HEDGEFUNDIE's excellent adventure Part II: The next journey

[Chicken Little]

roasted sweet potato

401k looking good. Just wanted to show some proof of the adventure in action. I've never been more convinced of a passive investing strategy.

I have more in other portfolios this is just the first one I switched over.

Numbers are worth thousands of words.

Thanks for posting.

[jarjarM]

I have noted from my own testing in PV that Minimal Variance works well with 2 symbols, but when using 3 (like TQQQ, UPRO and TMF) inverse volatility has quite a bit higher CAGR. Have you looked at that possibility?

That's because inverse volatility treats the assets as though they are independent and is doubling up on equities, which is the higher performing asset class. I would imagine that you'll get higher std dev and lower Sharpe ratio though. Min variance will allocate less weight to TQQQ+UPRO because they are very strongly correlated. In general you should get better risk-adjusted returns with min variance (if you believe past correlations predict future ones).

Semantics is right, volatility will strongly bias toward high equity ratio. The interesting thing is that momentum/volatility combo actually yields a better CAGR (+2%) with reasonable sharp ratio. I’ll post the results after I double check some work tomorrow.
BTW, does anyone know if the max drawdown from portfolio visualizer is based on monthly or daily? Thanks.

I believe it is monthly. The Max Drawdown in your calculation seems to be considerably higher than PV.

My calculation is based on daily, hence the higher drawdown. I think it's more appropriate for LETFs to look at daily since they're daily reset leverages.

[Semantics]

It occurred to me that the oft-discussed "volatility decay" that many here are so opposed to with leveraged ETFs could easily be offset, with daily management of course, using a simple algorithm. You just invert what the underlying ETF is doing when it rebalances.

- Start with $1000 in UPRO for $3000 exposure to VFINX.
- VFINX drops 10%, equity is now $700 with $2700 exposure.
- UPRO sells $600 and "unborrows" it, to bring exposure back to 3x = $2100.
- Thus, you buy $300 of VFINX outside the adventure, half the amount the fund sold, since the principal is half the borrowed amount.
- VFIN goes up 10/9 = 1.11..% bringing it back to where it started.
- Equity is now $700 + $2100*1/9 = $933, exposure is $2333.
- UPRO borrows $467 and buys, to bring exposure back to 3x = $2800.
- Thus, you sell $233 of VFINX outside the adventure, half of $467.
- You now own $933.33 in UPRO and $300 - $233.33 = $66.67 in VFINX. So you've successfully countered the volatility decay.

I wonder if folks who are vehemently opposed to volatility decay would consider running this algorithm *without* the UPRO component, for some sweet volatility rejuvenation? It would work in a flat market. It amounts to swing trading on daily fluctuations - buying at the end of down days and selling at the end of up days. That's probably one of the very first bad ideas every beginner investor has to be disabused of though.

Anyway, just thought this was a fun thought experiment, there can certainly be advantages of avoiding daily releveraging - it lets one time the market when setting leverage if so inclined (eww), and having leverage decline over time without touching the portfolio may be useful.

[Steve Reading]

It occurred to me that the oft-discussed "volatility decay" that many here are so opposed to with leveraged ETFs could easily be offset, with daily management of course, using a simple algorithm. You just invert what the underlying ETF is doing when it rebalances.

- Start with $1000 in UPRO for $3000 exposure to VFINX.
- VFINX drops 10%, equity is now $700 with $2700 exposure.
- UPRO sells $600 and "unborrows" it, to bring exposure back to 3x = $2100.
- Thus, you buy $300 of VFINX outside the adventure, half the amount the fund sold, since the principal is half the borrowed amount.
- VFIN goes up 10/9 = 1.11..% bringing it back to where it started.
- Equity is now $700 + $2100*1/9 = $933, exposure is $2333.
- UPRO borrows $467 and buys, to bring exposure back to 3x = $2800.
- Thus, you sell $233 of VFINX outside the adventure, half of $467.
- You now own $933.33 in UPRO and $300 - $233.33 = $66.67 in VFINX. So you've successfully countered the volatility decay.

