HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

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vineviz
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by vineviz » Wed Mar 13, 2019 7:23 pm

HEDGEFUNDIE wrote:
Wed Mar 13, 2019 6:59 pm
EDV is not a good substitute for TMF during times of crisis.
I suspect it's merely a matter of proportion: TMF has an effective duration that is 2.2x greater than EDV, so you'd need more than twice as much EDV to approximate TMF.

On the other hand, EDV is much cheaper so for lower overall leverage ratios you might be able to build more efficiently build a risk parity portfolio using EDV.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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HEDGEFUNDIE
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE » Wed Mar 13, 2019 7:34 pm

vineviz wrote:
Wed Mar 13, 2019 7:23 pm
HEDGEFUNDIE wrote:
Wed Mar 13, 2019 6:59 pm
EDV is not a good substitute for TMF during times of crisis.
I suspect it's merely a matter of proportion: TMF has an effective duration that is 2.2x greater than EDV, so you'd need more than twice as much EDV to approximate TMF.

On the other hand, EDV is much cheaper so for lower overall leverage ratios you might be able to build more efficiently build a risk parity portfolio using EDV.
That’s my point, you’d need twice as much EDV which crowds out the portfolio space you need for equities.

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vineviz
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by vineviz » Wed Mar 13, 2019 7:41 pm

HEDGEFUNDIE wrote:
Wed Mar 13, 2019 7:34 pm
vineviz wrote:
Wed Mar 13, 2019 7:23 pm
HEDGEFUNDIE wrote:
Wed Mar 13, 2019 6:59 pm
EDV is not a good substitute for TMF during times of crisis.
I suspect it's merely a matter of proportion: TMF has an effective duration that is 2.2x greater than EDV, so you'd need more than twice as much EDV to approximate TMF.

On the other hand, EDV is much cheaper so for lower overall leverage ratios you might be able to build more efficiently build a risk parity portfolio using EDV.
That’s my point, you’d need twice as much EDV which crowds out the portfolio space you need for equities.
I hear you.

But if you’re building a risk parity portfolio with a target equity exposure of 80%, a UPRO/EDV combo might be the most efficient way to build it with ETFs.

If your target is 200% then EDV is a big fail.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

gtwhitegold
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by gtwhitegold » Wed Mar 13, 2019 7:56 pm

vineviz wrote:
Wed Mar 13, 2019 7:41 pm
HEDGEFUNDIE wrote:
Wed Mar 13, 2019 7:34 pm
vineviz wrote:
Wed Mar 13, 2019 7:23 pm
HEDGEFUNDIE wrote:
Wed Mar 13, 2019 6:59 pm
EDV is not a good substitute for TMF during times of crisis.
I suspect it's merely a matter of proportion: TMF has an effective duration that is 2.2x greater than EDV, so you'd need more than twice as much EDV to approximate TMF.

On the other hand, EDV is much cheaper so for lower overall leverage ratios you might be able to build more efficiently build a risk parity portfolio using EDV.
That’s my point, you’d need twice as much EDV which crowds out the portfolio space you need for equities.
I hear you.

But if you’re building a risk parity portfolio with a target equity exposure of 80%, a UPRO/EDV combo might be the most efficient way to build it with ETFs.

If your target is 200% then EDV is a big fail.
Probably, but maybe not. If the LIBOR daily rate is too high, then it might make sense to leverage equities, but not fixed income. If you are targeting 200% equities, that leaves you with 33% of fixed income to invest, which could keep your strategy from blowing up.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Mar 13, 2019 8:31 pm

PluckyDucky wrote:
Wed Mar 13, 2019 6:17 pm
MotoTrojan wrote:
Wed Mar 13, 2019 4:02 pm
PluckyDucky wrote:
Wed Mar 13, 2019 2:06 pm
MotoTrojan wrote:
Wed Mar 13, 2019 1:58 pm
PluckyDucky wrote:
Wed Mar 13, 2019 1:03 pm
Is there a way to view a line chart in the M1Finance mobile app? I can only find it on my computer.

I'm doing 55/45 UPRO/TMF and up 1.86% in less than a month right now. Of course it was down about 3% at one point.
Posts like this make me wonder if it’s right for you.
Why?
Talking about how much it’s up or down in a month is too short term of a viewpoint.
Someone asked.

Was it you who said he peeks at his funds every day?
Sure do. No offense meant by this, carry on :).

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Mar 13, 2019 8:51 pm

HEDGEFUNDIE wrote:
Wed Mar 13, 2019 6:59 pm
staythecourse wrote:
Wed Mar 13, 2019 6:50 pm
MotoTrojan wrote:
Wed Mar 13, 2019 4:14 pm
staythecourse wrote:
Wed Mar 13, 2019 2:48 pm
mrspock wrote:
Tue Mar 12, 2019 1:26 pm


My 50/50 starting Feb 12th is up ~4% vs 1.9% for the S&P.

While good, the volatility has been high as today alone I am up 1.9%, so take it with a grain of salt.
I went 50/50 as well. Just don't know what to think about LTT going forward from such a low starting point and this money will be going to the kids anyways so time horizon is like 50+ years so upped the stock portion since the time horizon is so far away.

I also did split the stock portion 1/2 in spxl and upro for stewardship protection in the future.

Good luck.

p.s. Good or bad this thread is not slowing down.
Siamond’s posts have made me avoid Direxion where possible. If it were me I’d hold UPRO and swap into SPXL as needed. The more I think about tilting with EDV the more it feels like just going 50/50 actually (deleveraging LTT side).
Wouldn't tilting to EDV instead of leveraging with a 3x fund mean you need MORE weighted average to that asset class and not less?

Good luck.
EDV is not a good substitute for TMF during times of crisis.

You can backtest UPROSIM/VEDTX (the mutual fund version of EDV which has a longer history) against UPROSIM/TMFSIM to get an idea of what I’m taking about.
Thank you, I wasn't aware there was a longer history available. The main purpose of my 20-30% (1/3-1/2 of bonds) inclusion idea was protection from low/negative return periods on treasuries, such as 1955-1982. Using LTT as a proxy for the STRIPS showed that while such a tilt would still have lagged the S&P500, it would've stayed positive in this period. It also would have still greatly outperformed 1982-present. Is my thinking flawed that an unleveraged fund is a good safety net from volatility decay and other drags associated with TMF?

Perhaps I am better off going all-in on the bet rather than trying to make something that works in every period (AKA S&P500 itself), although it did seem to improve the efficiency without much hit to returns since 82.

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed Mar 13, 2019 9:58 pm

staythecourse wrote:
Wed Mar 13, 2019 6:50 pm
MotoTrojan wrote:
Wed Mar 13, 2019 4:14 pm
staythecourse wrote:
Wed Mar 13, 2019 2:48 pm
mrspock wrote:
Tue Mar 12, 2019 1:26 pm
GeraniumLover wrote:
Tue Mar 12, 2019 8:54 am
How about posting an update as to how the portion of your portfolio that uses this strategy has done thus far, HEDGEFUNDIE?
My 50/50 starting Feb 12th is up ~4% vs 1.9% for the S&P.

While good, the volatility has been high as today alone I am up 1.9%, so take it with a grain of salt.
I went 50/50 as well. Just don't know what to think about LTT going forward from such a low starting point and this money will be going to the kids anyways so time horizon is like 50+ years so upped the stock portion since the time horizon is so far away.

I also did split the stock portion 1/2 in spxl and upro for stewardship protection in the future.

