HEDGEFUNDIE's excellent adventure Part II: The next journey

[MoneyMarathon]

I'm assuming you've put money in this fund ?

Yes. I was not annoyed by the somewhat-valid criticism. The completely invalid bits were a bit annoying.

[Lee_WSP]

I understood what you were trying to get at, but the question itself doesn't make much sense given the funds.


Well, yes, but the fund isn't exactly selling stock, it's just resetting each day. It cuts the other way too. In an uptrend they increase their leverage.

So, if your positions increased in value, would you double down?

[MoneyMarathon]

Honest question to people invested. How does it feel to know that your funds will be selling stocks today?

I'm a long term investor. Ordinarily, I don't know about daily price movements or 10-19% corrections. When I do, I don't care. Somehow I missed even knowing that stocks when down during December last year.

[BogleBobby]

When you are leveraged 3x, you have to reduce exposure when you have losses to avoid a total loss, but it's just a matter of when & how you do that. You can do a time-based method (rebalance daily, weekly, monthly) or it could be a return-based method (reduce exposure when >10% loss, etc.). So it's not really a question of "should you reduce exposure after loss?" but "what's the best method to reduce exposure after loss?"

One of the benefits of daily rebalancing is that you shouldn't ever see a total loss since trading is halted after a 20% daily drop, so I believe that's the main reason that leveraged funds go with daily rebalancing.

[Steve Reading]

So, if your positions increased in value, would you double down?

I would not do that. I would hold. If they increased a lot, I'd even sell some of them and move them onto positions that lost value.

But these funds do that. They "double down" (which I take to mean "invest more") after positions rise in value.

Honest question to people invested. How does it feel to know that your funds will be selling stocks today?

I'm a long term investor. Ordinarily, I don't know about daily price movements or 10-19% corrections. When I do, I don't care. Somehow I missed even knowing that stocks when down during December last year.

But imagine instead that December came and a family member logged in into your account and sold 50% of your stocks right at the bottom. Then after the index came back up, he/she logged in again and bought them back. So Dec came and went and all of your B&H friends didn't even realize. But you do because you actually lost money, even though the index is back at the same level.

Wouldn't that bother you? I wouldn't be happy about that :/

[MotoTrojan]

So, if your positions increased in value, would you double down?

I would not do that. I would hold. If they increased a lot, I'd even sell some of them and move them onto positions that lost value.

But these funds do that. They "double down" (which I take to mean "invest more") after positions rise in value.

Honest question to people invested. How does it feel to know that your funds will be selling stocks today?

I'm a long term investor. Ordinarily, I don't know about daily price movements or 10-19% corrections. When I do, I don't care. Somehow I missed even knowing that stocks when down during December last year.

But imagine instead that December came and a family member logged in into your account and sold 50% of your stocks right at the bottom. Then after the index came back up, he/she logged in again and bought them back. So Dec came and went and all of your B&H friends didn't even realize. But you do because you actually lost money, even though the index is back at the same level.

Wouldn't that bother you? I wouldn't be happy about that :/

I would’ve been happy if my family member leveraged me 5x with them taking the risk of losing more than my initial exposure over the last decade, as UPROs buying high had accomplished.

[HEDGEFUNDIE]

So, if your positions increased in value, would you double down?

I would not do that. I would hold. If they increased a lot, I'd even sell some of them and move them onto positions that lost value.

But these funds do that. They "double down" (which I take to mean "invest more") after positions rise in value.

Honest question to people invested. How does it feel to know that your funds will be selling stocks today?

I'm a long term investor. Ordinarily, I don't know about daily price movements or 10-19% corrections. When I do, I don't care. Somehow I missed even knowing that stocks when down during December last year.

But imagine instead that December came and a family member logged in into your account and sold 50% of your stocks right at the bottom. Then after the index came back up, he/she logged in again and bought them back. So Dec came and went and all of your B&H friends didn't even realize. But you do because you actually lost money, even though the index is back at the same level.

Wouldn't that bother you? I wouldn't be happy about that :/

I’m not sure what you are trying to prove here.

The dynamics of volatility drag was outlined in the OP. Two threads, six months, and three thousand posts ago.

[Steve Reading]

I’m not sure what you are trying to prove here.

I just wanted to see if people didn't like it but had to grit their teeth through it (like yourself) or maybe they actually do like it (like OP). That's all.

I would’ve been happy if my family member leveraged me 5x with them taking the risk of losing more than my initial exposure over the last decade, as UPROs buying high had accomplished.

I'm a little confused by this sentence and can't quite follow it. Where is the "x5 leverage" coming from?

[privatefarmer]

That's what I suggested and that's what will occur. UPRO will sell some of its positions (I believe credit swaps contracts?) and TMF will buy more exposure to treasuries

I don't even care is the answer to your question. It's happened five or six times in the last month. One goes up the other goes down. They both go up. One time they both went down. I felt slightly bad that day. It was the only day my traditional portfolio outperformed.

I don’t think you understand their point. The funds individually do this, it has nothing to do with their interaction.

Your right, I still don't get what he's trying to get at. We all know they reset each day.

The market dropped 2.5% and treasury yields dropped. What would you like to do with this information?
1) Buy some stocks and sell treasuries
2) Do nothing (hold)
3) Sell stocks and buy more treasuries

It's not a trick question. It's just curiosity

2) do nothing.

