HEDGEFUNDIE's excellent adventure Part II: The next journey

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

Post by perfectuncertainty »

taojaxx wrote: Mon Apr 05, 2021 10:57 pm
perfectuncertainty wrote: Mon Apr 05, 2021 10:20 pm IMO holding TMF constantly might be the incorrect approach.

Take a look at a 3-year Sharp Chart of SPY and TLT.

Image

Try this: whenever TLT is below SPY then do not own TMF or scale it way back. When TLT is above SPY, then move to a 50/50 position of UPRO and TMF.

For reference, Sharp Charts can be found here on Stockcharts
Problem with this is it's an "ex post" rule: a number of times SPY was "above" TLT right before the accident happened and you would own no TMF heading into the crash. That's why I keep a 30% TMF allocation at all times despite following a 200 DMA UPRO rotational allocation.
March 2020 was a good example: UPRO (and SPY) flying high heading into the wall.
That's not quite accurate. Here is a zoomed-in chart (From June 2019 till Mid March 2020). As you can see TLT closed a large gap and crossed higher over SPY on Feb 21, 2020. That action alone was a tell.

Image

And from the beginning of 2019 till Mid-March 2020.

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

Post by BuffMaltese »

taojaxx wrote: Mon Apr 05, 2021 10:57 pm
perfectuncertainty wrote: Mon Apr 05, 2021 10:20 pm IMO holding TMF constantly might be the incorrect approach.

Take a look at a 3-year Sharp Chart of SPY and TLT.

Image

Try this: whenever TLT is below SPY then do not own TMF or scale it way back. When TLT is above SPY, then move to a 50/50 position of UPRO and TMF.

For reference, Sharp Charts can be found here on Stockcharts
Problem with this is it's an "ex post" rule: a number of times SPY was "above" TLT right before the accident happened and you would own no TMF heading into the crash. That's why I keep a 30% TMF allocation at all times despite following a 200 DMA UPRO rotational allocation.
March 2020 was a good example: UPRO (and SPY) flying high heading into the wall.
So when upro, or spy, depending on which DMA you’re using, is above the 200 DMA, you’re holding 70/30 upro/tmf? And when below? 30/70?
Mickelous
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

perfectuncertainty wrote: Tue Apr 06, 2021 12:27 am
taojaxx wrote: Mon Apr 05, 2021 10:57 pm
perfectuncertainty wrote: Mon Apr 05, 2021 10:20 pm IMO holding TMF constantly might be the incorrect approach.

Take a look at a 3-year Sharp Chart of SPY and TLT.

Image

Try this: whenever TLT is below SPY then do not own TMF or scale it way back. When TLT is above SPY, then move to a 50/50 position of UPRO and TMF.

For reference, Sharp Charts can be found here on Stockcharts
Problem with this is it's an "ex post" rule: a number of times SPY was "above" TLT right before the accident happened and you would own no TMF heading into the crash. That's why I keep a 30% TMF allocation at all times despite following a 200 DMA UPRO rotational allocation.
March 2020 was a good example: UPRO (and SPY) flying high heading into the wall.
That's not quite accurate. Here is a zoomed-in chart (From June 2019 till Mid March 2020). As you can see TLT closed a large gap and crossed higher over SPY on Feb 21, 2020. That action alone was a tell.

Image

And from the beginning of 2019 till Mid-March 2020.

Image
That's just backfitting based on one small set of data. Could easily get caught with your pants down.
taojaxx
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by taojaxx »

BuffMaltese wrote: Tue Apr 06, 2021 1:41 am So when upro, or spy, depending on which DMA you’re using, is above the 200 DMA, you’re holding 70/30 upro/tmf? And when below? 30/70?
[ quote fixed by admin LadyGeek]

When SPY crosses below its 200 DMA I plan to hedge my UPRO exposure by selling futures. I'm doing this in taxable so not selling UPRO limits the tax hit. Ends up with a mixture of synthetic cash (UPRO + Futures) and TMF.
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ljford7
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ljford7 »

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

Post by RovenSkyfall »

Hydromod wrote: Mon Apr 05, 2021 10:00 pm I have an off-the-wall question.

I've been looking into how much predictive information is contained in the market history. The idea is to see if there are reasonable methods for selecting rotations among funds.

Volatility is known to cluster. I decided to look at trailing volatility to see if that gives any information on returns; for example, 21-day average volatility as a measure for predicting 21-day leading returns.

I see that there is a pretty strong relationship between trailing volatility and the spread in future returns. I would expect that behavior if volatility clusters.

I was expecting to see negative (or at least reduced) returns with an increase in trailing volatility, on the theory that increased volatility is a symptom of fear before and during market drops. Instead, I tend to see trends towards increased mean and median returns with increased volatility for funds like UPRO and TQQQ. I get the behavior of decreased returns with increased volatility for TMF. For smaller sectors, the trend is much flatter.