I wonder if folks who are vehemently opposed to volatility decay would consider running this algorithm *without* the UPRO component, for some sweet volatility rejuvenation? It would work in a flat market. It amounts to swing trading on daily fluctuations - buying at the end of down days and selling at the end of up days. That's probably one of the very first bad ideas every beginner investor has to be disabused of though.

Anyway, just thought this was a fun thought experiment, there can certainly be advantages of avoiding daily releveraging - it lets one time the market when setting leverage if so inclined (eww), and having leverage decline over time without touching the portfolio may be useful.

Or you could just use Futures/Options, which do basically what you say above, without you lifting a finger.

[Semantics]

It occurred to me that the oft-discussed "volatility decay" that many here are so opposed to with leveraged ETFs could easily be offset, with daily management of course, using a simple algorithm. You just invert what the underlying ETF is doing when it rebalances.

- Start with $1000 in UPRO for $3000 exposure to VFINX.
- VFINX drops 10%, equity is now $700 with $2700 exposure.
- UPRO sells $600 and "unborrows" it, to bring exposure back to 3x = $2100.
- Thus, you buy $300 of VFINX outside the adventure, half the amount the fund sold, since the principal is half the borrowed amount.
- VFIN goes up 10/9 = 1.11..% bringing it back to where it started.
- Equity is now $700 + $2100*1/9 = $933, exposure is $2333.
- UPRO borrows $467 and buys, to bring exposure back to 3x = $2800.
- Thus, you sell $233 of VFINX outside the adventure, half of $467.
- You now own $933.33 in UPRO and $300 - $233.33 = $66.67 in VFINX. So you've successfully countered the volatility decay.

I wonder if folks who are vehemently opposed to volatility decay would consider running this algorithm *without* the UPRO component, for some sweet volatility rejuvenation? It would work in a flat market. It amounts to swing trading on daily fluctuations - buying at the end of down days and selling at the end of up days. That's probably one of the very first bad ideas every beginner investor has to be disabused of though.

Anyway, just thought this was a fun thought experiment, there can certainly be advantages of avoiding daily releveraging - it lets one time the market when setting leverage if so inclined (eww), and having leverage decline over time without touching the portfolio may be useful.

Or you could just use Futures/Options, which do basically what you say above, without you lifting a finger.

Agreed, that's why I characterized it as a thought experiment. The point is to illustrate that volatility decay shouldn't be considered an unequivocally bad effect or cost, since the inverse of it is a strategy (almost) no long-term investor would actually consider implementing in isolation, either directly or using derivatives.

[typical.investor]

It occurred to me that the oft-discussed "volatility decay" that many here are so opposed to with leveraged ETFs could easily be offset, with daily management of course, using a simple algorithm. You just invert what the underlying ETF is doing when it rebalances.

- Start with $1000 in UPRO for $3000 exposure to VFINX.
- VFINX drops 10%, equity is now $700 with $2700 exposure.
- UPRO sells $600 and "unborrows" it, to bring exposure back to 3x = $2100.
- Thus, you buy $300 of VFINX outside the adventure, half the amount the fund sold, since the principal is half the borrowed amount.
- VFIN goes up 10/9 = 1.11..% bringing it back to where it started.
- Equity is now $700 + $2100*1/9 = $933, exposure is $2333.
- UPRO borrows $467 and buys, to bring exposure back to 3x = $2800.
- Thus, you sell $233 of VFINX outside the adventure, half of $467.
- You now own $933.33 in UPRO and $300 - $233.33 = $66.67 in VFINX. So you've successfully countered the volatility decay.

I wonder if folks who are vehemently opposed to volatility decay would consider running this algorithm *without* the UPRO component, for some sweet volatility rejuvenation? It would work in a flat market. It amounts to swing trading on daily fluctuations - buying at the end of down days and selling at the end of up days. That's probably one of the very first bad ideas every beginner investor has to be disabused of though.

Anyway, just thought this was a fun thought experiment, there can certainly be advantages of avoiding daily releveraging - it lets one time the market when setting leverage if so inclined (eww), and having leverage decline over time without touching the portfolio may be useful.

I've been saying the same thing for a long time.