We rebalance either monthly, quarterly or annually. That’s it. I don’t think anyone on this forum advocates for daily rebalancing.

The argument that UPRO is selling on the dip and TMF is buying high is a mute point. If stocks are headed for a further decline then it is a GOOD thing that UPRO sold off some. If treasuries are headed up more then it’s a GOOD thing that TMF will be buying more... it cuts both ways.

Nobody should be investing in anything, honestly, if they can’t just let the portfolio do it’s thing and not be bothered by daily noise.

[RC64]

Hedgefundie, your new allocation seems to be based on LTT performance from before modern fed policy...the time prior to Volcker. Unless the fed changes policy, would it not be better to stick to the original 60/40 allocation? Unless of course the goal is to have a larger max draw down than a 100% S&P500 portfolio. I guess I am just looking for your thoughts on using the LTT data pre-Volcker, considering the changes in monetary policy that occurred. BTW, thanks for starting this adventure, definitely been an interesting discussion.

[Steve Reading]

I don't even care is the answer to your question. It's happened five or six times in the last month. One goes up the other goes down. They both go up. One time they both went down. I felt slightly bad that day. It was the only day my traditional portfolio outperformed.

I don’t think you understand their point. The funds individually do this, it has nothing to do with their interaction.

Your right, I still don't get what he's trying to get at. We all know they reset each day.

The market dropped 2.5% and treasury yields dropped. What would you like to do with this information?
1) Buy some stocks and sell treasuries
2) Do nothing (hold)
3) Sell stocks and buy more treasuries

It's not a trick question. It's just curiosity

2) do nothing.

We rebalance either monthly, quarterly or annually. That’s it. I don’t think anyone on this forum advocates for daily rebalancing.

The argument that UPRO is selling on the dip and TMF is buying high is a mute point. If stocks are headed for a further decline then it is a GOOD thing that UPRO sold off some. If treasuries are headed up more then it’s a GOOD thing that TMF will be buying more... it cuts both ways.

I disagree that it's a moot point. Investors get scared during Bear markets and they sell. They then only buy back at higher prices, once the market has recovered. That's why in this forum we only recommend allocations that you feel comfortable enough with holding even during bad Bear markets. To make sure you don't shoot yourself in the feet with bad timing. This is the reason investors underperform the very same funds they invest in.

But if you talk to those people, I'm sure their reasons would be like "I sold my stocks because things could've kept heading for a further decline". So they'd argue, like you, that selling on the dip and buying high is a moot point because things could've kept declining.

Yet history is very clear that those that hold on and do not sell in downturns (and especially those with the fortitude to buy) end up well ahead.

[Lee_WSP]

I don’t think you understand their point. The funds individually do this, it has nothing to do with their interaction.

Your right, I still don't get what he's trying to get at. We all know they reset each day.

The market dropped 2.5% and treasury yields dropped. What would you like to do with this information?
1) Buy some stocks and sell treasuries
2) Do nothing (hold)
3) Sell stocks and buy more treasuries

It's not a trick question. It's just curiosity

2) do nothing.

We rebalance either monthly, quarterly or annually. That’s it. I don’t think anyone on this forum advocates for daily rebalancing.

The argument that UPRO is selling on the dip and TMF is buying high is a mute point. If stocks are headed for a further decline then it is a GOOD thing that UPRO sold off some. If treasuries are headed up more then it’s a GOOD thing that TMF will be buying more... it cuts both ways.

I disagree that it's a moot point. Investors get scared during Bear markets and they sell. They then only buy back at higher prices, once the market has recovered. That's why in this forum we only recommend allocations that you feel comfortable enough with holding even during bad Bear markets. To make sure you don't shoot yourself in the feet with bad timing. This is the reason investors underperform the very same funds they invest in.

But if you talk to those people, I'm sure their reasons would be like "I sold my stocks because things could've kept heading for a further decline". So they'd argue, like you, that selling on the dip and buying high is a moot point because things could've kept declining.

Yet history is very clear that those that hold on and do not sell in downturns (and especially those with the fortitude to buy) end up well ahead.

Sure, except the fund does it all automatically. No investors involved.

[madavidccl]

I read another method is to rebalance monthly by inverse volatility, it can avoid many big drop ,I think because the stock move down / big drop usually have a trend(volatility goes up in few month)

[rascott]

I look at the strategy today as a leveraged momentum strategy with insurance.

Momentum investing is an interesting phenomenon that I'm ok riding on.

[HEDGEFUNDIE]

I look at the strategy today as a leveraged momentum strategy with insurance.

Momentum investing is an interesting phenomenon that I'm ok riding on.

+1

[columbia]

25% PSLDX
75% TIAA Traditional + ITT

Portfolio was down 0.23% yesterday.

[LadyGeek]

I removed a post and several replies. As a reminder, see: General Etiquette

We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.

...At all times we must conduct ourselves in a respectful manner to other posters.

[MotoTrojan]

I’m not sure what you are trying to prove here.

I just wanted to see if people didn't like it but had to grit their teeth through it (like yourself) or maybe they actually do like it (like OP). That's all.

I would’ve been happy if my family member leveraged me 5x with them taking the risk of losing more than my initial exposure over the last decade, as UPROs buying high had accomplished.