Good luck.

p.s. Good or bad this thread is not slowing down.
Siamond’s posts have made me avoid Direxion where possible. If it were me I’d hold UPRO and swap into SPXL as needed. The more I think about tilting with EDV the more it feels like just going 50/50 actually (deleveraging LTT side).
Wouldn't tilting to EDV instead of leveraging with a 3x fund mean you need MORE weighted average to that asset class and not less?

Good luck.
To be clear I am not going 50/50 AND adding EDV, just stating that I think of adding EDV to the 40/60 (splitting the 60 into TMF and EDV) as going 50/50 in a more efficient way (tilts to equity, reduces exposure to leveraged funds overall). Not sold on anything beyond the original allocation, but still interested in how unleveraged bonds saved the day from 1955-1982 and could maintain enough value in a shorter rising-rate period to keep the portfolio alive and well.

Also at 40/60 UPRO/TMF it seems the portfolio skews volatility towards TMF still, which bodes well for reducing volatility on the bond side. I need to take a deeper dive but it looked like 40/40/20 UPRO/TMF/EDV balanced risk nicely between equities and bonds.

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE » Wed Mar 13, 2019 10:08 pm

MotoTrojan wrote:
Wed Mar 13, 2019 9:58 pm
To be clear I am not going 50/50 AND adding EDV, just stating that I think of adding EDV to the 40/60 (splitting the 60 into TMF and EDV) as going 50/50 in a more efficient way (tilts to equity, reduces exposure to leveraged funds overall). Not sold on anything beyond the original allocation, but still interested in how unleveraged bonds saved the day from 1955-1982 and could maintain enough value in a shorter rising-rate period to keep the portfolio alive and well.

Also at 40/60 UPRO/TMF it seems the portfolio skews volatility towards TMF still, which bodes well for reducing volatility on the bond side. I need to take a deeper dive but it looked like 40/40/20 UPRO/TMF/EDV balanced risk nicely between equities and bonds.
Longinvest created a simulated version of EDV here going back 100 years (or so).

Play around with it and let us know what you find.

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by mrspock » Wed Mar 13, 2019 10:12 pm

MotoTrojan wrote:
Wed Mar 13, 2019 9:58 pm
Also at 40/60 UPRO/TMF it seems the portfolio skews volatility towards TMF still, which bodes well for reducing volatility on the bond side. I need to take a deeper dive but it looked like 40/40/20 UPRO/TMF/EDV balanced risk nicely between equities and bonds.
50/50 UPRO/TMF FTW. If it's going to be volatile (oh...and it will be!), just give me the biggest pile of $$$ for my ride. Another nice day today, and yesterday was a gem with TMF and UPRO both marching together in all their triple leveraged glory, it was the thing of beauty. :moneybag :moneybag :moneybag

:sharebeer

EDIT: And yes, I know, if this goes to zero, this will be the post you party poopers will all quote and rub in my face. But that's ok....it's also the post I'll frame and hang on the SS Hedgefundie if it goes to the moon! :D
Last edited by mrspock on Wed Mar 13, 2019 10:35 pm, edited 2 times in total.

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HEDGEFUNDIE
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE » Wed Mar 13, 2019 10:13 pm

mrspock wrote:
Wed Mar 13, 2019 10:12 pm
MotoTrojan wrote:
Wed Mar 13, 2019 9:58 pm
Also at 40/60 UPRO/TMF it seems the portfolio skews volatility towards TMF still, which bodes well for reducing volatility on the bond side. I need to take a deeper dive but it looked like 40/40/20 UPRO/TMF/EDV balanced risk nicely between equities and bonds.
50/50 UPRO/TMF FTW. If it's going to be volatile (oh...and it will be!), just give me the biggest pile of $$$ for my ride. Another nice day today, and yesterday was a gem with TMF and UPRO both marching together in all their triple leveraged glory, it was the thing of beauty. :moneybag :moneybag :moneybag

:sharebeer
Indeed, looking forward to more positive correlation days!

staythecourse
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by staythecourse » Wed Mar 13, 2019 11:35 pm

MotoTrojan wrote:
Wed Mar 13, 2019 9:58 pm
staythecourse wrote:
Wed Mar 13, 2019 6:50 pm
MotoTrojan wrote:
Wed Mar 13, 2019 4:14 pm
staythecourse wrote:
Wed Mar 13, 2019 2:48 pm
mrspock wrote:
Tue Mar 12, 2019 1:26 pm


My 50/50 starting Feb 12th is up ~4% vs 1.9% for the S&P.

While good, the volatility has been high as today alone I am up 1.9%, so take it with a grain of salt.
I went 50/50 as well. Just don't know what to think about LTT going forward from such a low starting point and this money will be going to the kids anyways so time horizon is like 50+ years so upped the stock portion since the time horizon is so far away.

I also did split the stock portion 1/2 in spxl and upro for stewardship protection in the future.

Good luck.

p.s. Good or bad this thread is not slowing down.
Siamond’s posts have made me avoid Direxion where possible. If it were me I’d hold UPRO and swap into SPXL as needed. The more I think about tilting with EDV the more it feels like just going 50/50 actually (deleveraging LTT side).
Wouldn't tilting to EDV instead of leveraging with a 3x fund mean you need MORE weighted average to that asset class and not less?

Good luck.
To be clear I am not going 50/50 AND adding EDV, just stating that I think of adding EDV to the 40/60 (splitting the 60 into TMF and EDV) as going 50/50 in a more efficient way (tilts to equity, reduces exposure to leveraged funds overall). Not sold on anything beyond the original allocation, but still interested in how unleveraged bonds saved the day from 1955-1982 and could maintain enough value in a shorter rising-rate period to keep the portfolio alive and well.

Also at 40/60 UPRO/TMF it seems the portfolio skews volatility towards TMF still, which bodes well for reducing volatility on the bond side. I need to take a deeper dive but it looked like 40/40/20 UPRO/TMF/EDV balanced risk nicely between equities and bonds.
My bad I thought you meant 50/50 equities/ bond not 50/50 on TMF and EDV on the bond side. Makes sense now.

Good luck.

p.s. If it matters I stopped after the first few back tests and said good enough and just went for it. The problem with too much data is just that too much data. The ONLY thing I am sure of is the data is not going to repeat so no point trying to torture it.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by privatefarmer » Thu Mar 14, 2019 12:41 am

long_gamma wrote:
Tue Mar 12, 2019 8:22 am
I haven't read the complete thread, but using the long term bond data from 55 is meaning less. It is like using Gold data from the parity days. There are structural change in monetary policy from those days.

Image

Gread moderation by Bernanke explains reasons behind it.

https://www.federalreserve.gov/boarddoc ... /20040220/

Since inflation is pretty much anchored, it is difficult for me to see too much volatility from the bonds and hence huge losses.
if you want to throw out the data of '55-'82 then you also have to throw out the data from '82-'09 (when LTT rates were in a strong decline).I agree its unlikely rates will shoot up again but its equally unlikely they will steadily decline over the next several decades. if anything, they'll likely stay flat.

looking at periods where rates bounced around but returned to where they started ("flat" markets), I have found mixed data. sometimes, like the last 10 years, the strategy has worked well. other times, like between '86-'96 or '93-'07 it hasn't outperformed 100% small-cap value. if you include the two best s&p bull markets (the tech run up of the 90s and the market we've been in since '09) then this strategy has generally done very well (duh).

I think we need more data of what it has looked like in flat rate markets w/ significant stock market crashes. unfortunately, we'll all likely be dead before that data is available.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Thu Mar 14, 2019 3:03 am

privatefarmer wrote:
Thu Mar 14, 2019 12:41 am
long_gamma wrote:
Tue Mar 12, 2019 8:22 am
I haven't read the complete thread, but using the long term bond data from 55 is meaning less. It is like using Gold data from the parity days. There are structural change in monetary policy from those days.