Still, the complicating aspect is that the strategy isn't holding UPRO alone. You'd have to do the same thing with TMF or whatever your fixed income is for it to be perfect. That's going to result in your needing some cash around.

In any case, the leverage reset doesn't really need to be done everyday I think. Rebalancing after three months back to where 3X VFINX would be is the same as doing it everyday (from that point on at least). Your returns for those three months of course may differ of course.

Given the tendency for bonds to counteract stocks, I think that is good enough. Or in the case of the March crash, maybe you'd want to apply the general principal that you pointed out of "adding after drops and removing after jumps" which would have meant selling TMF and buying UPRO outside of your scheduled rebalance.

If both are dropping though (stagflation), I think the only course of action is to add more $$$ to both stocks and bonds.

[TwoIdenticalIndexes]

Well, after joining in late January, I am finally back in the black. Re-balancing already looks tempting, but I'll try to hold off until October.

[danyboy7]

Guys,the rebalance voice on Portfoliovisualizer (and consequently all stats as cagr) is meant for buying rebalance method,selling one or does it applies for both ?

[jarjarM]

Guys,the rebalance voice on Portfoliovisualizer (and consequently all stats as cagr) is meant for buying rebalance method,selling one or does it applies for both ?

Rebalance across the entire portfolio, hence the reason why this is not a good strategy to be held in taxable account. The tax on capital gain, especially short term (if rebalance on monthly basis), is a big drag on performance. Of course, one can always use contribution as part of the rebalance so there's less impact due to sales but it would only work for so long until the positions get big enough that contribution isn't sufficient (at least that's the hope, otherwise why try this strategy).

[aarghmematey]

I am thinking of investing in 60% NTSX, 15% UPRO and 25% TMF. Given NTSX is not very old I and struggling to work out how to backrest this further that 18 months (although this is helpful given the recent crash and is looking promising) Any ideas?

[danyboy7]

Guys,the rebalance voice on Portfoliovisualizer (and consequently all stats as cagr) is meant for buying rebalance method,selling one or does it applies for both ?

Rebalance across the entire portfolio, hence the reason why this is not a good strategy to be held in taxable account. The tax on capital gain, especially short term (if rebalance on monthly basis), is a big drag on performance. Of course, one can always use contribution as part of the rebalance so there's less impact due to sales but it would only work for so long until the positions get big enough that contribution isn't sufficient (at least that's the hope, otherwise why try this strategy).

Could you explain what's a non taxable account ? I'm european....Does this perhaps mean that you eventually pay the taxes the following year ?
By "Rebalance across the entire portfolio" do you mean the selling method that gives also the advantage to sell high and buy low ? which is not a feature of the contribution method...
Thanks in advice

[hilink73]

I'm european....

Being "European" does not help at all discussing tax related events as the tax situation is different in most European countries.
For example, in Switzerland, selling stocks (as a private investor) does not generate a "taxable event", read: there are no capital gains taxes in Switzerland when selling stocks.
On the other hand, dividends are taxed as income, no matter if a fund is accumulating or distributing. You pay taxes on accumulating funds although you do not see the money in your account.

In other words: you have to check if selling stocks for rebalancing within a short timeframe generates a taxable event in your country.
If yes, you can rebalance by adding new money instead of selling.

[LadyGeek]

^^^ Good points.

danyboy7 - You are asking questions in the US investing forums, which has very different regulations and taxation than non-US investors. For example, the US does not have accumulating or decumulating funds.

May I suggest you post your portfolio information in the Non-US Investing forum using the My portfolio: seeking advice format? Ask your questions regarding your investment strategy in that thread.

You can get started here: Getting started for non-US investors

[as9]

A couple questions after reading through much of this:

1) Things can change and no such thing as a free lunch, etc. etc., but doesn't the Fed saying rates will stay near zero for the next 2+ years remove one of the main risks of this approach?

2) Because of circuit breakers I get that you can't get wiped out in a single day, but let's imagine a worst case scenario type of week where either the 20% circuit breaker is hit or there are a couple 10%+ drops in a couple days and for whatever reason TMF is not going up. If this were happening is the only course of action to hold and hope or is there a known strategy to counteract this scenario? And is putting new money into UPRO (either via rebalance or new cash) the only way to get the full benefit of a recovery out of this situation?