I'm a little confused by this sentence and can't quite follow it. Where is the "x5 leverage" coming from?

The return compared to the S&P500 since inception. Just an example of how your point can work for you, not against.

[MotoTrojan]

Hedgefundie, your new allocation seems to be based on LTT performance from before modern fed policy...the time prior to Volcker. Unless the fed changes policy, would it not be better to stick to the original 60/40 allocation? Unless of course the goal is to have a larger max draw down than a 100% S&P500 portfolio. I guess I am just looking for your thoughts on using the LTT data pre-Volcker, considering the changes in monetary policy that occurred. BTW, thanks for starting this adventure, definitely been an interesting discussion.

No matter what fed policy is, equities have infinite upside and long bonds can only go so far without going deeply into negative yields. Policy may be 1982-esque today but yields are not.

[RC64]

Hedgefundie, your new allocation seems to be based on LTT performance from before modern fed policy...the time prior to Volcker. Unless the fed changes policy, would it not be better to stick to the original 60/40 allocation? Unless of course the goal is to have a larger max draw down than a 100% S&P500 portfolio. I guess I am just looking for your thoughts on using the LTT data pre-Volcker, considering the changes in monetary policy that occurred. BTW, thanks for starting this adventure, definitely been an interesting discussion.

No matter what fed policy is, equities have infinite upside and long bonds can only go so far without going deeply into negative yields. Policy may be 1982-esque today but yields are not.

If yields went negative, the value of a LTT fund would increase. Why would the negative yield matter if the total return of the bond fund still helps to offset the equities drop?

[MotoTrojan]

Hedgefundie, your new allocation seems to be based on LTT performance from before modern fed policy...the time prior to Volcker. Unless the fed changes policy, would it not be better to stick to the original 60/40 allocation? Unless of course the goal is to have a larger max draw down than a 100% S&P500 portfolio. I guess I am just looking for your thoughts on using the LTT data pre-Volcker, considering the changes in monetary policy that occurred. BTW, thanks for starting this adventure, definitely been an interesting discussion.

No matter what fed policy is, equities have infinite upside and long bonds can only go so far without going deeply into negative yields. Policy may be 1982-esque today but yields are not.

If yields went negative, the value of a LTT fund would increase. Why would the negative yield matter if the total return of the bond fund still helps to offset the equities drop?

Do you think it’s more likely that yields go from 15% to 2%, or 2% to -11%? There just isn’t that much price appreciation available without significantly negative yields.

[RC64]

Hedgefundie, your new allocation seems to be based on LTT performance from before modern fed policy...the time prior to Volcker. Unless the fed changes policy, would it not be better to stick to the original 60/40 allocation? Unless of course the goal is to have a larger max draw down than a 100% S&P500 portfolio. I guess I am just looking for your thoughts on using the LTT data pre-Volcker, considering the changes in monetary policy that occurred. BTW, thanks for starting this adventure, definitely been an interesting discussion.

No matter what fed policy is, equities have infinite upside and long bonds can only go so far without going deeply into negative yields. Policy may be 1982-esque today but yields are not.

If yields went negative, the value of a LTT fund would increase. Why would the negative yield matter if the total return of the bond fund still helps to offset the equities drop?

Do you think it’s more likely that yields go from 15% to 2%, or 2% to -11%? There just isn’t that much price appreciation available without significantly negative yields.

I have no idea what is more likely. Yields are determined by the market, no? Are you saying that a LTT fund total return would essentially be capped? Even so, would it still not be a better choice than an equities fund that is dropping?

[Lee_WSP]

Hedgefundie, your new allocation seems to be based on LTT performance from before modern fed policy...the time prior to Volcker. Unless the fed changes policy, would it not be better to stick to the original 60/40 allocation? Unless of course the goal is to have a larger max draw down than a 100% S&P500 portfolio. I guess I am just looking for your thoughts on using the LTT data pre-Volcker, considering the changes in monetary policy that occurred. BTW, thanks for starting this adventure, definitely been an interesting discussion.

No matter what fed policy is, equities have infinite upside and long bonds can only go so far without going deeply into negative yields. Policy may be 1982-esque today but yields are not.

If yields went negative, the value of a LTT fund would increase. Why would the negative yield matter if the total return of the bond fund still helps to offset the equities drop?

Do you think it’s more likely that yields go from 15% to 2%, or 2% to -11%? There just isn’t that much price appreciation available without significantly negative yields.

I have no idea what is more likely. Yields are determined by the market, no? Are you saying that a LTT fund total return would essentially be capped? Even so, would it still not be a better choice than an equities fund that is dropping?

The math says the returns will be pretty darned good even if rates only go to zero. However, tmf is absolutely mauled during rising rate periods. It's also much more boom and bust than upro.

[RC64]

No matter what fed policy is, equities have infinite upside and long bonds can only go so far without going deeply into negative yields. Policy may be 1982-esque today but yields are not.

If yields went negative, the value of a LTT fund would increase. Why would the negative yield matter if the total return of the bond fund still helps to offset the equities drop?

Do you think it’s more likely that yields go from 15% to 2%, or 2% to -11%? There just isn’t that much price appreciation available without significantly negative yields.

