HEDGEFUNDIE Strategy for European Investors

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Topic Author
ETFlover
Posts: 14
Joined: Tue Dec 01, 2020 12:55 pm

HEDGEFUNDIE Strategy for European Investors

Post by ETFlover »

Hello! :happy
I'm a 24 years old from Italy: I've been reading the forum for a long time, but I'm a first time poster.
The reason I'm writing is that I've been fascinated by the famous thread 'HEDGEFUNDIE's excellent adventure' (viewtopic.php?t=272007) (For those who don't know, it is a strategy using 3x leveraged S&P500 (UPRO) and 3x leveraged Long term treasuries (TMF), showing impressive annualized returns with high but reasonable volatility).

I've read the thread and I think I understand the risks well (given that the strategy is based on the assumption that stocks and long term treasuries will remain uncorrelated, ion fact I'm planning to put 5% of my portfolio in it), but the problem is that we European don't have access to such ETFs, and have to rely on UCITS ETF instead (with smaller offer and daily leverage limited to 2x).
I've seen this topic emerge a couple times, however no investigation nor solution has been found.

After looking at available options and tinkering with portfolio visualizer I've reached this conclusion:
-I could use 'Xtrackers S&P 500 2x Leveraged Daily Swap UCITS ETF 1C' (LU0411078552) for the stock part: TER is 0.6% and returns similar to SSO (2x version of UPRO). 'Amundi ETF Leveraged MSCI USA Daily UCITS ETF EUR' is similar and with a lower TER of 0.35%, however the cost of a single share is €2500 which makes it difficult to rebalance with small amounts.
-Regarding the bond part: I've found 2 options, 'iShares USD Treasury Bond 20+yr UCITS ETF USD (Acc)' (IE00BFM6TC58) which is an unleveraged long term treasuries ETF, and 'WisdomTree US Treasuries 10Y 3x Daily Leveraged' (IE00BKT09032) which is a 3x ETN following the 'US Treasury Note 10Y Rolling Future index'. This last one should be the first choice, with the problem of being an ETN (offering counterparty risk) and having a very small AUM. Sadly, I've not found any UCITS 2x ETF US tracking bond indexes, taht would be the perfect complement to 2x SP500.

I've come to 2 alternatives:
A)
-60% sp500 2x
-40% long treasuries 1x
(This is the most 'conservative' approach: it has a total leverage of 1.6x and offers no counterparty risk)
B)
-60% sp500 2x
-25% long treasuries 1x
-15% Wisdomtree 10y 3x
(This is the most 'aggressive' approach, more similar to the original HEDGEFUNDIE approach: it has a total leverage of 1.9x, and offers counterparty risk on 15% of its amount)

Here are the results of the simulations from PV (The first one using SSO and TYD as replacement for the two leveraged ETF/ETN, starting from 2009, and the second trying to 'mimic' the allocation using a negative cash amount for lending costs and a withdrawal rate that simulates the higher TER).

Results compare positively with SP500 (my benchmark)
https://www.portfoliovisualizer.com/bac ... tion3_2=25
https://www.portfoliovisualizer.com/bac ... ion4_2=-90

Backtests shows an annualized return of around 12.5% against 8.5% for sp500 starting from 1992, which I believe is nice considering that the leverage is much lower than hedgefundie's strategy. I've only tinkered with stocks and bonds, and did not include gold or VIX as an hedge (or nasdaq as replacement for a part of sp500): I'm eager to know suggestions and ideas from you, and I'm sure that this will be a great opportunity to learn (as I learned a lot from HEDGEFUNDIE's thread!). Let's make this the reference HEDGEFUNDIE tread for us EU investors! :D :sharebeer
Laurizas
Posts: 176
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Location: Lithuania

Re: HEDGEFUNDIE Strategy for European Investors

Post by Laurizas »

For a bond part why not Lyxor Bund Future Daily (2x) Leverage (LUX) UCITS and for a stock part why not Lyxor Nasdaq 100 Daily (2x) Leveraged UCITS ETF since there are no 3x funds?
Last edited by Laurizas on Sat Dec 26, 2020 1:32 pm, edited 1 time in total.
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Forester
Posts: 1752
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Location: UK

Re: HEDGEFUNDIE Strategy for European Investors

Post by Forester »

I'm considering levering up Emerging and possibly UK also. Why do the Hedgefundie strategy? You'll get whacked on a weaker US dollar and weaker Us equity performance. My money is on ex-US outperforming. US Dollar index going from 90 today, to south of 80. A couple of times in the 2000s/early 2010s we got to 75 on the Dollar Index. I would forget bonds and pick an arbitrary level to exit such a strategy.
Topic Author
ETFlover
Posts: 14
Joined: Tue Dec 01, 2020 12:55 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by ETFlover »

Laurizas wrote: Sat Dec 26, 2020 11:05 am For a bond part why not Lyxor Bund Future Daily (2x) Leverage (LUX) UCITS and for a stock part why not Lyxor Nasdaq 100 Daily (2x) Leveraged UCITS ETF since there are no 3x funds?
I did not consider Lyxor Bund Future Daily because it is a leveraged german bund ETF: the low-negative correlation between stocks and bonds is what limits HEDGEFUNDIE's drawdowns and improves returns, and correlation between american stocks and american bonds is lower (I assume) than between
american stocks and german bonds. Instead, the leveraged bund ETF you proposed should work well with Xtrackers LevDAX Daily Swap UCITS ETF 1C LU0411075376 of the broader Lyxor Euro Stoxx 50 Daily (2x) Leveraged UCITS ETF Acc FR0010468983

Lyxor Nasdaq 100 Daily can be a reasonable option, however I think I would go with s&p500 given that the two ETFs have the same TER but Nasdaq is less diversified and more volatile: is there a particular reason why you would suggest it instead of the S&P500? Treasuries should have a more negative correlation with the latter than the former (given that SP500 index is more representative of US market as a whole). However. by using NASDAQ instead of S&P500 I get (starting from before the dot-com bubble) better annualized return even if with much higher volatility:
https://www.portfoliovisualizer.com/bac ... ion5_2=120

Any suggestion/improvement/correction from your part is well appreciated!
Topic Author
ETFlover
Posts: 14
Joined: Tue Dec 01, 2020 12:55 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by ETFlover »

Forester wrote: Sat Dec 26, 2020 11:08 am I'm considering levering up Emerging and possibly UK also. Why do the Hedgefundie strategy? You'll get whacked on a weaker US dollar and weaker Us equity performance. My money is on ex-US outperforming. US Dollar index going from 90 today, to south of 80. A couple of times in the 2000s/early 2010s we got to 75 on the Dollar Index. I would forget bonds and pick an arbitrary level to exit such a strategy.
Which ETF would you use to leverage Emerging or UK stocks? The problem with emerging markets is their high volatility: high volatility worsens the volatility drag due to leverage. An only-stock leveraged investment would require a very high annualized return in order to justify the very high volatility and especially the possibility of >80% loss in case of a bear market
Laurizas
Posts: 176
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Location: Lithuania

Re: HEDGEFUNDIE Strategy for European Investors

Post by Laurizas »

ETFlover wrote: Sat Dec 26, 2020 4:43 pm is there a particular reason why you would suggest it instead of the S&P500?
Past performance, since 2010 Lyxor Nasdaq is up 2911 %, Xtrackers S and P 500 only 856.
Topic Author
ETFlover
Posts: 14
Joined: Tue Dec 01, 2020 12:55 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by ETFlover »

Laurizas wrote: Sat Dec 26, 2020 4:53 pm
ETFlover wrote: Sat Dec 26, 2020 4:43 pm is there a particular reason why you would suggest it instead of the S&P500?
Past performance, since 2010 Lyxor Nasdaq is up 2911 %, Xtrackers S and P 500 only 856.
I agree, since 2010 Nasdaq performance has been extraordinary; however 10 years is not such a long time-span: in fact, if you consider the period 2000-2020 instead you see that nasdaq only recovered its initial loss 14years later, and only this year overtook the SP500, so it really depends on the period considered
https://www.portfoliovisualizer.com/bac ... ion2_2=100

I agree, however, that nasdaq should perform better even if with higher volatility compared to SP500
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Forester
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Re: HEDGEFUNDIE Strategy for European Investors

Post by Forester »

ETFlover wrote: Sat Dec 26, 2020 4:47 pm
Forester wrote: Sat Dec 26, 2020 11:08 am I'm considering levering up Emerging and possibly UK also. Why do the Hedgefundie strategy? You'll get whacked on a weaker US dollar and weaker Us equity performance. My money is on ex-US outperforming. US Dollar index going from 90 today, to south of 80. A couple of times in the 2000s/early 2010s we got to 75 on the Dollar Index. I would forget bonds and pick an arbitrary level to exit such a strategy.
Which ETF would you use to leverage Emerging or UK stocks? The problem with emerging markets is their high volatility: high volatility worsens the volatility drag due to leverage. An only-stock leveraged investment would require a very high annualized return in order to justify the very high volatility and especially the possibility of >80% loss in case of a bear market
The Nasdaq will likely not give one that very high return, and bonds are nearly tapped out. So the alternative Hedgefundie strategy is buying EM and foregoing the bonds, and using a trendline or CAPE level, some arbitrary exit point. It would like exiting the Hedgefundie strategy in 2018 and leaving money on the table - that's the only way to do it, absent a leveraged bond buffer.