[Walkure]

A couple questions after reading through much of this:

1) Things can change and no such thing as a free lunch, etc. etc., but doesn't the Fed saying rates will stay near zero for the next 2+ years remove one of the main risks of this approach?

2) Because of circuit breakers I get that you can't get wiped out in a single day, but let's imagine a worst case scenario type of week where either the 20% circuit breaker is hit or there are a couple 10%+ drops in a couple days and for whatever reason TMF is not going up. If this were happening is the only course of action to hold and hope or is there a known strategy to counteract this scenario? And is putting new money into UPRO (either via rebalance or new cash) the only way to get the full benefit of a recovery out of this situation?

Short answers:
1. The Fed is holding short-term rates near zero. The 30-year rate can move quite a bit independently of this.
2. Well you wouldn't be rebalancing into the drop unless you used a "bands" approach. Hold and hope for a flight to safety is the main approach; for those who find this unsatisfactory there has been discussion of including a small "insurance" type allocation to VIX or one of its derivatives.

[firebirdparts]

A couple questions after reading through much of this:

1) Things can change and no such thing as a free lunch, etc. etc., but doesn't the Fed saying rates will stay near zero for the next 2+ years remove one of the main risks of this approach?

2) Because of circuit breakers I get that you can't get wiped out in a single day, but let's imagine a worst case scenario type of week where either the 20% circuit breaker is hit or there are a couple 10%+ drops in a couple days and for whatever reason TMF is not going up. If this were happening is the only course of action to hold and hope or is there a known strategy to counteract this scenario? And is putting new money into UPRO (either via rebalance or new cash) the only way to get the full benefit of a recovery out of this situation?

Luck plays an important role in the benefit of rebalancing. If you use leveraged ETF's, then obviously the benefit is larger and the luck (good or bad) is magnified.

[LakerP]

Given that Hedgefundie has left the forum and the absurd amount of replies to read through, has anyone made a summary of the discussion as well as an actionable road-map for re-balancing and other details to put this plan into action for new readers?

[hilink73]

Given that Hedgefundie has left the forum and the absurd amount of replies to read through, has anyone made a summary of the discussion as well as an actionable road-map for re-balancing and other details to put this plan into action for new readers?

This question has been asked and answered in this threat several times.

[petulant]

On days (or longer periods) where UPRO and TMF are both up, where’s the money flowing out of? Cash I suppose? Even gold is up.

Yes. Short-term fixed-income or cash-like assets are a big thing, ranging from Treasury bills to banks' excess reserves at the Fed and so on. What is happening with these forms of leverage is that somebody has a short-term fixed-income asset, basically cash, and loans it to the leveraging investor, who then uses it to buy the longer-dated asset like stocks. Before the transactions, person A might have had cash, person B had stocks, and person C had nothing. After the transactions, person A had a callable loan on person C, person B has cash, and person C has stocks but owes a loan to person C. Person A's loan is cash-like. So the result is new money being created and higher overall demand for the finite set of stock assets, pushing their prices up. Person C's strategy makes sense as long as there continues to be new money creation and new demand for finite stock assets. If the trend reverses, person A might call the loan, person C has to sell some stocks, and in aggregate the total price of stocks go down. Generally, no matter how it's structured through margin or futures or options, this is what's going on.

[LakerP]

Given that Hedgefundie has left the forum and the absurd amount of replies to read through, has anyone made a summary of the discussion as well as an actionable road-map for re-balancing and other details to put this plan into action for new readers?

This question has been asked and answered in this threat several times.

And yet no one has provided me a link to such a summary....

[as9]

Given that Hedgefundie has left the forum and the absurd amount of replies to read through, has anyone made a summary of the discussion as well as an actionable road-map for re-balancing and other details to put this plan into action for new readers?

This question has been asked and answered in this threat several times.

And yet no one has provided me a link to such a summary....

The best summary you will find is the first post of the original thread and some of the links from that post. There is discussion about someone putting a summary/guide together, but there is some hesitance to do so given the risky nature of the investment.