I have no idea what is more likely. Yields are determined by the market, no? Are you saying that a LTT fund total return would essentially be capped? Even so, would it still not be a better choice than an equities fund that is dropping?

The math says the returns will be pretty darned good even if rates only go to zero. However, tmf is absolutely mauled during rising rate periods. It's also much more boom and bust than upro.

Yes, which makes sense. Under current fed policy, during a rising rate period, one would expect the UPRO portion to be appreciating and offsetting the decline in TMF that is caused by the rise in the short term rate. I guess I am just trying to better understand the change in allocation, unless the original goal has changed? Unless I am mistaken, the change seems to be partially based on LTT performance prior to modern fed policy. Despite potential negative yields, a LTT fund would still have it's flight to safety characteristic, no? Also, under current fed policy, they would be potentially lowering the short term rate during an economic contraction, therefore bolstering the LTT fund. But perhaps all of this is moot if the original goal has changed.

[Lee_WSP]

If yields went negative, the value of a LTT fund would increase. Why would the negative yield matter if the total return of the bond fund still helps to offset the equities drop?

Do you think it’s more likely that yields go from 15% to 2%, or 2% to -11%? There just isn’t that much price appreciation available without significantly negative yields.

I have no idea what is more likely. Yields are determined by the market, no? Are you saying that a LTT fund total return would essentially be capped? Even so, would it still not be a better choice than an equities fund that is dropping?

The math says the returns will be pretty darned good even if rates only go to zero. However, tmf is absolutely mauled during rising rate periods. It's also much more boom and bust than upro.

Yes, which makes sense. Under current fed policy, during a rising rate period, one would expect the UPRO portion to be appreciating and offsetting the decline in TMF that is caused by the rise in the short term rate. I guess I am just trying to better understand the change in allocation, unless the original goal has changed? Unless I am mistaken, the change seems to be partially based on LTT performance prior to modern fed policy. Despite potential negative yields, a LTT fund would still have it's flight to safety characteristic, no? Also, under current fed policy, they would be potentially lowering the short term rate during an economic contraction, therefore bolstering the LTT fund. But perhaps all of this is moot if the original goal has changed.

The original strategy was changed due to additional information. I think it's misreading the op to think that the excellent adventure meant we couldn't make adjustments if new information came to light.

The flight to safety may be a modern phenomenon.

Either case the rising rate losses would absolutely destroy any gains from flight to safety hedges.

[RC64]

The original strategy was changed due to additional information. I think it's misreading the op to think that the excellent adventure meant we couldn't make adjustments if new information came to light.

I'm not implying that the op can't make adjustments. I was just trying to understand why or what has changed from the original strategy. If the strategy now allows more max draw down risk than the S&P500 alone then the op can ignore me.

The flight to safety may be a modern phenomenon.

Perhaps, but I sure hope it persists, otherwise we are all in trouble

Either case the rising rate losses would absolutely destroy any gains from flight to safety hedges.

Yes, but if the rates are rising, under current fed policy, I would assume it is cause of economic expansion (and therefore UPRO would be rising to offset the TMF losses).

[Lee_WSP]

The original strategy was changed due to additional information. I think it's misreading the op to think that the excellent adventure meant we couldn't make adjustments if new information came to light.

I'm not implying that the op can't make adjustments. I was just trying to understand why or what has changed from the original strategy. If the strategy now allows more max draw down risk than the S&P500 alone then the op can ignore me.

The flight to safety may be a modern phenomenon.

Perhaps, but I sure hope it persists, otherwise we are all in trouble

Either case the rising rate losses would absolutely destroy any gains from flight to safety hedges.

Yes, but if the rates are rising, under current fed policy, I would assume it is cause of economic expansion (and therefore UPRO would be rising to offset the TMF losses).

At a greater tmf tilt, the losses from treasuries would offset the gains from upro. Case in point, over the last Vntwleve months upro is about even with the market due to 2018s Carnage. If tmf also went down, nothing would save the portfolio.

[RC64]

The original strategy was changed due to additional information. I think it's misreading the op to think that the excellent adventure meant we couldn't make adjustments if new information came to light.

I'm not implying that the op can't make adjustments. I was just trying to understand why or what has changed from the original strategy. If the strategy now allows more max draw down risk than the S&P500 alone then the op can ignore me.

The flight to safety may be a modern phenomenon.

Perhaps, but I sure hope it persists, otherwise we are all in trouble

Either case the rising rate losses would absolutely destroy any gains from flight to safety hedges.

Yes, but if the rates are rising, under current fed policy, I would assume it is cause of economic expansion (and therefore UPRO would be rising to offset the TMF losses).

At a greater tmf tilt, the losses from treasuries would offset the gains from upro. Case in point, over the last Vntwleve months upro is about even with the market due to 2018s Carnage. If tmf also went down, nothing would save the portfolio.

Well, any bond allocation to a bond/equity portfolio is going to reduce the total return. What exactly is the point you are trying to make? Is the strategy now to maximize the total return?

[Lee_WSP]

The original strategy was changed due to additional information. I think it's misreading the op to think that the excellent adventure meant we couldn't make adjustments if new information came to light.

I'm not implying that the op can't make adjustments. I was just trying to understand why or what has changed from the original strategy. If the strategy now allows more max draw down risk than the S&P500 alone then the op can ignore me.