Emerging CAPE is around 16, where the US was in 2009. The UK 12. Yes the sector makeup is different, but that's the opportunity set. Pick an exit point on $EEM and hold on for dear life.
Robertsson
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Joined: Mon Jan 13, 2020 4:08 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by Robertsson »

ETFlover wrote: Sat Dec 26, 2020 10:04 am
I've come to 2 alternatives:
A)
-60% sp500 2x
-40% long treasuries 1x
(This is the most 'conservative' approach: it has a total leverage of 1.6x and offers no counterparty risk)
B)
-60% sp500 2x
-25% long treasuries 1x
-15% Wisdomtree 10y 3x
(This is the most 'aggressive' approach, more similar to the original HEDGEFUNDIE approach: it has a total leverage of 1.9x, and offers counterparty risk on 15% of its amount)
Hey, I'm happy you made this thread, I hope europeans that use HF finds it.

I live in Sweden and im using your alternative A) but im using Amundi ETF Leveraged MSCI USA Daily UCITS ETF EUR as equity part. But it's a headache with each ETF unit of Amundis ETF being so expensive.
As bond part im using the iShares USD Treasury Bond 20+yr UCITS ETF USD (Acc) that you mention. I also bought some Xtrackers II Eurozone Government Bond 25+ UCITS ETF but it doesn't function like the US bond ETF, it doesn't have negative correlation with US stocks.

I wish I had something more helpfull to add but I havn't found any better alternatives so far that works in a swedish tax advantaged account.
Topic Author
ETFlover
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Joined: Tue Dec 01, 2020 12:55 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by ETFlover »

Robertsson wrote: Sun Dec 27, 2020 6:48 am
ETFlover wrote: Sat Dec 26, 2020 10:04 am
I've come to 2 alternatives:
A)
-60% sp500 2x
-40% long treasuries 1x
(This is the most 'conservative' approach: it has a total leverage of 1.6x and offers no counterparty risk)
B)
-60% sp500 2x
-25% long treasuries 1x
-15% Wisdomtree 10y 3x
(This is the most 'aggressive' approach, more similar to the original HEDGEFUNDIE approach: it has a total leverage of 1.9x, and offers counterparty risk on 15% of its amount)
Hey, I'm happy you made this thread, I hope europeans that use HF finds it.

I live in Sweden and im using your alternative A) but im using Amundi ETF Leveraged MSCI USA Daily UCITS ETF EUR as equity part. But it's a headache with each ETF unit of Amundis ETF being so expensive.
As bond part im using the iShares USD Treasury Bond 20+yr UCITS ETF USD (Acc) that you mention. I also bought some Xtrackers II Eurozone Government Bond 25+ UCITS ETF but it doesn't function like the US bond ETF, it doesn't have negative correlation with US stocks.

I wish I had something more helpfull to add but I havn't found any better alternatives so far that works in a swedish tax advantaged account.
Hi Robertsson, glad to receive your input!
Regarding the Amundi: why are you preferring it to the xTrackers? The first advantage that I've noticed is the lower TER (0.35% vs 0.60%) and maybe the higher broader index (600 stocks vs 500), in fact it would be my first choice if only it didn't have such a high price... considering that I want to implement this strategy in a small portion of my portfolio this makes it impossible to correclty rebalance.
Have you done any backtests that you can share with us to better judge this strategy? https://www.portfoliovisualizer.com/bac ... tion2_3=40
this is the last one that I conducted: here I used ULPIX (the oldest SP500 2x), but it only goes back to 1997 and has an higher TER (1.5% vs 0.6% of the xTrackers) and a lower 10y annualized return (21.30% vs 23.10%). It would be helpful to go more back in time to judge better...
Is you allocation 60% leveraged stocks and 40% unleveraged bond as I proposed or different? Which rebalancing period have you chosen? Sorry for the many questions but the topic is intriguing and promising!

Regarding the Xtrackers II Eurozone Government Bond 25+ UCITS ETF: did you buy it for some reason over the iShares USD Treasury Bond 20+yr UCITS ETF USD (Acc), maybe to diversify more? There is also a leveraged bund ETF: Lyxor Bund Daily (2x) Leveraged UCITS ETF Acc FR0011023654, which has also a low TER of 0.2%. The correlation problem is still present, however it could be coupled with Xtrackers LevDAX Daily Swap UCITS ETF 1C LU0411075376, which is leveraged.

Lastly, an alternative could be to use a brokerage account that offers access to US ETFs and directly buy UPRO and TMF: however, I don't know in which additional taxes and bureaucracy (if any) would you occur by doing so; i use Directa which calculates and automatically removes the required cash to pay for taxes, but I don't know if it would work in case of US market or if the taxes to pay would be higher.
Robertsson
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Re: HEDGEFUNDIE Strategy for European Investors

Post by Robertsson »

ETFlover wrote: Sun Dec 27, 2020 12:30 pm
Robertsson wrote: Sun Dec 27, 2020 6:48 am
ETFlover wrote: Sat Dec 26, 2020 10:04 am
I've come to 2 alternatives:
A)
-60% sp500 2x
-40% long treasuries 1x
(This is the most 'conservative' approach: it has a total leverage of 1.6x and offers no counterparty risk)
B)
-60% sp500 2x
-25% long treasuries 1x
-15% Wisdomtree 10y 3x
(This is the most 'aggressive' approach, more similar to the original HEDGEFUNDIE approach: it has a total leverage of 1.9x, and offers counterparty risk on 15% of its amount)
Hey, I'm happy you made this thread, I hope europeans that use HF finds it.

I live in Sweden and im using your alternative A) but im using Amundi ETF Leveraged MSCI USA Daily UCITS ETF EUR as equity part. But it's a headache with each ETF unit of Amundis ETF being so expensive.
As bond part im using the iShares USD Treasury Bond 20+yr UCITS ETF USD (Acc) that you mention. I also bought some Xtrackers II Eurozone Government Bond 25+ UCITS ETF but it doesn't function like the US bond ETF, it doesn't have negative correlation with US stocks.

I wish I had something more helpfull to add but I havn't found any better alternatives so far that works in a swedish tax advantaged account.
Hi Robertsson, glad to receive your input!
Regarding the Amundi: why are you preferring it to the xTrackers? The first advantage that I've noticed is the lower TER (0.35% vs 0.60%) and maybe the higher broader index (600 stocks vs 500), in fact it would be my first choice if only it didn't have such a high price... considering that I want to implement this strategy in a small portion of my portfolio this makes it impossible to correclty rebalance.
Have you done any backtests that you can share with us to better judge this strategy? https://www.portfoliovisualizer.com/bac ... tion2_3=40
this is the last one that I conducted: here I used ULPIX (the oldest SP500 2x), but it only goes back to 1997 and has an higher TER (1.5% vs 0.6% of the xTrackers) and a lower 10y annualized return (21.30% vs 23.10%). It would be helpful to go more back in time to judge better...
Is you allocation 60% leveraged stocks and 40% unleveraged bond as I proposed or different? Which rebalancing period have you chosen? Sorry for the many questions but the topic is intriguing and promising!

Regarding the Xtrackers II Eurozone Government Bond 25+ UCITS ETF: did you buy it for some reason over the iShares USD Treasury Bond 20+yr UCITS ETF USD (Acc), maybe to diversify more? There is also a leveraged bund ETF: Lyxor Bund Daily (2x) Leveraged UCITS ETF Acc FR0011023654, which has also a low TER of 0.2%. The correlation problem is still present, however it could be coupled with Xtrackers LevDAX Daily Swap UCITS ETF 1C LU0411075376, which is leveraged.

Lastly, an alternative could be to use a brokerage account that offers access to US ETFs and directly buy UPRO and TMF: however, I don't know in which additional taxes and bureaucracy (if any) would you occur by doing so; i use Directa which calculates and automatically removes the required cash to pay for taxes, but I don't know if it would work in case of US market or if the taxes to pay would be higher.
I don't remember exactly the background to my choices since i started with HF a year ago but I'll try to find the numbers that persuaded me at the time.

1. Why Amundi over xTrackers for equity:
I chose it because I generally prefer broader indexes and lower TER and Amundi had performed better than xTrackers over the last maybe 5 years. But Amundi also has higher volatility which is bad for leveraged ETFs so I'm not sure it's the best choice. 1 year history shows xTracker with higher return, probably because leveraged ETFs loose a lot in volatile sideways markets. So less volatility might be worth higher TER in volatile times.
I also compared the amundi with the wisdomtree 3x sp500 and the difference was smaller that I thought and would be even smaller because of extra fee for buying and selling from Sweden, if I remember correctly. Now I can't find the site where I managed to compare the two ETFs. I would have to buy the wisdomtree ETF from the London stock exchange via my swedish bank, I believe. I know there is a version of the ETF on an italian stock exchange aswell.

2. 60% / 40% ?
Yes, Im doing 60% equity and 40% bonds, just like your example A. I have not found a european portfolio vizualizer so I've looked at different backtests using TLT/SSO and also SPY/TLT with minus CASHX. I've also chosen 60/40 beacuse of the low rate environment where discussion in the HF-thread. And I can live with the drawdowns that PV are showing with 60/40.