Image

Gread moderation by Bernanke explains reasons behind it.

https://www.federalreserve.gov/boarddoc ... /20040220/

Since inflation is pretty much anchored, it is difficult for me to see too much volatility from the bonds and hence huge losses.
if you want to throw out the data of '55-'82 then you also have to throw out the data from '82-'09 (when LTT rates were in a strong decline).I agree its unlikely rates will shoot up again but its equally unlikely they will steadily decline over the next several decades. if anything, they'll likely stay flat.

looking at periods where rates bounced around but returned to where they started ("flat" markets), I have found mixed data. sometimes, like the last 10 years, the strategy has worked well. other times, like between '86-'96 or '93-'07 it hasn't outperformed 100% small-cap value. if you include the two best s&p bull markets (the tech run up of the 90s and the market we've been in since '09) then this strategy has generally done very well (duh).

I think we need more data of what it has looked like in flat rate markets w/ significant stock market crashes. unfortunately, we'll all likely be dead before that data is available.
Certainly curious to hear Hedge's thoughts. The more I look at 1955-1970ish (interest rates climbing to 7%) the more I wonder if that could be us next.

long_gamma
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by long_gamma » Thu Mar 14, 2019 6:58 am

privatefarmer wrote:
Thu Mar 14, 2019 12:41 am

if you want to throw out the data of '55-'82 then you also have to throw out the data from '82-'09 (when LTT rates were in a strong decline).I agree its unlikely rates will shoot up again but its equally unlikely they will steadily decline over the next several decades. if anything, they'll likely stay flat.

What is the rationale for throwing out the data from 82-09 based on the chart i posted?

Bernanke article is talking about structural changes in monetary policy since 1984. He gave speech in 2004 about great moderation. It has been 15 years since the speech, inflation expectation is pretty much control. I would atleast use data from 1998, since the inflation expectation has flat lined and taken froth out.

I made a post in different thread using data from 1998 here.
viewtopic.php?f=10&t=269194&p=4313428#p4313444

My main point is this. When ever leverage is involved, it becomes trading strategy no longer just buy-hold investing. One needs to pay greater attention to market structure and assumption of that strategy. Only clue less or academic who never traded uses all the data just because it is available. It is like developing day trading model using 30 years of data, with out realizing HFT have fundamentally altered the market structure.
"Everyone has a plan 'till they get punched in the mouth." --Mike Tyson

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HEDGEFUNDIE
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE » Thu Mar 14, 2019 8:07 am

MotoTrojan wrote:
Thu Mar 14, 2019 3:03 am
privatefarmer wrote:
Thu Mar 14, 2019 12:41 am
long_gamma wrote:
Tue Mar 12, 2019 8:22 am
I haven't read the complete thread, but using the long term bond data from 55 is meaning less. It is like using Gold data from the parity days. There are structural change in monetary policy from those days.

Image

Gread moderation by Bernanke explains reasons behind it.

https://www.federalreserve.gov/boarddoc ... /20040220/

Since inflation is pretty much anchored, it is difficult for me to see too much volatility from the bonds and hence huge losses.
if you want to throw out the data of '55-'82 then you also have to throw out the data from '82-'09 (when LTT rates were in a strong decline).I agree its unlikely rates will shoot up again but its equally unlikely they will steadily decline over the next several decades. if anything, they'll likely stay flat.

looking at periods where rates bounced around but returned to where they started ("flat" markets), I have found mixed data. sometimes, like the last 10 years, the strategy has worked well. other times, like between '86-'96 or '93-'07 it hasn't outperformed 100% small-cap value. if you include the two best s&p bull markets (the tech run up of the 90s and the market we've been in since '09) then this strategy has generally done very well (duh).

I think we need more data of what it has looked like in flat rate markets w/ significant stock market crashes. unfortunately, we'll all likely be dead before that data is available.
Certainly curious to hear Hedge's thoughts. The more I look at 1955-1970ish (interest rates climbing to 7%) the more I wonder if that could be us next.
And what evidence do you have for this prediction, other than staring at a chart and imagining where the line might go next?

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by typical.investor » Thu Mar 14, 2019 8:14 am

HEDGEFUNDIE wrote:
Thu Mar 14, 2019 8:07 am
MotoTrojan wrote:
Thu Mar 14, 2019 3:03 am

Certainly curious to hear Hedge's thoughts. The more I look at 1955-1970ish (interest rates climbing to 7%) the more I wonder if that could be us next.
And what evidence do you have for this prediction, other than staring at a chart and imagining where the line might go next?
Evidence to the contrary would be inflation today. We are not importing foreign inflation now. The reason is that if you strip out energy, there isn't any.

75 years of being an energy importer was broken recently. That spike you see is related to oil prices, isn't it????

Who knows the future of course, particularly if globalization gets reversed, but aging societies might be deflationary too. (unless of course old people work so slowly that productivity suffers greatly).

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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by privatefarmer » Thu Mar 14, 2019 9:07 am

HEDGEFUNDIE wrote:
Thu Mar 14, 2019 8:07 am
MotoTrojan wrote:
Thu Mar 14, 2019 3:03 am
privatefarmer wrote:
Thu Mar 14, 2019 12:41 am
long_gamma wrote:
Tue Mar 12, 2019 8:22 am
I haven't read the complete thread, but using the long term bond data from 55 is meaning less. It is like using Gold data from the parity days. There are structural change in monetary policy from those days.

Image

Gread moderation by Bernanke explains reasons behind it.

https://www.federalreserve.gov/boarddoc ... /20040220/

Since inflation is pretty much anchored, it is difficult for me to see too much volatility from the bonds and hence huge losses.
if you want to throw out the data of '55-'82 then you also have to throw out the data from '82-'09 (when LTT rates were in a strong decline).I agree its unlikely rates will shoot up again but its equally unlikely they will steadily decline over the next several decades. if anything, they'll likely stay flat.

looking at periods where rates bounced around but returned to where they started ("flat" markets), I have found mixed data. sometimes, like the last 10 years, the strategy has worked well. other times, like between '86-'96 or '93-'07 it hasn't outperformed 100% small-cap value. if you include the two best s&p bull markets (the tech run up of the 90s and the market we've been in since '09) then this strategy has generally done very well (duh).

I think we need more data of what it has looked like in flat rate markets w/ significant stock market crashes. unfortunately, we'll all likely be dead before that data is available.
Certainly curious to hear Hedge's thoughts. The more I look at 1955-1970ish (interest rates climbing to 7%) the more I wonder if that could be us next.
And what evidence do you have for this prediction, other than staring at a chart and imagining where the line might go next?
well that inflation chart you posted showed that inflation looked pretty "flat" before 1968 as well... and then it shot through the roof. I am certainly not an economist. I have no idea what will happen with inflation, rates, really anything. I don't think anyone honestly has a clue or else they would be very rich. this strategy may very well work, however, I am eager to find out.

levitate
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by levitate » Thu Mar 14, 2019 9:09 am

The risk of high interest rate is the party spoiler here. I'll make a distinction between absolute and change. The positive change hurts TMF's underlying index at any level, whereas absolute high interest rate hurts both UPRO and TMF by paying high cost of borrowing for leverage. I won't focus on controlling the change because that's the basic trait or movement driver of the underlying index (won't mind though if that's controlled too). However, controlling impact of high interest rate is essential for buy and hold. We could deleverage when interest rate is high... but that's not buy and hold. is there a way to hedge against high interest rate in future, by paying a constant hedging premium, which will reduce gains now, but ultimately protect in future, leading to smoothening of returnd?