The flight to safety may be a modern phenomenon.

Perhaps, but I sure hope it persists, otherwise we are all in trouble

Either case the rising rate losses would absolutely destroy any gains from flight to safety hedges.

Yes, but if the rates are rising, under current fed policy, I would assume it is cause of economic expansion (and therefore UPRO would be rising to offset the TMF losses).

At a greater tmf tilt, the losses from treasuries would offset the gains from upro. Case in point, over the last Vntwleve months upro is about even with the market due to 2018s Carnage. If tmf also went down, nothing would save the portfolio.

Well, any bond allocation to a bond/equity portfolio is going to reduce the total return. What exactly is the point you are trying to make? Is the strategy now to maximize the total return?

Typical bond funds spit out dividends to compensate for any potential capital loss. Tmf does not spit out dividends.

[RC64]

Typical bond funds spit out dividends to compensate for any potential capital loss. Tmf does not spit out dividends.

https://www.nasdaq.com/symbol/tmf/dividend-history

[MotoTrojan]

No matter what fed policy is, equities have infinite upside and long bonds can only go so far without going deeply into negative yields. Policy may be 1982-esque today but yields are not.

If yields went negative, the value of a LTT fund would increase. Why would the negative yield matter if the total return of the bond fund still helps to offset the equities drop?

Do you think it’s more likely that yields go from 15% to 2%, or 2% to -11%? There just isn’t that much price appreciation available without significantly negative yields.

I have no idea what is more likely. Yields are determined by the market, no? Are you saying that a LTT fund total return would essentially be capped? Even so, would it still not be a better choice than an equities fund that is dropping?

The math says the returns will be pretty darned good even if rates only go to zero. However, tmf is absolutely mauled during rising rate periods. It's also much more boom and bust than upro.

The future returns of TMF as yields go even past 0 are orders of magnitude less than what it would’ve done from 1982 to present.

[Lee_WSP]

Typical bond funds spit out dividends to compensate for any potential capital loss. Tmf does not spit out dividends.

https://www.nasdaq.com/symbol/tmf/dividend-history

Are you trying to score argument points or what? What is the point of this line of questioning?

The dividends the fund spits out are barely large enough to even register.

[MotoTrojan]

Hedgefundie, your new allocation seems to be based on LTT performance from before modern fed policy...the time prior to Volcker. Unless the fed changes policy, would it not be better to stick to the original 60/40 allocation? Unless of course the goal is to have a larger max draw down than a 100% S&P500 portfolio. I guess I am just looking for your thoughts on using the LTT data pre-Volcker, considering the changes in monetary policy that occurred. BTW, thanks for starting this adventure, definitely been an interesting discussion.

No matter what fed policy is, equities have infinite upside and long bonds can only go so far without going deeply into negative yields. Policy may be 1982-esque today but yields are not.

If yields went negative, the value of a LTT fund would increase. Why would the negative yield matter if the total return of the bond fund still helps to offset the equities drop?

Do you think it’s more likely that yields go from 15% to 2%, or 2% to -11%? There just isn’t that much price appreciation available without significantly negative yields.

I have no idea what is more likely. Yields are determined by the market, no? Are you saying that a LTT fund total return would essentially be capped? Even so, would it still not be a better choice than an equities fund that is dropping?

Yes, there may be an artificial soft cap on bond returns due to a market desire to avoid deeply negative yields. Equities don’t have this cap. As to your mentions of dropdown greater than S&P500, my 43/57 UPRO/EDV variation is more on par.

I think focusing on the interaction is important but not the full picture. From 1982-present the correlation didn’t really matter, both funds had incredible performance. Rebalancing them with interest free cash showed minimal rebalance bonus in prior posts.

[RC64]

Typical bond funds spit out dividends to compensate for any potential capital loss. Tmf does not spit out dividends.

https://www.nasdaq.com/symbol/tmf/dividend-history

Are you trying to score argument points or what? What is the point of this line of questioning?

The dividends the fund spits out are barely large enough to even register.

Argument points? I didn't know I was arguing. I apologize, it was not my intention.

[RC64]

Yes, there may be an artificial soft cap on bond returns due to a market desire to avoid deeply negative yields. Equities don’t have this cap. As to your mentions of dropdown greater than S&P500, my 43/57 UPRO/EDV variation is more on par.

I think focusing on the interaction is important but not the full picture. From 1982-present the correlation didn’t really matter, both funds had incredible performance. Rebalancing them with interest free cash showed minimal rebalance bonus in prior posts.

I was actually considering using a 66/33 EDV/UPRO variation to get a lower max draw down and a higher return than SPY alone. Granted, the total return would not be as high as 55/45 UPRO/TMF.

[MotoTrojan]

Yes, there may be an artificial soft cap on bond returns due to a market desire to avoid deeply negative yields. Equities don’t have this cap. As to your mentions of dropdown greater than S&P500, my 43/57 UPRO/EDV variation is more on par.

I think focusing on the interaction is important but not the full picture. From 1982-present the correlation didn’t really matter, both funds had incredible performance. Rebalancing them with interest free cash showed minimal rebalance bonus in prior posts.

I was actually considering using a 66/33 EDV/UPRO variation to get a lower max draw down and a higher return than SPY alone. Granted, the total return would not be as high as 55/45 UPRO/TMF.