3. Rebalancing
From the discussions in the HF-thread I've lost some faith in backtesting as a method for deciding rebalancing frequency because of the amount of luck involved. Also, I pay fees everytime I sell or buy ETFs. So I've changed my mind about rebalancing a lot. Right now I'm using absolute rebalancing bands of 15%. That can also be analyzed on PV but again, backtesting might not help with the future.
Owning the Amundi ETF makes rebalancing difficult aswell because of the price. So far I have rebalanced by contributions but that is not something I can continue doing so I'm not sure.

4. Xtrackers II Eurozone Government Bond 25+ UCITS ETF:
I had an idea about making the HF more global by adding bond and equties from other parts of the world so that is why I bought some of the Eurobond ETF. But I havn't found a broad index leveraged eurozone ETF and I've left that idea for now, but I never sold the eurobond ETF so that's why I have it. I looked at the other leveraged ETFs but I dont want DAX leveraged or things like that, I want broad indexes.
But the eurozone bond ETF has actually performed pretty well which is strange conisdering the low interest rate of the EU. I also thought it would act like the US bond ETF and have a negative correlation with the US equity ETF, but that was wrong. I've made a lot mistakes but hopefully I've learned some from those mistakes.


It's nice to be able to discuss the EU version of the strategy, I'm sure there are a lot of improvements to be made!
MichaelGh
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Re: HEDGEFUNDIE Strategy for European Investors

Post by MichaelGh »

Hi all,
It's possible to buy upro, tmf etc through your regular European broker as well, although not directly.

If you buy a call and sell a put with the same strike you'll get assigned 100 shares of the underlying at expiry, even if that underlying doesn't have KIDS. The biggest downside is that you always have to buy 100 of it so that makes rebalancing harder. If you have enough cash I would recommend that over searching European alternatives.

If you do want a European upro alternative you can have a look at this wisdomtree 3x s&p500 etf:
https://www.wisdomtree.eu/en-gb/etps/eq ... -leveraged
Last edited by MichaelGh on Mon Dec 28, 2020 5:41 pm, edited 1 time in total.
rickyfris
Posts: 2
Joined: Sat Jun 13, 2020 10:00 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by rickyfris »

MichaelGh wrote: Mon Dec 28, 2020 5:37 pm Hi all,
It's possible to buy upro, tmf etc through your regular European broker as well, although not directly.

If you buy a call and sell a put with the same strike you'll get assigned 100 shares of the underlying at expiry, even if that underlying doesn't have KIDS. The biggest downside is that you always have to buy 100 of it so that makes rebalancing harder. If you have enough cash I would recommend that over searching European alternatives.

If you do want a European upro alternative you can have a look at this wisdomtree 3x s&p500 etf:
https://www.wisdomtree.eu/en-gb/etps/eq ... -leveraged
I'm looking to replicate the Hedgefundie strategy in the UK, what broker offers wisdom tree funds here? Currently I use Vanguard and invest in the equivalent of VTI - I want to increase my risk without hopefully increasing my expenses too much.
Laurizas
Posts: 176
Joined: Mon Dec 31, 2018 4:44 am
Location: Lithuania

Re: HEDGEFUNDIE Strategy for European Investors

Post by Laurizas »

MichaelGh wrote: Mon Dec 28, 2020 5:37 pm If you do want a European upro alternative you can have a look at this wisdomtree 3x s&p500 etf:
https://www.wisdomtree.eu/en-gb/etps/eq ... -leveraged
it is not ETF, it is ETP.

What is this product?
Type
An English law governed, uncertificated, registered, collateralised exchanged-traded note linked to the S&P 500 Net Total Return
through swap arrangements (“Swaps”) entered into with eligible swap providers (“Swap Providers”)
MichaelGh
Posts: 4
Joined: Mon Dec 28, 2020 5:25 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by MichaelGh »

rickyfris wrote: Tue Dec 29, 2020 11:26 am
MichaelGh wrote: Mon Dec 28, 2020 5:37 pm Hi all,
It's possible to buy upro, tmf etc through your regular European broker as well, although not directly.

If you buy a call and sell a put with the same strike you'll get assigned 100 shares of the underlying at expiry, even if that underlying doesn't have KIDS. The biggest downside is that you always have to buy 100 of it so that makes rebalancing harder. If you have enough cash I would recommend that over searching European alternatives.

If you do want a European upro alternative you can have a look at this wisdomtree 3x s&p500 etf:
https://www.wisdomtree.eu/en-gb/etps/eq ... -leveraged
I'm looking to replicate the Hedgefundie strategy in the UK, what broker offers wisdom tree funds here? Currently I use Vanguard and invest in the equivalent of VTI - I want to increase my risk without hopefully increasing my expenses too much.
It's available through interactive brokers, but probably also through most others since it's listed on LSE.
Laurizas wrote: Tue Dec 29, 2020 12:01 pm
MichaelGh wrote: Mon Dec 28, 2020 5:37 pm If you do want a European upro alternative you can have a look at this wisdomtree 3x s&p500 etf:
https://www.wisdomtree.eu/en-gb/etps/eq ... -leveraged
it is not ETF, it is ETP.

What is this product?
Type
An English law governed, uncertificated, registered, collateralised exchanged-traded note linked to the S&P 500 Net Total Return
through swap arrangements (“Swaps”) entered into with eligible swap providers (“Swap Providers”)
Yes, good point! Although all leveraged products use swaps to get their desired exposure. I just read a bit about it and apparently all products with leverage over 2x have to be called ETPs in Europe. The US doesn't have that requirement so I guess that's why upro is an ETF and 3usl an ETP. Some more info here:
https://www.etf.com/sections/features-a ... e%20centre.
Laurizas
Posts: 176
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Location: Lithuania

Re: HEDGEFUNDIE Strategy for European Investors

Post by Laurizas »

MichaelGh wrote: Tue Dec 29, 2020 12:33 pm I just read a bit about it and apparently all products with leverage over 2x have to be called ETPs in Europe.
So Amundi is misleading investors by naming 2x leveraged fund Amundi ETF Leveraged MSCI USA Daily UCITS ETF EUR? Do not think so.
Topic Author
ETFlover
Posts: 14
Joined: Tue Dec 01, 2020 12:55 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by ETFlover »

Laurizas wrote: Tue Dec 29, 2020 1:24 pm
MichaelGh wrote: Tue Dec 29, 2020 12:33 pm I just read a bit about it and apparently all products with leverage over 2x have to be called ETPs in Europe.
So Amundi is misleading investors by naming 2x leveraged fund Amundi ETF Leveraged MSCI USA Daily UCITS ETF EUR? Do not think so.
Regarding the Wisdomtree x3 products: they are ETN, Exchange traded Notes, meaning that they are (quoting another user) "basically a promise that WisdomTree will get money equal to 3xS&P500 movement in a day. So an ETN doesn't hold any securities as an ETF would. Since this is a long-term buy&hold strategy, I worry that, if Wisdom Tree goes bankrupt during some future financial crisis, there would be no assets for me to recover". The Amundi or Xtracker x2 are effectively ETFs, even though operating with Synthetic replication: however, being UCITS compliant, they MUST have a collateral that covers >90% of the value of the fund, for every trading day. This means that yes, you still have counterpary risk but limited to 10% of its value, contrary to 100% of its value in case of ETNs (as far as I understand it, but please correct me if I'm wrong!)
Another difference: The wisdomtrees are not UCITS, but can still be bought by european investors because they are ETN (and not ETFs, that must be UCITS in order to be bought). The UCITS law limits leverage to an upper limit of 2x, and this is the reason why you never find 3x UCITS ETF (but 3x ETN can and do exist)
Topic Author
ETFlover
Posts: 14
Joined: Tue Dec 01, 2020 12:55 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by ETFlover »

I'm really happy to see this interest in this topic, my expectations have been exceeded. :happy
A couple updates from my part:
-I will implement this strategy for the US market using 60% Xtrackers S&P 500 2x Leveraged Daily Swap UCITS ETF (0.6% TER, same 10y returns as SSO, small share size ideal for rebalancing) and 40% Lyxor Core US Treasury 10+Y (DR) UCITS ETF - Dist (iShares USD Treasury Bond 20+yr UCITS ETF USD (Acc) would be my first choice but I don't have access to London Stock Exchange: performance are virtually identic even though the 20y vs 10+y in the name, however an accumulation ETF would be better due to Italian taxes on dividends). I plan to rebalance annually, using contributions in order not to trigger capital gains. From backtests a 50-50 allocations gives lower volatility with slightly lower returns, but going forward the low interest rates reduce the leverage cost of the Equity part while decreasing the expected return of the bond part.
-In case one wants to reproduce the strategy for the Euro market then it is possible to do so with a 2x Equity AND a 2x Bond ETF, respectively using Lyxor Estx50 Daily 2x Lev Ucits Etf Acc FR0010468983 and Lyxor Bund Daily 2x Lever Ucits Etf Acc FR0011023654.
Results are shown here: search.php?keywords=ucits&t=272007&sf=msgonly
A 25% 2x equity / 75% 2x bonds strategy shows a much higher return (11.5% vs 4.6%) and a much lower volatility (9.5% vs 15.3%) than 100% unlevered equities, even though the 2x equity ETF suffered from very high volatility decay and fees + interest drag in that period (showing 8.5% annualized return during last 10y, similar to the 1x ETF tracking the same index). Going forward a 50-50 allocation (or 55-45, as hedgefundie suggests) could be more adequate.
Laurizas
Posts: 176
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Re: HEDGEFUNDIE Strategy for European Investors

