefore - The strategy will probably be more or less in line with the market - however - with more higher portfolio volatility - thus a stupid idea to do so.

In any current scenario for the future I do not see any reason to go for UPRO/TMF. I'd rather perform a UPRO-ONLY strategy with continued monthly investing. Thus, if UPRO crashes (and it will!), you will buy every month at a cheaper price.

langlands
Posts: 11
Joined: Wed Apr 03, 2019 10:05 pm

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

Post by langlands » Tue Nov 26, 2019 10:56 am

I've been following this thread rather intently and have always assumed that selling shares in UPRO and other leveraged ETFs are like selling shares in any other stock- namely selling after a year would result in long term capital gains. However, I came across the following article https://www.morningstar.com/articles/30 ... s-answered that seems to contradict this. Quoting from the article,

"Finally, investors should be aware of the unusual tax issues that result from the underlying holdings of these funds. Index swaps, the derivatives used by leveraged and inverse funds to produce their daily returns, are always taxed at short-term capital gains rates. Because ETFs are taxed on a look-through basis, by which investors pay what they would have if they'd directly held the underlying securities, any investor who sells this fund for a gain will face a hefty tax bite equal to the short-term capital gains rate, even if the fund was held for more than a year."

This is wrong right?

elderwise
Posts: 206
Joined: Fri Jul 22, 2016 10:27 am

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

Post by elderwise » Tue Nov 26, 2019 11:16 am

On comparison between the 3X leveraged Funds TQQQ and UPRO, I noticed the following

TQQQ:

TOTAL NET ASSETS

$3.67B

AVERAGE VOLUME

16.09M


UPRO:

TOTAL NET ASSETS

$1.31B

AVERAGE VOLUME

2.98M

Granted one is S&P and other is Nasdaq, so different indices but does usually having more Net assets mean the fund is more heavily invested in / has more liquidity ? and also the average volume TQQQ > UPRO ( 16 M vs 3 M)..

would it not then be just better to do TQQQ vs UPRO.

I am doing both personally , but wanted to know others thoughts

RayKeynes
Posts: 47
Joined: Mon Nov 11, 2019 2:14 am

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

Post by RayKeynes » Tue Nov 26, 2019 11:28 am

elderwise wrote:
Tue Nov 26, 2019 11:16 am

would it not then be just better to do TQQQ vs UPRO.

I am doing both personally , but wanted to know others thoughts
The bigger stake, I'd put definitely into UPRO. I would do 4 : 1 ratio (UPRO:TQQQ).

Reason: Nasdaq is a lot volatiler than SP500 and less diversified. Leveraged ETFs suffer from Volatililty.

How much of your wealth do you have invested in those two funds?
Last edited by RayKeynes on Tue Nov 26, 2019 11:33 am, edited 1 time in total.

MotoTrojan
Posts: 6879
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Tue Nov 26, 2019 11:29 am

langlands wrote:
Tue Nov 26, 2019 10:56 am
I've been following this thread rather intently and have always assumed that selling shares in UPRO and other leveraged ETFs are like selling shares in any other stock- namely selling after a year would result in long term capital gains. However, I came across the following article https://www.morningstar.com/articles/30 ... s-answered that seems to contradict this. Quoting from the article,

"Finally, investors should be aware of the unusual tax issues that result from the underlying holdings of these funds. Index swaps, the derivatives used by leveraged and inverse funds to produce their daily returns, are always taxed at short-term capital gains rates. Because ETFs are taxed on a look-through basis, by which investors pay what they would have if they'd directly held the underlying securities, any investor who sells this fund for a gain will face a hefty tax bite equal to the short-term capital gains rate, even if the fund was held for more than a year."

This is wrong right?
If that were the case then you would see the massive capital gains distributions every quarter, which you do not. I presume the fact it is an ETF allows them to manage this. PSLDX and the other Pimco StocksPLUS funds on the other hand have massive distributions in the low double-digits annually (IRA is the only reasonable home for those funds).

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