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by long_gamma » Thu Mar 14, 2019 10:29 am

privatefarmer wrote:
Thu Mar 14, 2019 9:07 am

well that inflation chart you posted showed that inflation looked pretty "flat" before 1968 as well... and then it shot through the roof. I am certainly not an economist. I have no idea what will happen with inflation, rates, really anything. I don't think anyone honestly has a clue or else they would be very rich. this strategy may very well work, however, I am eager to find out.
Exactly my point. Inflation went thru the roof because of supply shock and the policy error by the central bank. Central bank now have the play book to deal with inflation and there are many papers indicating reaction function of the central bank is improved drastically since 60's.

Even structure of the economy has changed. Now US is washed with oil, in couple of years will become #1 producer.

In future anything can happen as you said. Since I consider this as trading model, get out as soon as your thesis is invalid. In this case if the inflation expectation creeps out of 4%, I would stop using this strategy.
"Everyone has a plan 'till they get punched in the mouth." --Mike Tyson

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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by privatefarmer » Thu Mar 14, 2019 10:37 am

long_gamma wrote:
Thu Mar 14, 2019 10:29 am
privatefarmer wrote:
Thu Mar 14, 2019 9:07 am

well that inflation chart you posted showed that inflation looked pretty "flat" before 1968 as well... and then it shot through the roof. I am certainly not an economist. I have no idea what will happen with inflation, rates, really anything. I don't think anyone honestly has a clue or else they would be very rich. this strategy may very well work, however, I am eager to find out.
Exactly my point. Inflation went thru the roof because of supply shock and the policy error by the central bank. Central bank now have the play book to deal with inflation and there are many papers indicating reaction function of the central bank is improved drastically since 60's.

Even structure of the economy has changed. Now US is washed with oil, in couple of years will become #1 producer.

In future anything can happen as you said. Since I consider this as trading model, get out as soon as your thesis is invalid. In this case if the inflation expectation creeps out of 4%, I would stop using this strategy.
But inflation has been low for nearly 40 years and the fed has at times raised rates. This strategy has worked great since the overall trend of the fed rate has been downward. But can they really go much lower? They’ve been raising rates for several years now and there hasn’t been rampant inflation. So inflation isn’t an exact predictor on whether or not fed will raise rates right? And if fed raises rates, for any reason, that hurts LTTs

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Thu Mar 14, 2019 10:46 am

HEDGEFUNDIE wrote:
Thu Mar 14, 2019 8:07 am
MotoTrojan wrote:
Thu Mar 14, 2019 3:03 am
privatefarmer wrote:
Thu Mar 14, 2019 12:41 am
long_gamma wrote:
Tue Mar 12, 2019 8:22 am
I haven't read the complete thread, but using the long term bond data from 55 is meaning less. It is like using Gold data from the parity days. There are structural change in monetary policy from those days.

Image

Gread moderation by Bernanke explains reasons behind it.

https://www.federalreserve.gov/boarddoc ... /20040220/

Since inflation is pretty much anchored, it is difficult for me to see too much volatility from the bonds and hence huge losses.
if you want to throw out the data of '55-'82 then you also have to throw out the data from '82-'09 (when LTT rates were in a strong decline).I agree its unlikely rates will shoot up again but its equally unlikely they will steadily decline over the next several decades. if anything, they'll likely stay flat.

looking at periods where rates bounced around but returned to where they started ("flat" markets), I have found mixed data. sometimes, like the last 10 years, the strategy has worked well. other times, like between '86-'96 or '93-'07 it hasn't outperformed 100% small-cap value. if you include the two best s&p bull markets (the tech run up of the 90s and the market we've been in since '09) then this strategy has generally done very well (duh).

I think we need more data of what it has looked like in flat rate markets w/ significant stock market crashes. unfortunately, we'll all likely be dead before that data is available.
Certainly curious to hear Hedge's thoughts. The more I look at 1955-1970ish (interest rates climbing to 7%) the more I wonder if that could be us next.
And what evidence do you have for this prediction, other than staring at a chart and imagining where the line might go next?
None, but certainly have a strong desire to learn more about the dynamics. I suppose when looking at 1955-1982 it was easier to say “that was a crazy rate of change” but closer to 1955 it looks quite steady and still killed returns. Just healthy skepticism and mostly a desire to educate myself more.

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by meshuggahnmcc » Thu Mar 14, 2019 11:08 am

ON a side note if one was to build a risk parity portfolio with leverage. Realistically would the below make sense in some respect?

YINN 10%
TQQQ 10%
UPRO 20%
TMF 50%
UGL 10%

I feel this would be a good start to an ACTUAL risk parity portfolio with leverage.

Let me know what you guys think, i know it slightly off topic.

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by samsdad » Thu Mar 14, 2019 11:24 am

privatefarmer wrote:
Thu Mar 14, 2019 12:41 am
. . . looking at periods where rates bounced around but returned to where they started ("flat" markets), I have found mixed data. sometimes, like the last 10 years, the strategy has worked well. other times, like between '86-'96 or '93-'07 it hasn't outperformed 100% small-cap value. if you include the two best s&p bull markets (the tech run up of the 90s and the market we've been in since '09) then this strategy has generally done very well (duh).

I think we need more data of what it has looked like in flat rate markets w/ significant stock market crashes. unfortunately, we'll all likely be dead before that data is available.
privatefarmer,

I'm not quibbling with you, but I was curious as to just how much SCV beat 40/60 UPRO/TMF between the 86-96 and 93-07 periods (no strategy always outperforms), and I came up with a different conclusion than yours for some reason. SCV returned 15.34% CAGR between 86-96:

Image

Whereas 40/60 UPRO/TMF would've returned 21.12% CAGR (with our best current data):

Image

Likewise, between 93-07, SCV returned 12.91% CAGR:

Image

And 40/60 UPRO/TMF returned a simulated 16.74% CAGR during that same period:

Image

Any idea why there's such a large discrepancy between what data you're looking at, and what I'm getting on PV with the SCV asset class (which is based on Professor Kenneth French's Research Data for 1972-1998, and Vanguard Small Cap Value Index Fund (VISVX) 1999+), and Siamond's simulated data for UPRO/TMF?

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by long_gamma » Thu Mar 14, 2019 11:33 am

privatefarmer wrote:
Thu Mar 14, 2019 10:37 am

But inflation has been low for nearly 40 years and the fed has at times raised rates. This strategy has worked great since the overall trend of the fed rate has been downward. But can they really go much lower? They’ve been raising rates for several years now and there hasn’t been rampant inflation. So inflation isn’t an exact predictor on whether or not fed will raise rates right? And if fed raises rates, for any reason, that hurts LTTs
Fed has dual mandate for monetary policy, maximum employment and price stability (low and stable inflation). So they can raise short term rates assuming both have met.

What hurts most of the trading strategy is the sudden reversal. Reaching maximum employment is very slow process, hence inflation plays major factor here. If sudden inflation happens like during the supply shocks then this strategy is toast. This strategy can handle steady increase in short term rates. Compare this strategy returns with regular 60/40 during steady increase from 2003 to 2007. Greenspan increased rates every quarter by 25 basis points for several years. They are pretty similar.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by siamond » Thu Mar 14, 2019 11:41 am

samsdad wrote:
Thu Mar 14, 2019 11:24 am
Any idea why there's such a large discrepancy between what data you're looking at, and what I'm getting on PV with the SCV asset class (which is based on Professor Kenneth French's Research Data for 1972-1998, and Vanguard Small Cap Value Index Fund (VISVX) 1999+), and Siamond's simulated data for UPRO/TMF?
I can probably answer this question, actually. The SCV asset class in the French-Fama data library is quite remote from what a regular index would do. They use a very coarse size breakdown, which bears little relation to the size breakdowns used by regular indices (e.g. S&P, MSCI, CRSP, etc). I asked Prof. French about this issue, he was kind enough to answer and to acknowledge it, but indicated no interest in changing his methodology.