Post by Laurizas »

ETFlover wrote: Tue Dec 29, 2020 1:36 pm Regarding the Wisdomtree x3 products: they are ETN, Exchange traded Notes, meaning that they are (quoting another user) "basically a promise that WisdomTree will get money equal to 3xS&P500 movement in a day. So an ETN doesn't hold any securities as an ETF would. Since this is a long-term buy&hold strategy, I worry that, if Wisdom Tree goes bankrupt during some future financial crisis, there would be no assets for me to recover". The Amundi or Xtracker x2 are effectively ETFs, even though operating with Synthetic replication: however, being UCITS compliant, they MUST have a collateral that covers >90% of the value of the fund, for every trading day. This means that yes, you still have counterpary risk but limited to 10% of its value, contrary to 100% of its value in case of ETNs (as far as I understand it, but please correct me if I'm wrong!)
wrote:Like ETCs, ETNs are non–interest bearing debt securities that are designed to track the return of an underlying benchmark or asset. However, while ETCs are issued by SPVs with segregated assets, ETNs are generally issued by banks, hold no assets and are not collateralised. Although their yield references an underlying benchmark or asset, ETNs are similar to unsecured, listed bonds.
As such, ETNs are entirely reliant on the creditworthiness of the issuing entity. A change in that creditworthiness might negatively impact the value of the ETN, irrespective of the performance of the underlying benchmark or asset. In extreme circumstances, default by the issuer would leave the investor to claim as an unsecured creditor against the issuing entity.
https://www.wisdomtree.eu/en-gb/-/media ... tpedia.pdf
MichaelGh
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Re: HEDGEFUNDIE Strategy for European Investors

Post by MichaelGh »

ETFlover wrote: Tue Dec 29, 2020 1:36 pm
Laurizas wrote: Tue Dec 29, 2020 1:24 pm
MichaelGh wrote: Tue Dec 29, 2020 12:33 pm I just read a bit about it and apparently all products with leverage over 2x have to be called ETPs in Europe.
So Amundi is misleading investors by naming 2x leveraged fund Amundi ETF Leveraged MSCI USA Daily UCITS ETF EUR? Do not think so.
Regarding the Wisdomtree x3 products: they are ETN, Exchange traded Notes, meaning that they are (quoting another user) "basically a promise that WisdomTree will get money equal to 3xS&P500 movement in a day. So an ETN doesn't hold any securities as an ETF would. Since this is a long-term buy&hold strategy, I worry that, if Wisdom Tree goes bankrupt during some future financial crisis, there would be no assets for me to recover". The Amundi or Xtracker x2 are effectively ETFs, even though operating with Synthetic replication: however, being UCITS compliant, they MUST have a collateral that covers >90% of the value of the fund, for every trading day. This means that yes, you still have counterpary risk but limited to 10% of its value, contrary to 100% of its value in case of ETNs (as far as I understand it, but please correct me if I'm wrong!)
Another difference: The wisdomtrees are not UCITS, but can still be bought by european investors because they are ETN (and not ETFs, that must be UCITS in order to be bought). The UCITS law limits leverage to an upper limit of 2x, and this is the reason why you never find 3x UCITS ETF (but 3x ETN can and do exist)
Wisdomtree calls 3usl an ETC, not an ETN. They make this distinction since ETCs are collateralized while ETNs don't have to be.

You're right about ETNs but I always wonder why an issuer would not hold collateral. Wouldn't this expose them to a huge risk? Then they're basically betting against the position of the product.
Laurizas
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Re: HEDGEFUNDIE Strategy for European Investors

Post by Laurizas »

MichaelGh wrote: Tue Dec 29, 2020 4:33 pm Wisdomtree calls 3usl an ETC, not an ETN. They make this distinction since ETCs are collateralized while ETNs don't have to be.
Could you provide a link?
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whodidntante
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Re: HEDGEFUNDIE Strategy for European Investors

Post by whodidntante »

I'm surprised your thread has been running this long with no discussion of derivatives. Derivatives are likely going to offer you the lowest financing costs, but I have no idea what the tax consequences would be for the type of account and the type of country you have. :happy

Here are some options to evaluate. These are roughly in ascending order of the financing cost I expect. But you always have to check.
1) Buy and roll futures contracts. You do not need to use US/CME group futures unless that's better for you somehow. Europe has its own futures market.
2) Buy ETFs on margin. If your broker charges too much for margin loans, get yourself a new broker or use box spread financing, or both.
3) Buy and roll deep ITM calls. Preferably LEAPS. OK, so this isn't actually the most expensive financing wise, but you will have no choice but to also pay for the optionality. No one is going to take your risk for you without compensation.
MichaelGh
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Re: HEDGEFUNDIE Strategy for European Investors

Post by MichaelGh »

Laurizas wrote: Tue Dec 29, 2020 5:12 pm
MichaelGh wrote: Tue Dec 29, 2020 4:33 pm Wisdomtree calls 3usl an ETC, not an ETN. They make this distinction since ETCs are collateralized while ETNs don't have to be.
Could you provide a link?
The product factsheet under this link:
https://www.wisdomtree.eu/en-gb/etps/eq ... -leveraged
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whodidntante
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Re: HEDGEFUNDIE Strategy for European Investors

Post by whodidntante »

ETFlover wrote: Sat Dec 26, 2020 4:47 pm
Forester wrote: Sat Dec 26, 2020 11:08 am I'm considering levering up Emerging and possibly UK also. Why do the Hedgefundie strategy? You'll get whacked on a weaker US dollar and weaker Us equity performance. My money is on ex-US outperforming. US Dollar index going from 90 today, to south of 80. A couple of times in the 2000s/early 2010s we got to 75 on the Dollar Index. I would forget bonds and pick an arbitrary level to exit such a strategy.
Which ETF would you use to leverage Emerging or UK stocks? The problem with emerging markets is their high volatility: high volatility worsens the volatility drag due to leverage. An only-stock leveraged investment would require a very high annualized return in order to justify the very high volatility and especially the possibility of >80% loss in case of a bear market
The volatility of EM equities does make it less viable for high leverage factors and could lead to unacceptable risk parity tradeoffs. However, volatility decay is an artifact of the swaps and daily reset that the x leveraged ETFs use. But you do not have to implement your leverage that way; in fact, the costs of that approach might not be best because you're paying for expenses to "manage" the fund, plus the cost of leverage, plus the cost for someone to provide the swaps to the fund which will include you paying their costs to hedge plus whatever profit margin they could bake in.
bling
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Re: HEDGEFUNDIE Strategy for European Investors

Post by bling »

don't europeans have access to CFDs?
Robertsson
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Re: HEDGEFUNDIE Strategy for European Investors

Post by Robertsson »

bling wrote: Tue Dec 29, 2020 10:18 pm don't europeans have access to CFDs?
I have never heard anyone recommend trading with CDFs, even the people on r/wallstreetbets seem to think they are too risky. I don't quite understand CFDs. You bet on movement in prices and the broker can bet against your bet and the broker can change circumstances so they win and you loose? Is this true?
Robertsson
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Re: HEDGEFUNDIE Strategy for European Investors

Post by Robertsson »

bling wrote: Tue Dec 29, 2020 10:18 pm don't europeans have access to CFDs?
I have never heard anyone recommend trading with CDFs, even the people on r/wallstreetbets seem to think they are too risky. I don't quite understand CFDs. You bet on movement in prices and the broker can bet against your bet and they can change circumstances so they win and you loose? Is this true?
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Schlabba
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Re: HEDGEFUNDIE Strategy for European Investors

Post by Schlabba »

whodidntante wrote: Tue Dec 29, 2020 5:30 pm I'm surprised your thread has been running this long with no discussion of derivatives. Derivatives are likely going to offer you the lowest financing costs, but I have no idea what the tax consequences would be for the type of account and the type of country you have. :happy

Here are some options to evaluate. These are roughly in ascending order of the financing cost I expect. But you always have to check.
1) Buy and roll futures contracts. You do not need to use US/CME group futures unless that's better for you somehow. Europe has its own futures market.
2) Buy ETFs on margin. If your broker charges too much for margin loans, get yourself a new broker or use box spread financing, or both.
3) Buy and roll deep ITM calls. Preferably LEAPS. OK, so this isn't actually the most expensive financing wise, but you will have no choice but to also pay for the optionality. No one is going to take your risk for you without compensation.
Just to add to your list: sprinters and turbo’s

viewtopic.php?t=324876
Maker
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Re: HEDGEFUNDIE Strategy for European Investors

Post by Maker »

As someone interested in this strategy (and that actually switched to a lifecycle one) here's a couple thoughts:
  • ETNs (at least for me) are a no-no. Not worth the counterparty risk, at least for a long term investment.
  • CFDs for the long term are a no-no. The interest is too high, plus it's still subject to counterparty risk.
  • Futures/options (in particular box spreads) can be advantageous, but require an higher amound of maintenance. I'm personally not sufficiently knowledgeable about them, so I decided to go with leveraged ETFs.
So I agree with Forrester about ex-US having an higher expected return than US at the moment, but in europe I haven't found UCITS leveraged ETFs for good ex-US indices (the only ones I could find are 2x DAX and 2x EURO STOXX, when I would prefer 2x MSCI Europe). Hence why I'm currently just using an UCITS leveraged ETF tracking 2x SPY. It's really unfortunate that european investors don't have access to anywhere close the offerings present in the US market.
antisa
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Re: HEDGEFUNDIE Strategy for European Investors

Post by antisa »

What are the cons of using directly UPRO and TMF for EU investors?