43/57 UPRO/EDV is the same equity/duration ratio as the 55/45 UPRO/TMF but with a much more efficient low cost bond, and less overall leverage. 33/67 UPRO/EDV may backtest well (better performance than SPY) but that’s still largely due to falling yields. I’m biasing towards taking my risk on the equity side to damp any pops in rates while still having some cushion. Makes it through 1955-1982 much less painfully.

I kept $10K at 55/45 UPRO/TMF just to have some skin with the rest of these hooligans though .

[MoneyMarathon]

Honest question to people invested. How does it feel to know that your funds will be selling stocks today?

I'm a long term investor. Ordinarily, I don't know about daily price movements or 10-19% corrections. When I do, I don't care. Somehow I missed even knowing that stocks when down during December last year.

But imagine instead that December came and a family member logged in into your account and sold 50% of your stocks right at the bottom. Then after the index came back up, he/she logged in again and bought them back. So Dec came and went and all of your B&H friends didn't even realize. But you do because you actually lost money, even though the index is back at the same level.

Wouldn't that bother you? I wouldn't be happy about that :/

I'm not optimizing for short term performance. I'm not bothered that the investment is not tracking the primary index. If I wanted to do that, I would be invested in an index fund. I decided not to buy an index fund. Like anything else that is not an index fund, it will sometimes underperform the index.

This line of questioning seems to be mainly about UPRO or some other leveraged stock ETF when viewed as a single investment. These threads haven't been about buying UPRO only.

Whether PSLDX increases or decreases exposure to the S&P 500 in a way that deviates from tracking the index isn't actually linked to the performance of the S&P 500. It's linked to the performance of the other investments. If the other investments were net neutral, neither positive nor negative, the fund doesn't do what is suggested. Because the stock investment is leveraged with a portion of the fund's assets, it actually takes a little money out of stocks if they go up (to maintain 100% exposure on a net assets basis) and puts money into stocks if they go down (again, to maintain 100% exposure). This is the same behavior that is the stated preference of the line of questioning. It doesn't happen every time, though. If bonds do poorly at the same time as stocks, for example, it won't be quite like that. It will maintain an exposure to stocks that is equivalent to 100% of net assets, so that it can maintain a constant level of risk to stocks on the basis of what's invested.

The non S&P 500 parts are there to be able to have a shot at increasing returns, which also increases risk and results in not tracking the primary index (the S&P 500). Nothing ventured, nothing gained.

[RC64]

Yes, there may be an artificial soft cap on bond returns due to a market desire to avoid deeply negative yields. Equities don’t have this cap. As to your mentions of dropdown greater than S&P500, my 43/57 UPRO/EDV variation is more on par.

I think focusing on the interaction is important but not the full picture. From 1982-present the correlation didn’t really matter, both funds had incredible performance. Rebalancing them with interest free cash showed minimal rebalance bonus in prior posts.

I was actually considering using a 66/33 EDV/UPRO variation to get a lower max draw down and a higher return than SPY alone. Granted, the total return would not be as high as 55/45 UPRO/TMF.

43/57 UPRO/EDV is the same equity/duration ratio as the 55/45 UPRO/TMF but with a much more efficient low cost bond, and less overall leverage. 33/67 UPRO/EDV may backtest well (better performance than SPY) but that’s still largely due to falling yields. I’m biasing towards taking my risk on the equity side to damp any pops in rates while still having some cushion. Makes it through 1955-1982 much less painfully.

I kept $10K at 55/45 UPRO/TMF just to have some skin with the rest of these hooligans though .

The 1955-1982 period is an odd period to back test on just because of the different monetary policy. It had a major impact on the performance of treasuries. If the fed reverted to a similar policy today, I would probably abandon this type of portfolio strategy. Even if the fed started changing the short term rate in response to political pressure, I would probably jump ship from this.

[MotoTrojan]

Yes, there may be an artificial soft cap on bond returns due to a market desire to avoid deeply negative yields. Equities don’t have this cap. As to your mentions of dropdown greater than S&P500, my 43/57 UPRO/EDV variation is more on par.

I think focusing on the interaction is important but not the full picture. From 1982-present the correlation didn’t really matter, both funds had incredible performance. Rebalancing them with interest free cash showed minimal rebalance bonus in prior posts.

I was actually considering using a 66/33 EDV/UPRO variation to get a lower max draw down and a higher return than SPY alone. Granted, the total return would not be as high as 55/45 UPRO/TMF.

43/57 UPRO/EDV is the same equity/duration ratio as the 55/45 UPRO/TMF but with a much more efficient low cost bond, and less overall leverage. 33/67 UPRO/EDV may backtest well (better performance than SPY) but that’s still largely due to falling yields. I’m biasing towards taking my risk on the equity side to damp any pops in rates while still having some cushion. Makes it through 1955-1982 much less painfully.

I kept $10K at 55/45 UPRO/TMF just to have some skin with the rest of these hooligans though .

The 1955-1982 period is an odd period to back test on just because of the different monetary policy. It had a major impact on the performance of treasuries. If the fed reverted to a similar policy today, I would probably abandon this type of portfolio strategy. Even if the fed started changing the short term rate in response to political pressure, I would probably jump ship from this.