[hilink73]

There is discussion about someone putting a summary/guide together, but there is some hesitance to do so given the risky nature of the investment.

Who is supposed to do the actual work?

My proposal to all those posters who want to have it the easy way: what about banding together and actually compiling such a summary? Great opportunity for learning and probably a great contribution to this site.

[as9]

There is discussion about someone putting a summary/guide together, but there is some hesitance to do so given the risky nature of the investment.

Who is supposed to do the actual work?

My proposal to all those posters who want to have it the easy way: what about banding together and actually compiling such a summary? Great opportunity for learning and probably a great contribution to this site.

The person who started this thread (viewtopic.php?f=10&t=293438) volunteered, though that was 10 months ago so who knows.

[000]

A couple questions after reading through much of this:

1) Things can change and no such thing as a free lunch, etc. etc., but doesn't the Fed saying rates will stay near zero for the next 2+ years remove one of the main risks of this approach?

2) Because of circuit breakers I get that you can't get wiped out in a single day, but let's imagine a worst case scenario type of week where either the 20% circuit breaker is hit or there are a couple 10%+ drops in a couple days and for whatever reason TMF is not going up. If this were happening is the only course of action to hold and hope or is there a known strategy to counteract this scenario? And is putting new money into UPRO (either via rebalance or new cash) the only way to get the full benefit of a recovery out of this situation?

Everyone else knows these things too. Perhaps the underlying have been bid up because people know this and thus returns going forward will be muted.

[hilink73]

There is discussion about someone putting a summary/guide together, but there is some hesitance to do so given the risky nature of the investment.

Who is supposed to do the actual work?

My proposal to all those posters who want to have it the easy way: what about banding together and actually compiling such a summary? Great opportunity for learning and probably a great contribution to this site.

The person who started this thread (viewtopic.php?f=10&t=293438) volunteered, though that was 10 months ago so who knows.

Yes.

What if there was a concise guide that had all the information inside of it?

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

What are your thoughts if there was a concise guide that packed all the highlights, key tenants, and graphs into an easy to read manner?

Any results yet?

[Verto]

To be honest, I would find it extremely difficult to stick to the adventure without reading the entire thread myself - especially March-April 2020.

[as9]

There is discussion about someone putting a summary/guide together, but there is some hesitance to do so given the risky nature of the investment.

Who is supposed to do the actual work?

My proposal to all those posters who want to have it the easy way: what about banding together and actually compiling such a summary? Great opportunity for learning and probably a great contribution to this site.

The person who started this thread (viewtopic.php?f=10&t=293438) volunteered, though that was 10 months ago so who knows.

Yes.

What if there was a concise guide that had all the information inside of it?

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

What are your thoughts if there was a concise guide that packed all the highlights, key tenants, and graphs into an easy to read manner?

Any results yet?

I'm not sure why you're questioning me. I was just replying to someone -- I don't really care if a guide gets written. I'd much prefer that Hedgefundie returns to this site.

[hilink73]

There is discussion about someone putting a summary/guide together, but there is some hesitance to do so given the risky nature of the investment.

Who is supposed to do the actual work?

My proposal to all those posters who want to have it the easy way: what about banding together and actually compiling such a summary? Great opportunity for learning and probably a great contribution to this site.

The person who started this thread (viewtopic.php?f=10&t=293438) volunteered, though that was 10 months ago so who knows.

Yes.

What if there was a concise guide that had all the information inside of it?

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

What are your thoughts if there was a concise guide that packed all the highlights, key tenants, and graphs into an easy to read manner?

Any results yet?

I'm not sure why you're questioning me. I was just replying to someone --

Not questioning you at all. No worries.
Just adding context.

I don't really care if a guide gets written.

Well, would be nice, eh.

I'd much prefer that Hedgefundie returns to this site.

Yes.

[firebirdparts]

I think the longer a thread gets, the higher the percentage of new posts asking what the thread is about. Which in this thread is like 100% now.

[RomeoMustDie]

I am thinking of investing in 60% NTSX, 15% UPRO and 25% TMF. Given NTSX is not very old I and struggling to work out how to backrest this further that 18 months (although this is helpful given the recent crash and is looking promising) Any ideas?