Other than the fact they are denominated in USD and not in EUR.
TedSwippet
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Re: HEDGEFUNDIE Strategy for European Investors

Post by TedSwippet »

antisa wrote: Sun Jan 03, 2021 7:16 am What are the cons of using directly UPRO and TMF for EU investors?
Access, and the threat of confiscatory US estate tax on balances above $60k.

An EU regulation known as PRIIPs means that brokers cannot offer funds or ETFs to EU investors, where those funds or ETFs do not provide a 'key investor information document' containing certain specified information. To date, no US domiciled ETFs provide such a document.

Additionally, non-US investors in countries without a US estate tax treaty are at risk from US estate tax of 26-40% of the balance of aggregate US holdings above just $60k. Only a handful of countries have US estate tax treaties, and even then, not all these treaties give decent protection against US estate taxes.
antisa wrote: Sun Jan 03, 2021 7:16 am Other than the fact they are denominated in USD and not in EUR.
An ETF's denomination currency is irrelevant to investors. Its trading currency can be, but only to the extent of the cost of forex to obtain the currency in which to trade, if not the investor's own. Both of these currencies are however entirely immaterial when it comes to the fund's or ETF's investment returns.
Topic Author
ETFlover
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Re: HEDGEFUNDIE Strategy for European Investors

Post by ETFlover »

Maker wrote: Sat Jan 02, 2021 6:46 am As someone interested in this strategy (and that actually switched to a lifecycle one) here's a couple thoughts:
  • ETNs (at least for me) are a no-no. Not worth the counterparty risk, at least for a long term investment.
  • CFDs for the long term are a no-no. The interest is too high, plus it's still subject to counterparty risk.
  • Futures/options (in particular box spreads) can be advantageous, but require an higher amound of maintenance. I'm personally not sufficiently knowledgeable about them, so I decided to go with leveraged ETFs.
So I agree with Forrester about ex-US having an higher expected return than US at the moment, but in europe I haven't found UCITS leveraged ETFs for good ex-US indices (the only ones I could find are 2x DAX and 2x EURO STOXX, when I would prefer 2x MSCI Europe). Hence why I'm currently just using an UCITS leveraged ETF tracking 2x SPY. It's really unfortunate that european investors don't have access to anywhere close the offerings present in the US market.
Hi Maker, I think I have good updates following some research that I've conducted:
viewtopic.php?f=10&t=288192&hilit=psldx&start=400
The post by dagothbob on Thu Aug 22, 2019 7:29 pm I believe is extremely useful: it shows the CAGR and the Sharpe during the full 1955-2018 period for various portfolio leverage and stock-bond ratios. The data has been obtained using simulated 1x and 3x stocks and bond funds, including the effects of volatility drag, expense ratio and borrowing cost.
Some things to notice:
-100% 1x SP500 gives 10.1% CAGR and 1.16 Sharpe
-Increasing the leverage on 100% SP500 increases return up to 2.2x (where CARG=12.3%): further increasing the leverage actually DECREASES its return, while of course decreasing the sharpe. A 2x SP500 ETF (like the one you're using) provided around 12.2% CAGR with around 0.82 sharpe.
-By adding Long term treasuries the 'efficiency' of the portfolio increases, meaning that we move in the upper-right part of the graph: as you can see by 70-30 we've reached the efficiency frontier.
If 3x ETFs were available for both stocks and bonds, then we would chose a 70-30 allocation and move along the yellow line by increasing the total amount of leverage for the portfolio (by increasing the ratio of 3x ETF compared to 1x ETF), increasing returns at the expense of increased volatility and obtaining the maximum return for that amount of volatility. However, we are limited to 2x equity ETFs and 1x bond ETF, meaning that not only the stock-bond ratio but also portfolio leverage are a function of the ratio, in our portfolio, of the two ETFs. In other words, by increasing the allocation of the 2x SP500 ETF we not only increase the equity percentage of the portfolio, but we also increase the overall leverage of the portfolio.
So, by using the graph on the cited post, I've obtained these data, for the following ratios of Xtrackers S&P 500 2x Leveraged Daily Swap UCITS ETF 1C and Lyxor Core US Treasury 10+Y (DR) UCITS ETF - Dist:
Percentage X2SL Portfolio leverage % Equities CAGR Sharpe
50% 1.50 67% 10.9% 1.25
55% 1.55 71% 11.1% 1.24
60% 1.60 75% 11.4% 1.18
65% 1.65 79% 11.6% 1.12
70% 1.70 82% 11.8% 1.1
100% 2.00 100% 12.2% 0.81
Reference (SPY) 1 100% 10.1% 1.16

I'll go with 60% 2x SP500 and 40% 1x Bond, as this gives a slightly higher sharpe ratio than the 1x SP500 while providing a 1.3% increase in annualized returns. I plan to allocate 5% of my actual portfolio to this strategy, and to rebalance annually using a single contribution on the ETF with lower than desired allocation (in order to halve the transaction cost (just 1 commission instead of 2 commissions, one to sell and one to buy) and especially not to trigger the capital gain tax, that in Italy is 26%). The 1.3% annual premium over SPY seems significant even if not comparable to the one shown by Hedgefundie's, however we must take into account that this allocation shows much reduced risk (1.6x total leverage against 3x) and volatility. I hope that some ''all-in-one'' leveraged, risk parity ETF (like PLSDX or NTSX) of a 2x treasury ETF will arrive in Europe (in case: please update us!); in the meanwhile this is, I believe, an interesting alternative, showing solid returns in such a long period. I also considered using a small amount of margin (like 1.25x on the portfolio), however the borrowing cost of my broker (Directa), that is also not deducible from the capital gain tax, makes it prohibitive.
Your strategy of going 100% 2x equities provided more return in the past, showing a significant volatility: i would suggest going 70%-30% as that would have provided more or less the same return with a much reduced volatility.
Last edited by ETFlover on Sun Jan 03, 2021 9:21 am, edited 1 time in total.
antisa
Posts: 19
Joined: Sun Nov 15, 2020 2:49 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by antisa »

TedSwippet wrote: Sun Jan 03, 2021 7:40 am
antisa wrote: Sun Jan 03, 2021 7:16 am What are the cons of using directly UPRO and TMF for EU investors?
Access, and the threat of confiscatory US estate tax on balances above $60k.

An EU regulation known as PRIIPs means that brokers cannot offer funds or ETFs to EU investors, where those funds or ETFs do not provide a 'key investor information document' containing certain specified information. To date, no US domiciled ETFs provide such a document.

Additionally, non-US investors in countries without a US estate tax treaty are at risk from US estate tax of 26-40% of the balance of aggregate US holdings above just $60k. Only a handful of countries have US estate tax treaties, and even then, not all these treaties give decent protection against US estate taxes.
antisa wrote: Sun Jan 03, 2021 7:16 am Other than the fact they are denominated in USD and not in EUR.
An ETF's denomination currency is irrelevant to investors. Its trading currency can be, but only to the extent of the cost of forex to obtain the currency in which to trade, if not the investor's own. Both of these currencies are however entirely immaterial when it comes to the fund's or ETF's investment returns.

Aaaa, I see. Thank you for the education, I really appreciate it!
Maker
Posts: 20
Joined: Tue Dec 10, 2019 6:32 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by Maker »

ETFlover wrote: Sun Jan 03, 2021 9:16 am
Maker wrote: Sat Jan 02, 2021 6:46 am As someone interested in this strategy (and that actually switched to a lifecycle one) here's a couple thoughts:
  • ETNs (at least for me) are a no-no. Not worth the counterparty risk, at least for a long term investment.
  • CFDs for the long term are a no-no. The interest is too high, plus it's still subject to counterparty risk.
  • Futures/options (in particular box spreads) can be advantageous, but require an higher amound of maintenance. I'm personally not sufficiently knowledgeable about them, so I decided to go with leveraged ETFs.
So I agree with Forrester about ex-US having an higher expected return than US at the moment, but in europe I haven't found UCITS leveraged ETFs for good ex-US indices (the only ones I could find are 2x DAX and 2x EURO STOXX, when I would prefer 2x MSCI Europe). Hence why I'm currently just using an UCITS leveraged ETF tracking 2x SPY. It's really unfortunate that european investors don't have access to anywhere close the offerings present in the US market.
Hi Maker, I think I have good updates following some research that I've conducted:
viewtopic.php?f=10&t=288192&hilit=psldx&start=400
The post by dagothbob on Thu Aug 22, 2019 7:29 pm I believe is extremely useful: it shows the CAGR and the Sharpe during the full 1955-2018 period for various portfolio leverage and stock-bond ratios. The data has been obtained using simulated 1x and 3x stocks and bond funds, including the effects of volatility drag, expense ratio and borrowing cost.
Some things to notice:
-100% 1x SP500 gives 10.1% CAGR and 1.16 Sharpe
-Increasing the leverage on 100% SP500 increases return up to 2.2x (where CARG=12.3%): further increasing the leverage actually DECREASES its return, while of course decreasing the sharpe. A 2x SP500 ETF (like the one you're using) provided around 12.2% CAGR with around 0.82 sharpe.
-By adding Long term treasuries the 'efficiency' of the portfolio increases, meaning that we move in the upper-right part of the graph: as you can see by 70-30 we've reached the efficiency frontier.
If 3x ETFs were available for both stocks and bonds, then we would chose a 70-30 allocation and move along the yellow line by increasing the total amount of leverage for the portfolio (by increasing the ratio of 3x ETF compared to 1x ETF), increasing returns at the expense of increased volatility and obtaining the maximum return for that amount of volatility. However, we are limited to 2x equity ETFs and 1x bond ETF, meaning that not only the stock-bond ratio but also portfolio leverage are a function of the ratio, in our portfolio, of the two ETFs. In other words, by increasing the allocation of the 2x SP500 ETF we not only increase the equity percentage of the portfolio, but we also increase the overall leverage of the portfolio.
So, by using the graph on the cited post, I've obtained these data, for the following ratios of Xtrackers S&P 500 2x Leveraged Daily Swap UCITS ETF 1C and Lyxor Core US Treasury 10+Y (DR) UCITS ETF - Dist:
Percentage X2SL Portfolio leverage % Equities CAGR Sharpe
50% 1.50 67% 10.9% 1.25
55% 1.55 71% 11.1% 1.24
60% 1.60 75% 11.4% 1.18
65% 1.65 79% 11.6% 1.12
70% 1.70 82% 11.8% 1.1
100% 2.00 100% 12.2% 0.81
Reference (SPY) 1 100% 10.1% 1.16