Has anybody seen such behavior? It seems counter intuitive, maybe I'm doing something wrong.
Might it be because many people trade UPRO and TQQQ on a daily basis and are trying to achieve a gain in turbulent times? It could be hard to understand trends of funds which are heavily traded on a daily basis and apply long term B&H interpretations to them.
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Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

I started plotting the volatility overlaid on price. It looks like the volatility measure tends to lag the price movement, so that the volatility measure tends to peak before and during the rebound for smaller events. Of course, bigger events take longer so volatility spikes at an earlier part of the decline, so using volatility alone as a buy signal would occur closer to the peak rather than the trough.

This timing seems to give the wide range of results. I guess that the delay into the rebound effect is more frequent overall (smaller events are more frequent).

The trick is to know when the volatility spike means buy versus sell.
perfectuncertainty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

Mickelous wrote: Tue Apr 06, 2021 7:06 am
perfectuncertainty wrote: Tue Apr 06, 2021 12:27 am
taojaxx wrote: Mon Apr 05, 2021 10:57 pm
perfectuncertainty wrote: Mon Apr 05, 2021 10:20 pm IMO holding TMF constantly might be the incorrect approach.

Take a look at a 3-year Sharp Chart of SPY and TLT.

Image

Try this: whenever TLT is below SPY then do not own TMF or scale it way back. When TLT is above SPY, then move to a 50/50 position of UPRO and TMF.

For reference, Sharp Charts can be found here on Stockcharts
Problem with this is it's an "ex post" rule: a number of times SPY was "above" TLT right before the accident happened and you would own no TMF heading into the crash. That's why I keep a 30% TMF allocation at all times despite following a 200 DMA UPRO rotational allocation.
March 2020 was a good example: UPRO (and SPY) flying high heading into the wall.
That's not quite accurate. Here is a zoomed-in chart (From June 2019 till Mid March 2020). As you can see TLT closed a large gap and crossed higher over SPY on Feb 21, 2020. That action alone was a tell.

Image

And from the beginning of 2019 till Mid-March 2020.

Image
That's just backfitting based on one small set of data. Could easily get caught with your pants down.
Again. Not so. You can go back years. You might want to do the work before you make statements like the above.
Mickelous
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

perfectuncertainty wrote: Tue Apr 06, 2021 2:58 pm
Mickelous wrote: Tue Apr 06, 2021 7:06 am
perfectuncertainty wrote: Tue Apr 06, 2021 12:27 am
taojaxx wrote: Mon Apr 05, 2021 10:57 pm
perfectuncertainty wrote: Mon Apr 05, 2021 10:20 pm IMO holding TMF constantly might be the incorrect approach.

Take a look at a 3-year Sharp Chart of SPY and TLT.

Image

Try this: whenever TLT is below SPY then do not own TMF or scale it way back. When TLT is above SPY, then move to a 50/50 position of UPRO and TMF.

For reference, Sharp Charts can be found here on Stockcharts
Problem with this is it's an "ex post" rule: a number of times SPY was "above" TLT right before the accident happened and you would own no TMF heading into the crash. That's why I keep a 30% TMF allocation at all times despite following a 200 DMA UPRO rotational allocation.
March 2020 was a good example: UPRO (and SPY) flying high heading into the wall.
That's not quite accurate. Here is a zoomed-in chart (From June 2019 till Mid March 2020). As you can see TLT closed a large gap and crossed higher over SPY on Feb 21, 2020. That action alone was a tell.

Image

And from the beginning of 2019 till Mid-March 2020.

Image
That's just backfitting based on one small set of data. Could easily get caught with your pants down.
Again. Not so. You can go back years. You might want to do the work before you make statements like the above.
I'm not trying to prove that it works. I only see proof for one point of data, so its safe to assume the work hasn't been done for other sets. Otherwise that would be posted as well.
perfectuncertainty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

Ok - it's all curve fitting. But some arent down 50% on TMF :D
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RovenSkyfall
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RovenSkyfall »

perfectuncertainty wrote: Wed Apr 07, 2021 9:47 am Ok - it's all curve fitting. But some arent down 50% on TMF :D
I thought you were using VIX, have you been using this as well?
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perfectuncertainty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

RovenSkyfall wrote: Wed Apr 07, 2021 10:25 am
perfectuncertainty wrote: Wed Apr 07, 2021 9:47 am Ok - it's all curve fitting. But some arent down 50% on TMF :D
I thought you were using VIX, have you been using this as well?
I haven't used Sharpcharts for TMF. Thought about its potential use recently. I went back a number of years and can see a bunch of opportunities for it. I use Sharpcharts for divergence analysis every day.
Mickelous
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

Has anyone done this with a timing model using puts? Say you have 300 shares of TQQQ, when it dips under a certain moving average maybe 200 day you buy 2-3 puts with a set amount of time, 1-2 months, to protect your investment? Could even go out of the money to make it cheaper and be willing to take some of a loss during a downturn. I guess the issue with that is having to contently watch it and a flash crash where things go good and all of a sudden it breaks.
taojaxx
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by taojaxx »