Fair, but by the same token 1982-present is not comparable to today IMHO, even if the policy is similar. I didn't optimize for 1955-1982, just saying it handled rising rates better. 1982-present with annual rebalance it achieved 17% CAGR compared to 20% for 55/45 UPRO/TMF.

[Lee_WSP]

Yes, there may be an artificial soft cap on bond returns due to a market desire to avoid deeply negative yields. Equities don’t have this cap. As to your mentions of dropdown greater than S&P500, my 43/57 UPRO/EDV variation is more on par.

I think focusing on the interaction is important but not the full picture. From 1982-present the correlation didn’t really matter, both funds had incredible performance. Rebalancing them with interest free cash showed minimal rebalance bonus in prior posts.

I was actually considering using a 66/33 EDV/UPRO variation to get a lower max draw down and a higher return than SPY alone. Granted, the total return would not be as high as 55/45 UPRO/TMF.

43/57 UPRO/EDV is the same equity/duration ratio as the 55/45 UPRO/TMF but with a much more efficient low cost bond, and less overall leverage. 33/67 UPRO/EDV may backtest well (better performance than SPY) but that’s still largely due to falling yields. I’m biasing towards taking my risk on the equity side to damp any pops in rates while still having some cushion. Makes it through 1955-1982 much less painfully.

I kept $10K at 55/45 UPRO/TMF just to have some skin with the rest of these hooligans though .

The 1955-1982 period is an odd period to back test on just because of the different monetary policy. It had a major impact on the performance of treasuries. If the fed reverted to a similar policy today, I would probably abandon this type of portfolio strategy. Even if the fed started changing the short term rate in response to political pressure, I would probably jump ship from this.

Do you have a better period of time to test worst case scenarios?

[RC64]

Yes, there may be an artificial soft cap on bond returns due to a market desire to avoid deeply negative yields. Equities don’t have this cap. As to your mentions of dropdown greater than S&P500, my 43/57 UPRO/EDV variation is more on par.

I think focusing on the interaction is important but not the full picture. From 1982-present the correlation didn’t really matter, both funds had incredible performance. Rebalancing them with interest free cash showed minimal rebalance bonus in prior posts.

I was actually considering using a 66/33 EDV/UPRO variation to get a lower max draw down and a higher return than SPY alone. Granted, the total return would not be as high as 55/45 UPRO/TMF.

43/57 UPRO/EDV is the same equity/duration ratio as the 55/45 UPRO/TMF but with a much more efficient low cost bond, and less overall leverage. 33/67 UPRO/EDV may backtest well (better performance than SPY) but that’s still largely due to falling yields. I’m biasing towards taking my risk on the equity side to damp any pops in rates while still having some cushion. Makes it through 1955-1982 much less painfully.

I kept $10K at 55/45 UPRO/TMF just to have some skin with the rest of these hooligans though .

The 1955-1982 period is an odd period to back test on just because of the different monetary policy. It had a major impact on the performance of treasuries. If the fed reverted to a similar policy today, I would probably abandon this type of portfolio strategy. Even if the fed started changing the short term rate in response to political pressure, I would probably jump ship from this.

Fair, but by the same token 1982-present is not comparable to today IMHO, even if the policy is similar. I didn't optimize for 1955-1982, just saying it handled rising rates better. 1982-present with annual rebalance it achieved 17% CAGR compared to 20% for 55/45 UPRO/TMF.

I see, I thought that was the reasoning behind your 43/57 UPRO/EDV allocation. Personally, I rather have a better risk adjusted return, which is what your allocation seems to achieve over 55/45 UPRO/TMF. That's what I thought the original strategy goal was (achieving a better return for the same max draw down risk), but it seems that has changed. Everyone has different objectives of course, but I believe the discussion has definitely helped people realize alternatives to just holding an equities fund.

[RC64]

The 1955-1982 period is an odd period to back test on just because of the different monetary policy. It had a major impact on the performance of treasuries. If the fed reverted to a similar policy today, I would probably abandon this type of portfolio strategy. Even if the fed started changing the short term rate in response to political pressure, I would probably jump ship from this.

Do you have a better period of time to test worst case scenarios?

With current fed policy? Nope. Doesn't make 1955-1982 any more useful in my opinion. I mean, in the worst case scenario, the fed would start raising the short term rate rapidly, inflation would be rapidly rising, and equities would be tanking. This seems hard to imagine with current policy, but I would probably be holding 100% short-term tips if this scenario came to light.

[caklim00]

Yes, there may be an artificial soft cap on bond returns due to a market desire to avoid deeply negative yields. Equities don’t have this cap. As to your mentions of dropdown greater than S&P500, my 43/57 UPRO/EDV variation is more on par.

I think focusing on the interaction is important but not the full picture. From 1982-present the correlation didn’t really matter, both funds had incredible performance. Rebalancing them with interest free cash showed minimal rebalance bonus in prior posts.

I was actually considering using a 66/33 EDV/UPRO variation to get a lower max draw down and a higher return than SPY alone. Granted, the total return would not be as high as 55/45 UPRO/TMF.

43/57 UPRO/EDV is the same equity/duration ratio as the 55/45 UPRO/TMF but with a much more efficient low cost bond, and less overall leverage. 33/67 UPRO/EDV may backtest well (better performance than SPY) but that’s still largely due to falling yields. I’m biasing towards taking my risk on the equity side to damp any pops in rates while still having some cushion. Makes it through 1955-1982 much less painfully.