I'll go with 60% 2x SP500 and 40% 1x Bond, as this gives a slightly higher sharpe ratio than the 1x SP500 while providing a 1.3% increase in annualized returns. I plan to allocate 5% of my actual portfolio to this strategy, and to rebalance annually using a single contribution on the ETF with lower than desired allocation (in order to halve the transaction cost (just 1 commission instead of 2 commissions, one to sell and one to buy) and especially not to trigger the capital gain tax, that in Italy is 26%). The 1.3% annual premium over SPY seems significant even if not comparable to the one shown by Hedgefundie's, however we must take into account that this allocation shows much reduced risk (1.6x total leverage against 3x) and volatility. I hope that some ''all-in-one'' leveraged, risk parity ETF (like PLSDX or NTSX) of a 2x treasury ETF will arrive in Europe (in case: please update us!); in the meanwhile this is, I believe, an interesting alternative, showing solid returns in such a long period. I also considered using a small amount of margin (like 1.25x on the portfolio), however the borrowing cost of my broker (Directa), that is also not deducible from the capital gain tax, makes it prohibitive.
Your strategy of going 100% 2x equities provided more return in the past, showing a significant volatility: i would suggest going 70%-30% as that would have provided more or less the same return with a much reduced volatility.
A few notes:
  • Careful with the efficient frontier. It can only be known after the fact, so it can only give you an indication of what may or may not happen.
  • The sharpe ratio is an useful measure, but since IIRC we're both quite young, I would recommend not giving volatility too much thought. After all, we have time to make up for the (possible) losses sustained over the short term.
  • Unless you're extremely lucky, salaries in Italy tend to be really low. This means that, compared to investors from other nations, you'll be able to invest only a fraction of their investment. Further, if compared to Hedgefundie's strategy, a simple 2x lifecycle strategy is not quite as risky. In general, if you're investing small amounts (and if you work in Italy you probably are, all things considered) there is absolutely no reason to dedicate only a small part (such as 5%) of your portfolio to such a strategy. Between commissions, slippage etc it's probably not worth it. In short -- accept the risks and invest with leverage for the long term, or limit yourself to 100% equities.
I would seriously advise you to give lifecycle investing a through look at it. A good thread on the subject, here on the forum, is viewtopic.php?t=274390
Topic Author
ETFlover
Posts: 14
Joined: Tue Dec 01, 2020 12:55 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by ETFlover »

Maker wrote: Sun Jan 03, 2021 7:05 pm
ETFlover wrote: Sun Jan 03, 2021 9:16 am
Maker wrote: Sat Jan 02, 2021 6:46 am As someone interested in this strategy (and that actually switched to a lifecycle one) here's a couple thoughts:
  • ETNs (at least for me) are a no-no. Not worth the counterparty risk, at least for a long term investment.
  • CFDs for the long term are a no-no. The interest is too high, plus it's still subject to counterparty risk.
  • Futures/options (in particular box spreads) can be advantageous, but require an higher amound of maintenance. I'm personally not sufficiently knowledgeable about them, so I decided to go with leveraged ETFs.
So I agree with Forrester about ex-US having an higher expected return than US at the moment, but in europe I haven't found UCITS leveraged ETFs for good ex-US indices (the only ones I could find are 2x DAX and 2x EURO STOXX, when I would prefer 2x MSCI Europe). Hence why I'm currently just using an UCITS leveraged ETF tracking 2x SPY. It's really unfortunate that european investors don't have access to anywhere close the offerings present in the US market.
Hi Maker, I think I have good updates following some research that I've conducted:
viewtopic.php?f=10&t=288192&hilit=psldx&start=400
The post by dagothbob on Thu Aug 22, 2019 7:29 pm I believe is extremely useful: it shows the CAGR and the Sharpe during the full 1955-2018 period for various portfolio leverage and stock-bond ratios. The data has been obtained using simulated 1x and 3x stocks and bond funds, including the effects of volatility drag, expense ratio and borrowing cost.
Some things to notice:
-100% 1x SP500 gives 10.1% CAGR and 1.16 Sharpe
-Increasing the leverage on 100% SP500 increases return up to 2.2x (where CARG=12.3%): further increasing the leverage actually DECREASES its return, while of course decreasing the sharpe. A 2x SP500 ETF (like the one you're using) provided around 12.2% CAGR with around 0.82 sharpe.
-By adding Long term treasuries the 'efficiency' of the portfolio increases, meaning that we move in the upper-right part of the graph: as you can see by 70-30 we've reached the efficiency frontier.
If 3x ETFs were available for both stocks and bonds, then we would chose a 70-30 allocation and move along the yellow line by increasing the total amount of leverage for the portfolio (by increasing the ratio of 3x ETF compared to 1x ETF), increasing returns at the expense of increased volatility and obtaining the maximum return for that amount of volatility. However, we are limited to 2x equity ETFs and 1x bond ETF, meaning that not only the stock-bond ratio but also portfolio leverage are a function of the ratio, in our portfolio, of the two ETFs. In other words, by increasing the allocation of the 2x SP500 ETF we not only increase the equity percentage of the portfolio, but we also increase the overall leverage of the portfolio.
So, by using the graph on the cited post, I've obtained these data, for the following ratios of Xtrackers S&P 500 2x Leveraged Daily Swap UCITS ETF 1C and Lyxor Core US Treasury 10+Y (DR) UCITS ETF - Dist:
Percentage X2SL Portfolio leverage % Equities CAGR Sharpe
50% 1.50 67% 10.9% 1.25
55% 1.55 71% 11.1% 1.24
60% 1.60 75% 11.4% 1.18
65% 1.65 79% 11.6% 1.12
70% 1.70 82% 11.8% 1.1
100% 2.00 100% 12.2% 0.81
Reference (SPY) 1 100% 10.1% 1.16

I'll go with 60% 2x SP500 and 40% 1x Bond, as this gives a slightly higher sharpe ratio than the 1x SP500 while providing a 1.3% increase in annualized returns. I plan to allocate 5% of my actual portfolio to this strategy, and to rebalance annually using a single contribution on the ETF with lower than desired allocation (in order to halve the transaction cost (just 1 commission instead of 2 commissions, one to sell and one to buy) and especially not to trigger the capital gain tax, that in Italy is 26%). The 1.3% annual premium over SPY seems significant even if not comparable to the one shown by Hedgefundie's, however we must take into account that this allocation shows much reduced risk (1.6x total leverage against 3x) and volatility. I hope that some ''all-in-one'' leveraged, risk parity ETF (like PLSDX or NTSX) of a 2x treasury ETF will arrive in Europe (in case: please update us!); in the meanwhile this is, I believe, an interesting alternative, showing solid returns in such a long period. I also considered using a small amount of margin (like 1.25x on the portfolio), however the borrowing cost of my broker (Directa), that is also not deducible from the capital gain tax, makes it prohibitive.
Your strategy of going 100% 2x equities provided more return in the past, showing a significant volatility: i would suggest going 70%-30% as that would have provided more or less the same return with a much reduced volatility.
A few notes:
  • Careful with the efficient frontier. It can only be known after the fact, so it can only give you an indication of what may or may not happen.
  • The sharpe ratio is an useful measure, but since IIRC we're both quite young, I would recommend not giving volatility too much thought. After all, we have time to make up for the (possible) losses sustained over the short term.
  • Unless you're extremely lucky, salaries in Italy tend to be really low. This means that, compared to investors from other nations, you'll be able to invest only a fraction of their investment. Further, if compared to Hedgefundie's strategy, a simple 2x lifecycle strategy is not quite as risky. In general, if you're investing small amounts (and if you work in Italy you probably are, all things considered) there is absolutely no reason to dedicate only a small part (such as 5%) of your portfolio to such a strategy. Between commissions, slippage etc it's probably not worth it. In short -- accept the risks and invest with leverage for the long term, or limit yourself to 100% equities.
I would seriously advise you to give lifecycle investing a through look at it. A good thread on the subject, here on the forum, is viewtopic.php?t=274390
I surely see your reasoning: historically, 100% 2x equities provided the best returns (even if not by much over a 60% 2x equities - 40% 1x long treasuries), and on a limited part of one's portfolio the added volatility is not too noticeable. Moreover, for young ones like us (I'm 24) volatility does not matter at all. The reason I'm dedicating only 5% of my portfolio to this strategy is that it is not as effective as it would be with a 2x bond ETF (not to mention with 3x ETF like hedgefundie's!), so this is more of a learning experiment on Stocks-Bond correlations, effect of daily leverage on returns etc (before, I was 100% 1x equities, so by reading about these strategies I've already expanded my knowledge). 60%-40% gives more or less the same return with much reduced volatility, and allows me to carry on with the strategy without losing faith after a (possible) 70% drop.
A good news for us Italians/Europeans (but you probably already know): the 2x ETFs use synthetic replication, so they are not subjected to the 15% withholding tax on dividends (that instead reduces the return of Ireland-domiciled physically replicating ETFs, like the Vanguard I use for the SP500). So the 2x ETF adds a 0.3% gain on top of the edge it would have on a 1x physical ETF: this gain can be seen as a reduction of the expense ratio, that becomes more reasonable.
I'm also interested in the lifecycle strategy, but through my broker (Directa) margin load has a borrowing cost of 5.25% per annum: do you know of any cheaper alternatives for us Italian investors?
Mirakel23
Posts: 2
Joined: Thu Aug 20, 2020 5:51 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by Mirakel23 »