This is why we started this stock modeling initiative a few years ago (which feeds in the Simba backtesting spreadsheet). This is still far from ideal, but definitely much closer to the construction of regular indices. I wasn't aware that Portfolio Visualizer still uses the raw FF data in this respect. This is unfortunate.

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by vineviz » Thu Mar 14, 2019 12:10 pm

meshuggahnmcc wrote:
Thu Mar 14, 2019 11:08 am
ON a side note if one was to build a risk parity portfolio with leverage. Realistically would the below make sense in some respect?

YINN 10%
TQQQ 10%
UPRO 20%
TMF 50%
UGL 10%

I feel this would be a good start to an ACTUAL risk parity portfolio with leverage.
One challenge in building sensible risk parity strategies is that you need to incorporate some process for choosing the assets in a way that balances (i.e. diversifies) the underlying risks to which you are exposed. The risk parity equations don't do this: if you input UPRO, IVV, SPY, VOO, and TMF into the portfolio optimization tool at PortfolioVisualize and ask for a "risk parity" portfolio you'll get about 20% TMF. Input just UPRO and TMF and you get 50% TMF. Mathematically these are "correct" but financially they are far from equivalent. The second portfolio is more diverse but also much more volatile.

Your example portfolio includes three assets that are highly correlated with each other (YINN, TQQQ, and UPRO) which is problematic. Even if the volatility of each asset is balanced, the portfolio risk exposures aren't especially balanced.

You'd be closer to the mark with something like this, IMO:

YINN 6%
TQQQ 0%
UPRO 30%
TMF 36%
UGL 28%
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by samsdad » Thu Mar 14, 2019 12:46 pm

siamond wrote:
Thu Mar 14, 2019 11:41 am
samsdad wrote:
Thu Mar 14, 2019 11:24 am
Any idea why there's such a large discrepancy between what data you're looking at, and what I'm getting on PV with the SCV asset class (which is based on Professor Kenneth French's Research Data for 1972-1998, and Vanguard Small Cap Value Index Fund (VISVX) 1999+), and Siamond's simulated data for UPRO/TMF?
I can probably answer this question, actually. The SCV asset class in the French-Fama data library is quite remote from what a regular index would do. They use a very coarse size breakdown, which bears little relation to the size breakdowns used by regular indices (e.g. S&P, MSCI, CRSP, etc). I asked Prof. French about this issue, he was kind enough to answer and to acknowledge it, but indicated no interest in changing his methodology.

This is why we started this stock modeling initiative a few years ago (which feeds in the Simba backtesting spreadsheet). This is still far from ideal, but definitely much closer to the construction of regular indices. I wasn't aware that Portfolio Visualizer still uses the raw FF data in this respect. This is unfortunate.
Okay, well here's the data from the custom Simba/Siamond spreadsheet:

Image

Image

WHEW, I thought I was gonna have to delete my post! Okay so, same issue, different numbers: SCV CAGR 86-96: 12.89 vs. this strategy 18.06. From 93-07, SCV 12.39 vs. 16.64 here. Again, I'm not quibbling with privatefarmer---we're all learning here---just that I was wondering how much SCV outperformed during those periods after reading his post, and now I have two other sets of data telling me that it apparently didn't. I'm not picking on you privatefarmer, I appreciate your input here!

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by siamond » Thu Mar 14, 2019 1:11 pm

MotoTrojan wrote:
Thu Mar 14, 2019 10:46 am
None, but certainly have a strong desire to learn more about the dynamics. I suppose when looking at 1955-1982 it was easier to say “that was a crazy rate of change” but closer to 1955 it looks quite steady and still killed returns. Just healthy skepticism and mostly a desire to educate myself more.
Just that you know, our current model makes a very coarse assumption about bonds volatility prior to 1997. Due to lack of historical data, we used the daily volatility of the 1998-2018 period as a proxy. Kevin_M pointed out that we could actually use daily yield series from FRED to get a better idea of what happened before 1998. We're still refining the corresponding model, but this sounds promising. And yes, in the 60s and 70s, bonds were indeed significantly less volatile than in more recent times.

In all likelihood, this will make the 50s to 70s leveraged returns look a little bit better. I mean, it will still be a really bad outcome for the OP's strategy, but slightly less so... Anyhoo, give us a day or too, and we'll share an updated model.

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Thu Mar 14, 2019 1:13 pm

siamond wrote:
Thu Mar 14, 2019 1:11 pm
MotoTrojan wrote:
Thu Mar 14, 2019 10:46 am
None, but certainly have a strong desire to learn more about the dynamics. I suppose when looking at 1955-1982 it was easier to say “that was a crazy rate of change” but closer to 1955 it looks quite steady and still killed returns. Just healthy skepticism and mostly a desire to educate myself more.
Just that you know, our current model makes a very coarse assumption about bonds volatility prior to 1997. Due to lack of historical data, we used the daily volatility of the 1998-2018 period as a proxy. Kevin_M pointed out that we could actually use daily yield series from FRED to get a better idea of what happened before 1998. We're still refining the corresponding model, but this sounds promising. And yes, in the 60s and 70s, bonds were indeed significantly less volatile than in more recent times.

In all likelihood, this will make the 50s to 70s leveraged returns look a little bit better. I mean, it will still be a really bad outcome for the OP's strategy, but slightly less so... Anyhoo, give us a day or too, and we'll share an updated model.
Wouldn’t necessarily make me feel better about the future and still makes me wonder if some unleveraged exposure can help (as it did back then) but I do appreciate the constant push to improve!

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by siamond » Thu Mar 14, 2019 1:26 pm

samsdad wrote:
Thu Mar 14, 2019 12:46 pm
WHEW, I thought I was gonna have to delete my post! Okay so, same issue, different numbers: SCV CAGR 86-96: 12.89 vs. this strategy 18.06. From 93-07, SCV 12.39 vs. 16.64 here. Again, I'm not quibbling with privatefarmer---we're all learning here---just that I was wondering how much SCV outperformed during those periods after reading his post, and now I have two other sets of data telling me that it apparently didn't. I'm not picking on you privatefarmer, I appreciate your input here!
Yes, your SCV numbers are indeed what we have in Simba. I am not sure what other data set (besides Portfolio Visualizer) you are referring to, but I don't think it's worth thinking much about what happened over a single decade. Both strategies (the OP's and 100% SCV) are highly irregular. SCV in particular didn't display any premium over Total-Market for looong periods of time (making pundits claim that the value effect was dead, then it finally re-appeared, etc). There are no useful lessons to be gained by analyzing one decade at a time, I'm afraid.

I provided a side-to-side comparison of SCV vs. the OP's strategy over periods of 20 years in this post. I think this is more significant.

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by privatefarmer » Thu Mar 14, 2019 4:51 pm

samsdad wrote:
Thu Mar 14, 2019 12:46 pm
siamond wrote:
Thu Mar 14, 2019 11:41 am
samsdad wrote:
Thu Mar 14, 2019 11:24 am
Any idea why there's such a large discrepancy between what data you're looking at, and what I'm getting on PV with the SCV asset class (which is based on Professor Kenneth French's Research Data for 1972-1998, and Vanguard Small Cap Value Index Fund (VISVX) 1999+), and Siamond's simulated data for UPRO/TMF?
I can probably answer this question, actually. The SCV asset class in the French-Fama data library is quite remote from what a regular index would do. They use a very coarse size breakdown, which bears little relation to the size breakdowns used by regular indices (e.g. S&P, MSCI, CRSP, etc). I asked Prof. French about this issue, he was kind enough to answer and to acknowledge it, but indicated no interest in changing his methodology.