You can backtest in portfoliovisualizer with a negative allocation to cash.

Something like:
VOO - 90
BND - 60
CASHX - (-50)

[hilink73]

I think the longer a thread gets, the higher the percentage of new posts asking what the thread is about. Which in this thread is like 100% now.

Probably some kind of Internet law.


End of month rebalancing on Friday.
Stay tuned.

[keith6014]

Besides TYD and EDV, are there any other alternatives?

[firebirdparts]

Besides TYD and EDV, are there any other alternatives?

If yields aren't going below zero, honestly, cash would be an alternative. It's not correlated with UPRO. I am not saying I've given up on TMF, but I will say I don't expect much. I'm like the guy that told Graucho Marx you don't make much money by investing in bonds. I've been wrong about that for 25 years, but I haven't changed my mind.

[Thereum]

Shorting leveraged inverse ETFs gives much better results than going long leveraged ETFs. (E.g. shorting SQQQ is better than going long TQQQ; shorting SPXU is better than going long UPRO.)

In fact, you can just do a pairs trade with SQQQ/SPXU and long term treasuries and receive higher risk-adjusted and absolute returns than going long UPRO/TMF (and variations thereof). You might think that it's expensive to short leveraged inverse ETFs, but IBKR is charging 1% or less.

I will likely be switching my strategy.

[ChrisBenn]

Shorting leveraged inverse ETFs gives much better results than going long leveraged ETFs. (E.g. shorting SQQQ is better than going long TQQQ; shorting SPXU is better than going long UPRO.)

In fact, you can just do a pairs trade with SQQQ/SPXU and long term treasuries and receive higher risk-adjusted and absolute returns than going long UPRO/TMF (and variations thereof). You might think that it's expensive to short leveraged inverse ETFs, but IBKR is charging 1% or less.

I will likely be switching my strategy.

What would be your strategy for rolling the shorts? (since the upside on a short is just 100% of the share price, while the upside on the long is "infinite" you would need to realize gains / re-invest in more shorts to hold long term). Also note the tax implications if it is in taxable (roll point would ideally be percentage based which might be at odds with 1 year hold for ltcg - much less deferring until retirement).

Re shorting fees -- this guy scrapes IB short rates and makes them available:
https://iborrowdesk.com/report/SQQQ
https://iborrowdesk.com/report/SPXU

(fees are as you said - ~1% -- def lower than I expected).

[Thereum]

Shorting leveraged inverse ETFs gives much better results than going long leveraged ETFs. (E.g. shorting SQQQ is better than going long TQQQ; shorting SPXU is better than going long UPRO.)

In fact, you can just do a pairs trade with SQQQ/SPXU and long term treasuries and receive higher risk-adjusted and absolute returns than going long UPRO/TMF (and variations thereof). You might think that it's expensive to short leveraged inverse ETFs, but IBKR is charging 1% or less.

I will likely be switching my strategy.

What would be your strategy for rolling the shorts? (since the upside on a short is just 100% of the share price, while the upside on the long is "infinite" you would need to realize gains / re-invest in more shorts to hold long term). Also note the tax implications if it is in taxable (roll point would ideally be percentage based which might be at odds with 1 year hold for ltcg - much less deferring until retirement).

Re shorting fees -- this guy scrapes IB short rates and makes them available:
https://iborrowdesk.com/report/SQQQ
https://iborrowdesk.com/report/SPXU

(fees are as you said - ~1% -- def lower than I expected).

Good question. You simply re-balance frequently. I'd rebalance both monthly and with rebalancing bands (i.e., whichever comes first). Also, I'd probably use IBKR Lite for this strategy because fees would add up.

100% short SQQQ paired 100% long EDV returned 98% per year over the last 10 years with a Sharpe ratio of 2! I wouldn't go so extreme with the SQQQ short, unless hedged with some sort of call option. Overall, this is the best strategy I've tested.

[parval]

Shorting leveraged inverse ETFs gives much better results than going long leveraged ETFs. (E.g. shorting SQQQ is better than going long TQQQ; shorting SPXU is better than going long UPRO.)