I kept $10K at 55/45 UPRO/TMF just to have some skin with the rest of these hooligans though .

Do you have any concerns about the less frequent trading on EDV vs TMF. EDV seems fairly liquid but it doesn't trade insane amounts every day like TMF and UPRO. I have no idea how efficient M1 is with their trades but am not concerned about getting hosed on market orders given the UPRO and TMF volume. Assuming you are re-balancing quarterly?

[Nickel & Dime]

I have a 33% UPRO 67% EDV mix going, which has a .350 expense ratio. It seems a little more wholesome with EDV in my opinion.
One thing I wonder though, and I believe this has been mentioned previously in the first adventure, is what is the trigger point to begin to allocate to a regular 1X fund if UPRO has a huge drawdown? What is the breaking point? -60% or -80%? Does anyone have a plan for this? Or is everyone keeping UPRO to the bitter end?

[Random Musings]

Has any analysis been done with utilizing a ma on interest rates and switching to cash during unfavorable trends? I know it has been done on the equity side.

RM

[HEDGEFUNDIE]

I have a 33% UPRO 67% EDV mix going, which has a .350 expense ratio. It seems a little more wholesome with EDV in my opinion.
One thing I wonder though, and I believe this has been mentioned previously in the first adventure, is what is the trigger point to begin to allocate to a regular 1X fund if UPRO has a huge drawdown? What is the breaking point? -60% or -80%? Does anyone have a plan for this? Or is everyone keeping UPRO to the bitter end?

An 80% drawdown is the absolute worst time to be selling out of UPRO.

[MotoTrojan]

I was actually considering using a 66/33 EDV/UPRO variation to get a lower max draw down and a higher return than SPY alone. Granted, the total return would not be as high as 55/45 UPRO/TMF.

43/57 UPRO/EDV is the same equity/duration ratio as the 55/45 UPRO/TMF but with a much more efficient low cost bond, and less overall leverage. 33/67 UPRO/EDV may backtest well (better performance than SPY) but that’s still largely due to falling yields. I’m biasing towards taking my risk on the equity side to damp any pops in rates while still having some cushion. Makes it through 1955-1982 much less painfully.

I kept $10K at 55/45 UPRO/TMF just to have some skin with the rest of these hooligans though .

The 1955-1982 period is an odd period to back test on just because of the different monetary policy. It had a major impact on the performance of treasuries. If the fed reverted to a similar policy today, I would probably abandon this type of portfolio strategy. Even if the fed started changing the short term rate in response to political pressure, I would probably jump ship from this.

Fair, but by the same token 1982-present is not comparable to today IMHO, even if the policy is similar. I didn't optimize for 1955-1982, just saying it handled rising rates better. 1982-present with annual rebalance it achieved 17% CAGR compared to 20% for 55/45 UPRO/TMF.

I see, I thought that was the reasoning behind your 43/57 UPRO/EDV allocation. Personally, I rather have a better risk adjusted return, which is what your allocation seems to achieve over 55/45 UPRO/TMF. That's what I thought the original strategy goal was (achieving a better return for the same max draw down risk), but it seems that has changed. Everyone has different objectives of course, but I believe the discussion has definitely helped people realize alternatives to just holding an equities fund.

Drawdown is a poor measure of risk imho.

[MotoTrojan]

I have a 33% UPRO 67% EDV mix going, which has a .350 expense ratio. It seems a little more wholesome with EDV in my opinion.
One thing I wonder though, and I believe this has been mentioned previously in the first adventure, is what is the trigger point to begin to allocate to a regular 1X fund if UPRO has a huge drawdown? What is the breaking point? -60% or -80%? Does anyone have a plan for this? Or is everyone keeping UPRO to the bitter end?

Bitter end. Getting out after a -80% decline is a surefire loss. When do you revert back?

[Nickel & Dime]

I have a 33% UPRO 67% EDV mix going, which has a .350 expense ratio. It seems a little more wholesome with EDV in my opinion.
One thing I wonder though, and I believe this has been mentioned previously in the first adventure, is what is the trigger point to begin to allocate to a regular 1X fund if UPRO has a huge drawdown? What is the breaking point? -60% or -80%? Does anyone have a plan for this? Or is everyone keeping UPRO to the bitter end?

An 80% drawdown is the absolute worst time to be selling out of UPRO.

Ok, fair enough, thanks! So it would have to kick the bucket completely, then you would rebalance into something else for equities, correct?

[MotoTrojan]

Do you have any concerns about the less frequent trading on EDV vs TMF. EDV seems fairly liquid but it doesn't trade insane amounts every day like TMF and UPRO. I have no idea how efficient M1 is with their trades but am not concerned about getting hosed on market orders given the UPRO and TMF volume. Assuming you are re-balancing quarterly?

Yes I am rebalancing quarterly. I don't have any major concerns. Per Vanguard the average bid-ask spread is 0.09%. Per ETF Report it is 0.08% with TMF being at 0.04%. Treasuries are super liquid so even if this grows to a substantial amount and I am trading 10% of the daily $22M volume (that would be nice) I don't think I'll be receiving a price outside of the reasonable bid-ask spread.