This is why we started this stock modeling initiative a few years ago (which feeds in the Simba backtesting spreadsheet). This is still far from ideal, but definitely much closer to the construction of regular indices. I wasn't aware that Portfolio Visualizer still uses the raw FF data in this respect. This is unfortunate.
Okay, well here's the data from the custom Simba/Siamond spreadsheet:

Image

Image

WHEW, I thought I was gonna have to delete my post! Okay so, same issue, different numbers: SCV CAGR 86-96: 12.89 vs. this strategy 18.06. From 93-07, SCV 12.39 vs. 16.64 here. Again, I'm not quibbling with privatefarmer---we're all learning here---just that I was wondering how much SCV outperformed during those periods after reading his post, and now I have two other sets of data telling me that it apparently didn't. I'm not picking on you privatefarmer, I appreciate your input here!
So the issue is that we’d want to look at periods where LTT yields were flat or going up, unless you anticipate them going even lower in the future? When you look at 10+ year periods where they were basically flat, it was mixed results as far as 3x beating SCV

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by privatefarmer » Thu Mar 14, 2019 6:16 pm

If one read all my posts on this topic one would think I’m bipolar. I have flip flopped so many times on this strategy. It seems like the more I dive into it the more I realize I don’t know. What I’ve come up with so far :

- if you only look at periods where inflation (thus borrowing costs) were LOW, thus strategy held up pretty well. From ‘55-73 and ‘83-present inflation was moderate to low and this strategy either killed it or at least had a moderately positive return. It did the best post-1983 but still had stock-like returns from ‘55-‘73.
- when comparing to small cap value, which I think is a better comparison since SCV has had similar max drawdowns as this strategy, and when segregating the time periods into 10-15 year segments where LTT yields were FLAT (I found 4 distinct but overlapping periods ranging from 12-15 years since 1986), thus portfolio in general has OUTperformed SCV. It outperformed outright in 2/4 periods, tied in one period, and underperformed SCV in one period. But if you were to take those 4 periods where rates stayed flat and line then up one after the other, as if they were consecutive time periods, this strategy blew the lights off of 100% SCV by about 3%/year. The total number of years thus would have covered was around 50 years (because the periods overlapped).

That all seems complex and like data mining I know. But what i am basically getting at is that when you segregate the historical data into 10-15 year periods where LTT rates did not trend up nor down, this strategy overall performed very well compared to 100% SCV AND I used DFAs DFSVX fund (when available) for my SCV comparison which has basically the absolute best historical return since inception.

-I also found that since 1986, either TMF or UPRO, or both together, would’ve had a positive year 85% of the time. Only in 15% of the years did BOTH funds have a negative year. This goes to show how well the strategy works as far as negative correlation goes. I believe, from my very limited understanding, that LTT and S/p500 do generally become negatively correlated when one of them is getting hammered, which is exactly what we’d want. About HALF the years they both actually had POSITIVE returns, which maybe is why their correlation is not <1, but it’s obviously a good thing when both are going up together. 35% of the years, either TMF or UPRO had a negative return but not both.

My take thus far: I think the logic is sound. We are essentially trying to lever up a highly efficient portfolio (40/60) in times when borrowing costs are low. From what I’ve seen, and I am very much a novice at this, this strategy has performed well when #1 inflation/borrowing costs are low and #2 LTT yields are either trending downwards (extremely unlikely going forward) or are flat (in my opinion, the likeliest scenario going forward).

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by AlphaLess » Thu Mar 14, 2019 11:37 pm

How are triple-leveraged speculators doing on their gambits so far?
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by AlphaLess » Thu Mar 14, 2019 11:51 pm

Just a friendly shout to all the triple-leverage speculators here, from a casual observer:
- you will have less anxiety if you decompose your returns of the leveraged strategy into simple explanatory factors.

F1: Long the stock, short the funding rate, x 3. Add-in daily re-leverage / re-balance: see F5.
F2: Long the LT treasuries, short the funding rate, x 3. Add-in daily re-leverage / re-balance: see F6,
F3: Long your capital (which presumably earns short funding rate),
F4: Expense ratio,
F5: Gamma from daily re-leverage,
F6. Gamma from daily re-leverage.
F7: Your quarterly rebalance,

F2. probably won't make money if yield curve is flattish (like now). Can look it up here: https://www.treasury.gov/resource-cente ... data=yield. Remember that funding rate is not the front end of the treasury, but what the ETF manager borrows at. Prolly LIBOR+, which stands at 2.6% + currently.

F1. probably won't make money if the front end of the yield curve is high (relative to stocks). This has two dimensions: funding rate and stock returns. Stock valuations are high, and returns are uncertain. Funding rate is certain: you pay every day,
F5: daily re-leverage eats into your returns.
F6: daily re-leverage eats into your returns.
F7: your quarterly rebalance probably has absolutely no alpha.

Furthermore, you expect that F2 to hedge F1 (simple treasury-vs-stock hedge) during times of crisis. However, the funding rate you face is on the faith and credit of the ETF manager, and that could be higher than what you read in papers. Thus, your paper portfolio visualizer simulation might not hold up.

Also remember that yield curve like to spend vacationing in inverted territories.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by AlphaLess » Fri Mar 15, 2019 12:03 am

I would also encourage all the intrepid speculator friends here to post their TRADES.

Posting portfolios does not tell the full story.

Portfolio = abstract.

Traders = what you actually did. I.e., how well you followed your strategy, what mental mistakes did you commit, what sort of click-minute mistakes did you commit, how did you convince that your 1-months worth of design and planning needed last minute tweaks, how much did you market-time, etc.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by staythecourse » Fri Mar 15, 2019 8:04 am

AlphaLess wrote:
Fri Mar 15, 2019 12:03 am
I would also encourage all the intrepid speculator friends here to post their TRADES.

Posting portfolios does not tell the full story.

Portfolio = abstract.

Traders = what you actually did. I.e., how well you followed your strategy, what mental mistakes did you commit, what sort of click-minute mistakes did you commit, how did you convince that your 1-months worth of design and planning needed last minute tweaks, how much did you market-time, etc.
Sure. I put 98k transferred to Fidelity via a rollover roth IRA from Vanguard. I split it 25% SPXL, 25% UPRO, and 50% TMF. Thats it. Nothing else interesting.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by AlphaLess » Fri Mar 15, 2019 9:29 am

staythecourse wrote:
Fri Mar 15, 2019 8:04 am
AlphaLess wrote:
Fri Mar 15, 2019 12:03 am
I would also encourage all the intrepid speculator friends here to post their TRADES.

Posting portfolios does not tell the full story.

Portfolio = abstract.

Traders = what you actually did. I.e., how well you followed your strategy, what mental mistakes did you commit, what sort of click-minute mistakes did you commit, how did you convince that your 1-months worth of design and planning needed last minute tweaks, how much did you market-time, etc.
Sure. I put 98k transferred to Fidelity via a rollover roth IRA from Vanguard. I split it 25% SPXL, 25% UPRO, and 50% TMF. Thats it. Nothing else interesting.

Good luck.
Those are not trades. That is a portfolio.

Here are trades:

Date;Time;Ticker;Direction;Quantity;Price;Commission;TotalDollars
Feb-4-2019;10:37;SPXL;B;100;41.63;6.95;4170

One per trade!
"You can get more with a kind word and a gun than with just a kind word." George Washington

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by mrspock » Fri Mar 15, 2019 10:39 am

AlphaLess wrote:
Fri Mar 15, 2019 9:29 am
staythecourse wrote:
Fri Mar 15, 2019 8:04 am
AlphaLess wrote:
Fri Mar 15, 2019 12:03 am
I would also encourage all the intrepid speculator friends here to post their TRADES.