In fact, you can just do a pairs trade with SQQQ/SPXU and long term treasuries and receive higher risk-adjusted and absolute returns than going long UPRO/TMF (and variations thereof). You might think that it's expensive to short leveraged inverse ETFs, but IBKR is charging 1% or less.

I will likely be switching my strategy.

What would be your strategy for rolling the shorts? (since the upside on a short is just 100% of the share price, while the upside on the long is "infinite" you would need to realize gains / re-invest in more shorts to hold long term). Also note the tax implications if it is in taxable (roll point would ideally be percentage based which might be at odds with 1 year hold for ltcg - much less deferring until retirement).

Re shorting fees -- this guy scrapes IB short rates and makes them available:
https://iborrowdesk.com/report/SQQQ
https://iborrowdesk.com/report/SPXU

(fees are as you said - ~1% -- def lower than I expected).

Good question. You simply re-balance frequently. I'd rebalance both monthly and with rebalancing bands (i.e., whichever comes first). Also, I'd probably use IBKR Lite for this strategy because fees would add up.

100% short SQQQ paired 100% long EDV returned 98% per year over the last 10 years with a Sharpe ratio of 2! I wouldn't go so extreme with the SQQQ short, unless hedged with some sort of call option. Overall, this is the best strategy I've tested.

Never shorted before, is that 1% fee (or whatever daily fluctuation) the only fee? Nothing else tacked on? Surprised it can be lower than the expense ratio.

[manlymatt83]

Is anyone still doing the 55/45 UPRO/TMF method? Just curious.

[Impatience]

Shorting leveraged inverse ETFs gives much better results than going long leveraged ETFs. (E.g. shorting SQQQ is better than going long TQQQ; shorting SPXU is better than going long UPRO.)

In fact, you can just do a pairs trade with SQQQ/SPXU and long term treasuries and receive higher risk-adjusted and absolute returns than going long UPRO/TMF (and variations thereof). You might think that it's expensive to short leveraged inverse ETFs, but IBKR is charging 1% or less.

I will likely be switching my strategy.

What would be your strategy for rolling the shorts? (since the upside on a short is just 100% of the share price, while the upside on the long is "infinite" you would need to realize gains / re-invest in more shorts to hold long term). Also note the tax implications if it is in taxable (roll point would ideally be percentage based which might be at odds with 1 year hold for ltcg - much less deferring until retirement).

Re shorting fees -- this guy scrapes IB short rates and makes them available:
https://iborrowdesk.com/report/SQQQ
https://iborrowdesk.com/report/SPXU

(fees are as you said - ~1% -- def lower than I expected).

Good question. You simply re-balance frequently. I'd rebalance both monthly and with rebalancing bands (i.e., whichever comes first). Also, I'd probably use IBKR Lite for this strategy because fees would add up.

100% short SQQQ paired 100% long EDV returned 98% per year over the last 10 years with a Sharpe ratio of 2! I wouldn't go so extreme with the SQQQ short, unless hedged with some sort of call option. Overall, this is the best strategy I've tested.

That’s very interesting. Too bad you can’t short sell within an IRA.

Edit: oh and another thing ... shorting a 3x inverse etf requires something like 90% maint. margin per FINRA so wouldn’t they liquidate you over even a minor drawdown?

[Semantics]

Besides TYD and EDV, are there any other alternatives?

BTAL might work - stronger negative correlation with UPRO than treasuries, without the interest rate risk. It's not going to return more than TMF in the long run though (assuming yield remains positive).

Thinking about rebalancing into it to improve risk-adjusted returns and mitigate the risk of increasing yields due to inflation.

[cos]

Is anyone still doing the 55/45 UPRO/TMF method? Just curious.

I am! I'm pretty sure most of us are, but most of what can be said has been said.

[manlymatt83]

Is anyone still doing the 55/45 UPRO/TMF method? Just curious.

I am! I'm pretty sure most of us are, but most of what can be said has been said.

I am trying to determine if I can hold UPRO/TMF and/or PSLDX in an isolated account while still holding VT/BND.