Thank you for your post. :D

I also decided to follow a similar route. My "leveraged" portfolio will be 60% Amundi MSCI USA 2x + 40% iShares $ Treasury Bond 20+yr.

Even without the 2010-2020 bull-market, results look very promising overall.

An alternative would be a leveraged All-World portfolio , which reduces the overall US-contribution. The standard deviations and sharp ratios are, however, lower, which is why I prefer the above-mentioned variant.

In my opinion, leverage is a great opportunity for young investors who can sit out bad periods to "beat the (unleveraged) market". In order to profit from that, however, a considerable fraction of the overall portfolio should be leveraged. In other words, if only 5% of the overall portfolio is made up of this 60/40 portfolio, and assuming the other 95% is unleveraged, the overall factor is just 1.6 * 0.05 + 1 * 0.95 = 1.03, so pretty much an unleveraged portfolio.

While we (as Europeans) cannot replicate the Hedgefundie results due to the small spectrum of available funds, the 2 x S&P 500 / MSCI USA + 1x LTT combination mentioned above already provides very good risk-adjusted returns and going forward it might even be the more sensible choice compared to Hedgefundie's version, who knows. In other words, due to lower risk being involved, in my opinion, we can easily increase the size of this 60/40 part in our portfolios.

I plan to integrate the 60/40 version into my portfolio at a 50% contribution, which yields a overall "leverage factor" of 1.3x for my portfolio. I would go even higher, to about 1.6x, my only problem with the 60/40 version is the risk associated with it being US only. Adding Europe or EM decreases the leverage factor, and unfortunately, no good products exist to also leverage these (STOXX50 is an extremely bad index and the Lyxor MSCI Emerging Markets Daily (2x) ETF is too small).
Maker
Posts: 20
Joined: Tue Dec 10, 2019 6:32 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by Maker »

ETFlover wrote: Mon Jan 04, 2021 12:59 pm
Maker wrote: Sun Jan 03, 2021 7:05 pm
ETFlover wrote: Sun Jan 03, 2021 9:16 am
Maker wrote: Sat Jan 02, 2021 6:46 am As someone interested in this strategy (and that actually switched to a lifecycle one) here's a couple thoughts:
  • ETNs (at least for me) are a no-no. Not worth the counterparty risk, at least for a long term investment.
  • CFDs for the long term are a no-no. The interest is too high, plus it's still subject to counterparty risk.
  • Futures/options (in particular box spreads) can be advantageous, but require an higher amound of maintenance. I'm personally not sufficiently knowledgeable about them, so I decided to go with leveraged ETFs.
So I agree with Forrester about ex-US having an higher expected return than US at the moment, but in europe I haven't found UCITS leveraged ETFs for good ex-US indices (the only ones I could find are 2x DAX and 2x EURO STOXX, when I would prefer 2x MSCI Europe). Hence why I'm currently just using an UCITS leveraged ETF tracking 2x SPY. It's really unfortunate that european investors don't have access to anywhere close the offerings present in the US market.
Hi Maker, I think I have good updates following some research that I've conducted:
viewtopic.php?f=10&t=288192&hilit=psldx&start=400
The post by dagothbob on Thu Aug 22, 2019 7:29 pm I believe is extremely useful: it shows the CAGR and the Sharpe during the full 1955-2018 period for various portfolio leverage and stock-bond ratios. The data has been obtained using simulated 1x and 3x stocks and bond funds, including the effects of volatility drag, expense ratio and borrowing cost.
Some things to notice:
-100% 1x SP500 gives 10.1% CAGR and 1.16 Sharpe
-Increasing the leverage on 100% SP500 increases return up to 2.2x (where CARG=12.3%): further increasing the leverage actually DECREASES its return, while of course decreasing the sharpe. A 2x SP500 ETF (like the one you're using) provided around 12.2% CAGR with around 0.82 sharpe.
-By adding Long term treasuries the 'efficiency' of the portfolio increases, meaning that we move in the upper-right part of the graph: as you can see by 70-30 we've reached the efficiency frontier.
If 3x ETFs were available for both stocks and bonds, then we would chose a 70-30 allocation and move along the yellow line by increasing the total amount of leverage for the portfolio (by increasing the ratio of 3x ETF compared to 1x ETF), increasing returns at the expense of increased volatility and obtaining the maximum return for that amount of volatility. However, we are limited to 2x equity ETFs and 1x bond ETF, meaning that not only the stock-bond ratio but also portfolio leverage are a function of the ratio, in our portfolio, of the two ETFs. In other words, by increasing the allocation of the 2x SP500 ETF we not only increase the equity percentage of the portfolio, but we also increase the overall leverage of the portfolio.
So, by using the graph on the cited post, I've obtained these data, for the following ratios of Xtrackers S&P 500 2x Leveraged Daily Swap UCITS ETF 1C and Lyxor Core US Treasury 10+Y (DR) UCITS ETF - Dist:
Percentage X2SL Portfolio leverage % Equities CAGR Sharpe
50% 1.50 67% 10.9% 1.25
55% 1.55 71% 11.1% 1.24
60% 1.60 75% 11.4% 1.18
65% 1.65 79% 11.6% 1.12
70% 1.70 82% 11.8% 1.1
100% 2.00 100% 12.2% 0.81
Reference (SPY) 1 100% 10.1% 1.16

I'll go with 60% 2x SP500 and 40% 1x Bond, as this gives a slightly higher sharpe ratio than the 1x SP500 while providing a 1.3% increase in annualized returns. I plan to allocate 5% of my actual portfolio to this strategy, and to rebalance annually using a single contribution on the ETF with lower than desired allocation (in order to halve the transaction cost (just 1 commission instead of 2 commissions, one to sell and one to buy) and especially not to trigger the capital gain tax, that in Italy is 26%). The 1.3% annual premium over SPY seems significant even if not comparable to the one shown by Hedgefundie's, however we must take into account that this allocation shows much reduced risk (1.6x total leverage against 3x) and volatility. I hope that some ''all-in-one'' leveraged, risk parity ETF (like PLSDX or NTSX) of a 2x treasury ETF will arrive in Europe (in case: please update us!); in the meanwhile this is, I believe, an interesting alternative, showing solid returns in such a long period. I also considered using a small amount of margin (like 1.25x on the portfolio), however the borrowing cost of my broker (Directa), that is also not deducible from the capital gain tax, makes it prohibitive.
Your strategy of going 100% 2x equities provided more return in the past, showing a significant volatility: i would suggest going 70%-30% as that would have provided more or less the same return with a much reduced volatility.
A few notes:
  • Careful with the efficient frontier. It can only be known after the fact, so it can only give you an indication of what may or may not happen.
  • The sharpe ratio is an useful measure, but since IIRC we're both quite young, I would recommend not giving volatility too much thought. After all, we have time to make up for the (possible) losses sustained over the short term.
  • Unless you're extremely lucky, salaries in Italy tend to be really low. This means that, compared to investors from other nations, you'll be able to invest only a fraction of their investment. Further, if compared to Hedgefundie's strategy, a simple 2x lifecycle strategy is not quite as risky. In general, if you're investing small amounts (and if you work in Italy you probably are, all things considered) there is absolutely no reason to dedicate only a small part (such as 5%) of your portfolio to such a strategy. Between commissions, slippage etc it's probably not worth it. In short -- accept the risks and invest with leverage for the long term, or limit yourself to 100% equities.
I would seriously advise you to give lifecycle investing a through look at it. A good thread on the subject, here on the forum, is viewtopic.php?t=274390
I surely see your reasoning: historically, 100% 2x equities provided the best returns (even if not by much over a 60% 2x equities - 40% 1x long treasuries), and on a limited part of one's portfolio the added volatility is not too noticeable. Moreover, for young ones like us (I'm 24) volatility does not matter at all. The reason I'm dedicating only 5% of my portfolio to this strategy is that it is not as effective as it would be with a 2x bond ETF (not to mention with 3x ETF like hedgefundie's!), so this is more of a learning experiment on Stocks-Bond correlations, effect of daily leverage on returns etc (before, I was 100% 1x equities, so by reading about these strategies I've already expanded my knowledge). 60%-40% gives more or less the same return with much reduced volatility, and allows me to carry on with the strategy without losing faith after a (possible) 70% drop.
A good news for us Italians/Europeans (but you probably already know): the 2x ETFs use synthetic replication, so they are not subjected to the 15% withholding tax on dividends (that instead reduces the return of Ireland-domiciled physically replicating ETFs, like the Vanguard I use for the SP500). So the 2x ETF adds a 0.3% gain on top of the edge it would have on a 1x physical ETF: this gain can be seen as a reduction of the expense ratio, that becomes more reasonable.
I'm also interested in the lifecycle strategy, but through my broker (Directa) margin load has a borrowing cost of 5.25% per annum: do you know of any cheaper alternatives for us Italian investors?
If it's just a learning experiment paper trading accounts allow you to simulate the portfolio without incurring all the costs (fees, transaction costs, slippage etc). If you want to use a lifecycle strategy, you can either use leveraged ETFs (2x SPY, but then you lose out on geographical diversification) or, probably better, Interactive Brokers margin (https://www.interactivebrokers.eu/it/index.php?f=6244).
tertre
Posts: 10
Joined: Sun May 27, 2018 5:54 am
Location: France