Posting portfolios does not tell the full story.

Portfolio = abstract.

Traders = what you actually did. I.e., how well you followed your strategy, what mental mistakes did you commit, what sort of click-minute mistakes did you commit, how did you convince that your 1-months worth of design and planning needed last minute tweaks, how much did you market-time, etc.
Sure. I put 98k transferred to Fidelity via a rollover roth IRA from Vanguard. I split it 25% SPXL, 25% UPRO, and 50% TMF. Thats it. Nothing else interesting.

Good luck.
Those are not trades. That is a portfolio.

Here are trades:

Date;Time;Ticker;Direction;Quantity;Price;Commission;TotalDollars
Feb-4-2019;10:37;SPXL;B;100;41.63;6.95;4170

One per trade!
We are Bogleheads... we don’t “trade”. That’s the entire point. I bought in my Roth IRA Feb 12th, Roth 401k about a week later and haven’t touched them since. Are you sure you are on the right forum? :)

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by privatefarmer » Fri Mar 15, 2019 11:18 am

AlphaLess wrote:
Thu Mar 14, 2019 11:51 pm
Just a friendly shout to all the triple-leverage speculators here, from a casual observer:
- you will have less anxiety if you decompose your returns of the leveraged strategy into simple explanatory factors.

F1: Long the stock, short the funding rate, x 3. Add-in daily re-leverage / re-balance: see F5.
F2: Long the LT treasuries, short the funding rate, x 3. Add-in daily re-leverage / re-balance: see F6,
F3: Long your capital (which presumably earns short funding rate),
F4: Expense ratio,
F5: Gamma from daily re-leverage,
F6. Gamma from daily re-leverage.
F7: Your quarterly rebalance,

F2. probably won't make money if yield curve is flattish (like now). Can look it up here: https://www.treasury.gov/resource-cente ... data=yield. Remember that funding rate is not the front end of the treasury, but what the ETF manager borrows at. Prolly LIBOR+, which stands at 2.6% + currently.

F1. probably won't make money if the front end of the yield curve is high (relative to stocks). This has two dimensions: funding rate and stock returns. Stock valuations are high, and returns are uncertain. Funding rate is certain: you pay every day,
F5: daily re-leverage eats into your returns.
F6: daily re-leverage eats into your returns.
F7: your quarterly rebalance probably has absolutely no alpha.

Furthermore, you expect that F2 to hedge F1 (simple treasury-vs-stock hedge) during times of crisis. However, the funding rate you face is on the faith and credit of the ETF manager, and that could be higher than what you read in papers. Thus, your paper portfolio visualizer simulation might not hold up.

Also remember that yield curve like to spend vacationing in inverted territories.
The more I read, the more I realize I DONT understand. So many moving parts... it’s clearly worked well according to the simulations but this seems like you need a lot of variables to work in your favor for this strategy to work well in the long term.

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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Fri Mar 15, 2019 11:52 am

privatefarmer wrote:
Fri Mar 15, 2019 11:18 am
AlphaLess wrote:
Thu Mar 14, 2019 11:51 pm
Just a friendly shout to all the triple-leverage speculators here, from a casual observer:
- you will have less anxiety if you decompose your returns of the leveraged strategy into simple explanatory factors.

F1: Long the stock, short the funding rate, x 3. Add-in daily re-leverage / re-balance: see F5.
F2: Long the LT treasuries, short the funding rate, x 3. Add-in daily re-leverage / re-balance: see F6,
F3: Long your capital (which presumably earns short funding rate),
F4: Expense ratio,
F5: Gamma from daily re-leverage,
F6. Gamma from daily re-leverage.
F7: Your quarterly rebalance,

F2. probably won't make money if yield curve is flattish (like now). Can look it up here: https://www.treasury.gov/resource-cente ... data=yield. Remember that funding rate is not the front end of the treasury, but what the ETF manager borrows at. Prolly LIBOR+, which stands at 2.6% + currently.

F1. probably won't make money if the front end of the yield curve is high (relative to stocks). This has two dimensions: funding rate and stock returns. Stock valuations are high, and returns are uncertain. Funding rate is certain: you pay every day,
F5: daily re-leverage eats into your returns.
F6: daily re-leverage eats into your returns.
F7: your quarterly rebalance probably has absolutely no alpha.

Furthermore, you expect that F2 to hedge F1 (simple treasury-vs-stock hedge) during times of crisis. However, the funding rate you face is on the faith and credit of the ETF manager, and that could be higher than what you read in papers. Thus, your paper portfolio visualizer simulation might not hold up.

Also remember that yield curve like to spend vacationing in inverted territories.
The more I read, the more I realize I DONT understand. So many moving parts... it’s clearly worked well according to the simulations but this seems like you need a lot of variables to work in your favor for this strategy to work well in the long term.
Anything that beats the market will be riskier than the market.

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HEDGEFUNDIE
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE » Fri Mar 15, 2019 11:54 am

privatefarmer wrote:
Fri Mar 15, 2019 11:18 am
AlphaLess wrote:
Thu Mar 14, 2019 11:51 pm
Just a friendly shout to all the triple-leverage speculators here, from a casual observer:
- you will have less anxiety if you decompose your returns of the leveraged strategy into simple explanatory factors.

F1: Long the stock, short the funding rate, x 3. Add-in daily re-leverage / re-balance: see F5.
F2: Long the LT treasuries, short the funding rate, x 3. Add-in daily re-leverage / re-balance: see F6,
F3: Long your capital (which presumably earns short funding rate),
F4: Expense ratio,
F5: Gamma from daily re-leverage,
F6. Gamma from daily re-leverage.
F7: Your quarterly rebalance,

F2. probably won't make money if yield curve is flattish (like now). Can look it up here: https://www.treasury.gov/resource-cente ... data=yield. Remember that funding rate is not the front end of the treasury, but what the ETF manager borrows at. Prolly LIBOR+, which stands at 2.6% + currently.

F1. probably won't make money if the front end of the yield curve is high (relative to stocks). This has two dimensions: funding rate and stock returns. Stock valuations are high, and returns are uncertain. Funding rate is certain: you pay every day,
F5: daily re-leverage eats into your returns.
F6: daily re-leverage eats into your returns.
F7: your quarterly rebalance probably has absolutely no alpha.

Furthermore, you expect that F2 to hedge F1 (simple treasury-vs-stock hedge) during times of crisis. However, the funding rate you face is on the faith and credit of the ETF manager, and that could be higher than what you read in papers. Thus, your paper portfolio visualizer simulation might not hold up.

Also remember that yield curve like to spend vacationing in inverted territories.
The more I read, the more I realize I DONT understand. So many moving parts... it’s clearly worked well according to the simulations but this seems like you need a lot of variables to work in your favor for this strategy to work well in the long term.
You can safely ignore pretty much all of what Alpha posted, it's clearly trolling.

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mikestorm
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by mikestorm » Fri Mar 15, 2019 11:58 am

Just popping in to say this has been an amazing thread. I'm incredibly appreciative of all the work done to depict the viability of the portfolio, and of the peppering of sobering counterpoints throughout. I'm in for 6.5% of my Roth, using the 40/60 ratio first presented by OP.