[SVT]

Is anyone still doing the 55/45 UPRO/TMF method? Just curious.

I am! I'm pretty sure most of us are, but most of what can be said has been said.

I am trying to determine if I can hold UPRO/TMF and/or PSLDX in an isolated account while still holding VT/BND.

I believe you can do anything you set your mind to.

[manlymatt83]

Is anyone still doing the 55/45 UPRO/TMF method? Just curious.

I am! I'm pretty sure most of us are, but most of what can be said has been said.

I am trying to determine if I can hold UPRO/TMF and/or PSLDX in an isolated account while still holding VT/BND.

I believe you can do anything you set your mind to.

[vijaym73]

I am doing this at 60/40 — TQQQ/TMF with quarterly rebalancing.

Thx

VJ

[Meaty]

I am doing this at 60/40 — TQQQ/TMF with quarterly rebalancing.

Thx

VJ

I recently added 10% TQQQ - now 45 upro, 45 TMF, 10 TQQQ

[hilink73]

Shorting leveraged inverse ETFs gives much better results than going long leveraged ETFs. (E.g. shorting SQQQ is better than going long TQQQ; shorting SPXU is better than going long UPRO.)

In fact, you can just do a pairs trade with SQQQ/SPXU and long term treasuries and receive higher risk-adjusted and absolute returns than going long UPRO/TMF (and variations thereof). You might think that it's expensive to short leveraged inverse ETFs, but IBKR is charging 1% or less.

I will likely be switching my strategy.

Well, I still have some SPXU, which I happened to buy at the right time, but managed to not sell at the right time thereafter.
Tanked now, of course.

[danyboy7]

Shorting leveraged inverse ETFs gives much better results than going long leveraged ETFs. (E.g. shorting SQQQ is better than going long TQQQ; shorting SPXU is better than going long UPRO.)

In fact, you can just do a pairs trade with SQQQ/SPXU and long term treasuries and receive higher risk-adjusted and absolute returns than going long UPRO/TMF (and variations thereof). You might think that it's expensive to short leveraged inverse ETFs, but IBKR is charging 1% or less.

I will likely be switching my strategy.

How is it possible to short a short leveraged etf ? With options ? It's pretty unclear for me

[runeberg]

I'm from Germany and I would like to use this risk-parity strategy.

However my options are quite limited, given the legislation that we Europeans, find ourselves in. For example the best stand-ins for UPRO, from European brokers, that I could find are:

DBPG / LU0411078552 // Xtrackers S&P 500 2x Lev Daily Swap UCITS ETF 1C
LQQ / FR0010342592 // LYXOR ETF NSDQ DL
QQQ3 / IE00B8W5C578 // BOOST NASDAQ 100 3X LEVERAGE DAILY

They all have pitiful volume but QQQ3 is especially terrible.

For the stand-ins for the treasury bonds I've been equally unlucky. I can't even find anything with leverage.
IS04 / IE00BSKRJZ44 // iShares $ Treasury Bond 20+yr UCITS ETF USD (Dist)
VG7L / IE00BZ163M45 Vanguard USD Treasury Bond UCITS ETF Inc

Is it just futile to attempt to try to replicate this as a European? I also wouldn't know how to create some sort of parity when the equity portion is leveraged vs the bond portion being unleveraged.

I'm very interested to hear any feedback by Europeans! Thanks in advance. .

[Centurion]

Shorting leveraged inverse ETFs gives much better results than going long leveraged ETFs. (E.g. shorting SQQQ is better than going long TQQQ; shorting SPXU is better than going long UPRO.)

In fact, you can just do a pairs trade with SQQQ/SPXU and long term treasuries and receive higher risk-adjusted and absolute returns than going long UPRO/TMF (and variations thereof). You might think that it's expensive to short leveraged inverse ETFs, but IBKR is charging 1% or less.

I will likely be switching my strategy.

Interesting. Did you come up with the idea yourself or did you find some good ressources on it? Only proper article I know of is this one:
https://seekingalpha.com/article/244442 ... raged-etfs and the author discontinued the strategy because it was too much effort rebalancing and too much volatility for his liking.