Re: HEDGEFUNDIE Strategy for European Investors

Post by tertre »

Nice thread. I played a lot with PV and now I have 35k euros in my own private small aventure, 40% LQQ (Lyxor Nasdaq-100 Daily (2x) Leveraged UCITS ETF), 20% CL2 (Amundi MSCI USA*2) for the stock part, and 30% TLT 10% 3TYL for the bond part. Not perfect, but it's fun.

The fall of the dollar is a bit painful.
Gato
Posts: 8
Joined: Thu Sep 03, 2020 4:44 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by Gato »

Why not using Lyxor Nasdaq-100 Daily (2x) Leveraged UCITS ETF Acc | LQQ?

https://www.morningstar.es/es/etf/snaps ... 0P00006410

Just because it's indexed to Nasdaq? In the long term the gains are stratospheric
Topic Author
ETFlover
Posts: 14
Joined: Tue Dec 01, 2020 12:55 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by ETFlover »

Mirakel23 wrote: Wed Jan 06, 2021 3:38 pm Thank you for your post. :D

I also decided to follow a similar route. My "leveraged" portfolio will be 60% Amundi MSCI USA 2x + 40% iShares $ Treasury Bond 20+yr.

Even without the 2010-2020 bull-market, results look very promising overall.

An alternative would be a leveraged All-World portfolio , which reduces the overall US-contribution. The standard deviations and sharp ratios are, however, lower, which is why I prefer the above-mentioned variant.

In my opinion, leverage is a great opportunity for young investors who can sit out bad periods to "beat the (unleveraged) market". In order to profit from that, however, a considerable fraction of the overall portfolio should be leveraged. In other words, if only 5% of the overall portfolio is made up of this 60/40 portfolio, and assuming the other 95% is unleveraged, the overall factor is just 1.6 * 0.05 + 1 * 0.95 = 1.03, so pretty much an unleveraged portfolio.

While we (as Europeans) cannot replicate the Hedgefundie results due to the small spectrum of available funds, the 2 x S&P 500 / MSCI USA + 1x LTT combination mentioned above already provides very good risk-adjusted returns and going forward it might even be the more sensible choice compared to Hedgefundie's version, who knows. In other words, due to lower risk being involved, in my opinion, we can easily increase the size of this 60/40 part in our portfolios.

I plan to integrate the 60/40 version into my portfolio at a 50% contribution, which yields a overall "leverage factor" of 1.3x for my portfolio. I would go even higher, to about 1.6x, my only problem with the 60/40 version is the risk associated with it being US only. Adding Europe or EM decreases the leverage factor, and unfortunately, no good products exist to also leverage these (STOXX50 is an extremely bad index and the Lyxor MSCI Emerging Markets Daily (2x) ETF is too small).
Yeah, I agree on the good performance of the 60/40 portfolio and its lower volatility and especially lower leverage/black swan event risk compared to Hedgefundie's. It of course also shows a lower historical and potential return, so by extending the portion of own's portfolio allocated to this strategy i would increase portfolio volatility and return in a comparable way to a smaller percentage allocated to a 3x version (even if I would still prefer it!)

The reason why I'm only allocating 5% of my portfolio to this strategy is that I expect, in the next few years, to be able to choose between a wider selection of these leveraged product (especially a 2x treasury ETF would be needed), so that I could use the new money on this eventual, more aggressive strategy. At the same time this allocation should grow faster than the rest of the portfolio, so I expect it to grow to a bigger percentage by itself. Last reason is that I absolutely want to rebalance the portfolio only using contributions (in order not to trigger capital gain taxes that would erode any additional gain): in order to do so, it must remain a relatively small quantity! (otherwise I would have to contribute a lot to this strategy just for rebalancing, becoming an even more significant portion until I would not be able to carry on rebalancing it with contributions only, negating the advantage over a buy-and-hold SP500 strategy which is my benchmark)
Topic Author
ETFlover
Posts: 14
Joined: Tue Dec 01, 2020 12:55 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by ETFlover »

tertre wrote: Thu Jan 07, 2021 2:03 pm Nice thread. I played a lot with PV and now I have 35k euros in my own private small aventure, 40% LQQ (Lyxor Nasdaq-100 Daily (2x) Leveraged UCITS ETF), 20% CL2 (Amundi MSCI USA*2) for the stock part, and 30% TLT 10% 3TYL for the bond part. Not perfect, but it's fun.

The fall of the dollar is a bit painful.
Thank you! Your alternative seem interesting and I considered it previously, after discarding it for the counterparty risk associated with 3TYL (even if you've already limited it by only using a 10%) and the higher volatility (and so also volatility drag) of the NASDAQ compared to SP500 or MSCI USA (even though it performed much better in this decade).
Also, the higher the amount allocated to this strategy and the more ETFs you can include in your portfolio without commissions becoming significant, so in your case this looks doable.

Regarding the fall of dollar: yeah, I have around 60% of my capital in dollar so I'm exposed to significant currency risk too. However, I use this perspective to greatly limit the pain: 2020 has been great for US stocks, and their return expressed in Euro is still very good, so my portfolio growth has been significant nonetheless. Additionally, when mean reversion will happen we'll have an additional return compared to US investors (in other words, we have this 'potential' for currency gain that still has to manifest). Additionally, we can increment our position on the US market at a cheaper price compared to them (so that the SP500, now probably overvalued looking at CAPE ratio, looks a little less overvalued to us)
Topic Author
ETFlover
Posts: 14
Joined: Tue Dec 01, 2020 12:55 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by ETFlover »

Gato wrote: Sat Jan 09, 2021 8:02 am Why not using Lyxor Nasdaq-100 Daily (2x) Leveraged UCITS ETF Acc | LQQ?

https://www.morningstar.es/es/etf/snaps ... 0P00006410

Just because it's indexed to Nasdaq? In the long term the gains are stratospheric
In my opinion it is an alternative to consider: the reason why I'm using the SP500 index instead (or the almost equivalent MSCI USA index) is that it has a lower volatility compared to NASDAQ. NASDAQ historically returned more than the SP500, so if we were only interested in long term returns we could neglect the additional volatility and go with the NASDAQ (and this is what I would do); however these are daily leveraged products, so that the volatility level also has an impact on returns (the so-called volatility drag, that is proportional to the square of the investment standard deviation). So, we should simulate a daily leveraged 2x NASDAQ vs a 2x SP500 and compare their long term returns: if they are close we should still chose the SP500 due to the free lower volatility, otherwise choosing NASDAQ would be the better choice.
SCraw
Posts: 18
Joined: Thu Dec 19, 2019 3:22 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by SCraw »

Has anyone figured out a solution to buying UPRO/TMF that isn’t buying & selling equivalent strike price calls and puts? Are there any EU brokers that for some reason allow it? Can you just open a Swiss/US brokerage account?
timonsc
Posts: 1
Joined: Thu Jan 07, 2021 8:52 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by timonsc »

SCraw wrote: Tue Jan 12, 2021 4:39 pm Has anyone figured out a solution to buying UPRO/TMF that isn’t buying & selling equivalent strike price calls and puts? Are there any EU brokers that for some reason allow it? Can you just open a Swiss/US brokerage account?
I opened an account at Tastyworks and bought the UPRO/TMF without problems. I did not investigate tax issues though.
SCraw
Posts: 18
Joined: Thu Dec 19, 2019 3:22 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by SCraw »

timonsc wrote: Sat Jan 16, 2021 5:38 pm
SCraw wrote: Tue Jan 12, 2021 4:39 pm Has anyone figured out a solution to buying UPRO/TMF that isn’t buying & selling equivalent strike price calls and puts? Are there any EU brokers that for some reason allow it? Can you just open a Swiss/US brokerage account?
I opened an account at Tastyworks and bought the UPRO/TMF without problems. I did not investigate tax issues though.
Any reason to use tastyworks over any other pure-US broker? May I ask what your citizenship is?
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