I live in a 100 year flood zone and sleep quite well at night. I don't mind investing a relatively small percentage of my investment portfolio the same way.

staythecourse
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by staythecourse » Fri Mar 15, 2019 2:29 pm

AlphaLess wrote:
Fri Mar 15, 2019 9:29 am
staythecourse wrote:
Fri Mar 15, 2019 8:04 am
AlphaLess wrote:
Fri Mar 15, 2019 12:03 am
I would also encourage all the intrepid speculator friends here to post their TRADES.

Posting portfolios does not tell the full story.

Portfolio = abstract.

Traders = what you actually did. I.e., how well you followed your strategy, what mental mistakes did you commit, what sort of click-minute mistakes did you commit, how did you convince that your 1-months worth of design and planning needed last minute tweaks, how much did you market-time, etc.
Sure. I put 98k transferred to Fidelity via a rollover roth IRA from Vanguard. I split it 25% SPXL, 25% UPRO, and 50% TMF. Thats it. Nothing else interesting.

Good luck.
Those are not trades. That is a portfolio.

Here are trades:

Date;Time;Ticker;Direction;Quantity;Price;Commission;TotalDollars
Feb-4-2019;10:37;SPXL;B;100;41.63;6.95;4170

One per trade!
Sure I can go back and look, but I am assuming there is a point to this? Why don't you ask other posters on the 3fund (for example) for the same information when they post? You do realize there is NO active management with this approach don't you? Active management is defined as security selection and market timing. If there is any market timing it is simply uncontrolled based on the date someone had the funds ready to invest.

Not quite sure what you are implying by your request. If you could be more direct maybe that will help?

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

staythecourse
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by staythecourse » Fri Mar 15, 2019 2:34 pm

vineviz wrote:
Thu Mar 14, 2019 12:10 pm
meshuggahnmcc wrote:
Thu Mar 14, 2019 11:08 am
ON a side note if one was to build a risk parity portfolio with leverage. Realistically would the below make sense in some respect?

YINN 10%
TQQQ 10%
UPRO 20%
TMF 50%
UGL 10%

I feel this would be a good start to an ACTUAL risk parity portfolio with leverage.
One challenge in building sensible risk parity strategies is that you need to incorporate some process for choosing the assets in a way that balances (i.e. diversifies) the underlying risks to which you are exposed. The risk parity equations don't do this: if you input UPRO, IVV, SPY, VOO, and TMF into the portfolio optimization tool at PortfolioVisualize and ask for a "risk parity" portfolio you'll get about 20% TMF. Input just UPRO and TMF and you get 50% TMF. Mathematically these are "correct" but financially they are far from equivalent. The second portfolio is more diverse but also much more volatile.

Your example portfolio includes three assets that are highly correlated with each other (YINN, TQQQ, and UPRO) which is problematic. Even if the volatility of each asset is balanced, the portfolio risk exposures aren't especially balanced.

You'd be closer to the mark with something like this, IMO:

YINN 6%
TQQQ 0%
UPRO 30%
TMF 36%
UGL 28%
So interesting how no matter how much discussion and time passes with new theories in finance it still comes back to risk mitigation using Talmud's 1/3 diversification technique.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

gobigrad
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by gobigrad » Fri Mar 15, 2019 3:43 pm

Trying this with a small portion of my portfolio.
(40% UPRO/ 60% TMF)

goaties
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by goaties » Fri Mar 15, 2019 4:32 pm

Re: what has happened to interest rates since the early 80s...

not sure if this is an answer, but according to John Williams at Shadowstats, our government began making significant changes to the way the CPI is calculated at that time. See an interesting plot showing what the CPI would be if we were to calculate it in the old way:
http://www.shadowstats.com/alternate_da ... ion-charts

If the Feds continue to base interest rates on the "new" CPI calculation, then, if I understand your strategy, you should be in very good shape going forward!

LawnGnomeGenome
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by LawnGnomeGenome » Fri Mar 15, 2019 5:33 pm

I'll bite by giving as many details as I feel comfortable divulging.

My original post from 2/15 stated that I would open a 10% UPRO, 45% TMF, and 45% TQQQ portfolio. After more research, I've decided to switch it up...

I will build 2 mini-portfolios, which will total 5% of my total portfolio when completed...2.5% to each. These portfolios will be in taxable accounts, but if they start doing well, then I will begin selling at rebalancing times and move cash proceeds to Roth. If these both go to $0, that'll only equate to ~1.5 years of dividends from main portfolio, and should be easy enough for me to replenish from income.

The first portfolio is 55% TMF, 15% UPRO, 15% TQQQ, and 15% SVXY, and is being conducted on Robinhood. Since SVXY is an inverse VIX product, I'm curious to see if SVXY will help this portfolio by benefiting during quiet trading windows without being any more punishing than UPRO/TQQQ during downturns. I have mixed feelings about there not being a leveraged version of SVXY because it doesn't really follow my plan of a totally leveraged portfolio, but I'm sure that's probably for the best after seeing the massive drop in inverse VIX products last year. However, I hope to not have the worry of SVXY plummeting and closing like XIV did since it's not an ETN.

My purchases are not based on technical/fundamental analysis per ce, I am just buying as
my budget allows. I guess the closest thing to TA would be that I'm setting limit orders at Ask Price around 10:30am to attempt to allow the market to breathe after market open. Available funds are going to whichever holding is underweight, which was TMF today.

I am almost done building up this portfolio, which I started funding on 2/11/19 and expect to finish by 3/31/19. I plan to perform the first quarterly rebalance on June 28th or July 1st.

So far, my holdings are:
TMF - Avg $49.97; Return 0.94%; 54.72%|55.00% (Actual|Target)
UPRO - Avg $46.40; Return 5.60%; 15.00%|15.00% (Actual|Target)
TQQQ - Avg $49.97; Return 11.29%; 16.97%|15.00% (Actual|Target)
SVXY - Avg $49.35; Return 8.21%; 13.08%|15.00% (Actual|Target)
Overall Return 4.20% over ~24 trading days

The second portfolio will be 55% TQQQ, 24% TMF, 21% UPRO, based on maximizing sharpe ratio. Details to come when it starts getting built.

LGG

AlphaLess
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by AlphaLess » Fri Mar 15, 2019 7:17 pm

staythecourse wrote:
Fri Mar 15, 2019 2:29 pm

Not quite sure what you are implying by your request. If you could be more direct maybe that will help?

Good luck.
Read the response from LawnGnomeGenome a couple of posts below yours, and you will understand.
"You can get more with a kind word and a gun than with just a kind word." George Washington

AlphaLess
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by AlphaLess » Fri Mar 15, 2019 7:22 pm

mrspock wrote:
Fri Mar 15, 2019 10:39 am
We are Bogleheads... we don’t “trade”. That’s the entire point. I bought in my Roth IRA Feb 12th, Roth 401k about a week later and haven’t touched them since. Are you sure you are on the right forum? :)
Best investors are those who know their trades like the back of their hand.

This is a significantly more complex strategy than the 3-fund, buy-and-hold thing.
"You can get more with a kind word and a gun than with just a kind word." George Washington

staythecourse
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Split from: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by staythecourse » Fri Mar 15, 2019 7:25 pm

AlphaLess wrote:
Fri Mar 15, 2019 7:17 pm
staythecourse wrote:
Fri Mar 15, 2019 2:29 pm

Not quite sure what you are implying by your request. If you could be more direct maybe that will help?

Good luck.
Read the response from LawnGnomeGenome a couple of posts below yours, and you will understand.
That was a truly useless response to my question. I asked WHY do you want to know this information? There must be an intent. I didn't ask can you give me an example of the information you are asking which you nicely articulated in your original response to my post. So, once again, "Why do you want to know this information".

I find this inquiry as asking anyone else on this board for the same info. on their first investments so just trying to understand why it would be important for this thread?

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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