Mickelous wrote: Wed Apr 07, 2021 6:23 pm Has anyone done this with a timing model using puts? Say you have 300 shares of TQQQ, when it dips under a certain moving average maybe 200 day you buy 2-3 puts with a set amount of time, 1-2 months, to protect your investment? Could even go out of the money to make it cheaper and be willing to take some of a loss during a downturn. I guess the issue with that is having to contently watch it and a flash crash where things go good and all of a sudden it breaks.
Maybe it's just me but I can't see the plus in using options when futures provide enough leverage already. Options mean you have to have the timing spot on and theta is gnawing at your position day after day after day. And bear markets can extend for months, years even. Plus, volatility clusters and jumps as prices cross below the 200 DMA, making options more expensive.
What am I missing?
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Marseille07
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

taojaxx wrote: Wed Apr 07, 2021 6:43 pm
Mickelous wrote: Wed Apr 07, 2021 6:23 pm Has anyone done this with a timing model using puts? Say you have 300 shares of TQQQ, when it dips under a certain moving average maybe 200 day you buy 2-3 puts with a set amount of time, 1-2 months, to protect your investment? Could even go out of the money to make it cheaper and be willing to take some of a loss during a downturn. I guess the issue with that is having to contently watch it and a flash crash where things go good and all of a sudden it breaks.
Maybe it's just me but I can't see the plus in using options when futures provide enough leverage already. Options mean you have to have the timing spot on and theta is gnawing at your position day after day after day. And bear markets can extend for months, years even. Plus, volatility clusters and jumps as prices cross below the 200 DMA, making options more expensive.
What am I missing?
Nothing. It doesn't make much sense to use 200DMA and puts on top of that...because MA would act as a get-out signal.
parval
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by parval »

Giving enough time, I wonder if every thread eventually devolves into trying to time markets as retail :moneybag

That said, wonder if there's some way to look at the prices of VIX vs LTTs to pick a better hedge vs UPRO. Both have plunged but maybe VIX still has a way to go
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RovenSkyfall
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RovenSkyfall »

According to an announcement by the Federal Reserve, banks should stop writing contracts using LIBOR by the end of 2021. The Intercontinental Exchange, the authority responsible for LIBOR, will stop publishing one week and two month LIBOR after December 31, 2021. All LIBOR contracts must be wrapped up by June 30, 2023.
From here and here.

Any thoughts on if this will influence LETFs?
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jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

parval wrote: Thu Apr 08, 2021 9:20 am Giving enough time, I wonder if every thread eventually devolves into trying to time markets as retail :moneybag

That said, wonder if there's some way to look at the prices of VIX vs LTTs to pick a better hedge vs UPRO. Both have plunged but maybe VIX still has a way to go
I think there's multiple attempts to look at VIX products but no good ones to provide the price action that LTT can do in backtest. Using VIX as a signal c can be interesting (there's lots of articles/discussions on that) but nothing really stand outs for me at the moment
taojaxx
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by taojaxx »

RovenSkyfall wrote: Thu Apr 08, 2021 10:21 am
According to an announcement by the Federal Reserve, banks should stop writing contracts using LIBOR by the end of 2021. The Intercontinental Exchange, the authority responsible for LIBOR, will stop publishing one week and two month LIBOR after December 31, 2021. All LIBOR contracts must be wrapped up by June 30, 2023.
From here and here.

Any thoughts on if this will influence LETFs?
Will be replaced by a new benchmark. Secured Overnight Financing Rate, or SOFR is published by the NY Fed.
Better lucky than smart.
perfectuncertainty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

There is a time to be out of TMF. I've posted about using SharpCharts to evaluate when to be out of it.

Another method is to use minimum variance between 3 assets and have the model pick the top 2 for allocation. Here is the PV for that using QLD, SSO, and TMF. Link
taojaxx
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by taojaxx »

perfectuncertainty wrote: Fri Apr 09, 2021 9:07 pm There is a time to be out of TMF. I've posted about using SharpCharts to evaluate when to be out of it.

Another method is to use minimum variance between 3 assets and have the model pick the top 2 for allocation. Here is the PV for that using QLD, SSO, and TMF. Link
I totally understand the approach. But can you afford to be completely out of TMF at any time?
It's like "why pay for car insurance, never had a wreck in 10 years?"
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thenextguy
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by thenextguy »

So for people that are trying this strategy but don't want to have it be too large of your portfolio, what is your plan once you see some significant gains? Do you have cap it as a percentage of your portfolio? Once it has produced some gains, do you transfer "profits" to your "normal" portfolio?
perfectuncertainty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

taojaxx wrote: Fri Apr 09, 2021 9:58 pm
perfectuncertainty wrote: Fri Apr 09, 2021 9:07 pm There is a time to be out of TMF. I've posted about using SharpCharts to evaluate when to be out of it.

Another method is to use minimum variance between 3 assets and have the model pick the top 2 for allocation. Here is the PV for that using QLD, SSO, and TMF. Link
I totally understand the approach. But can you afford to be completely out of TMF at any time?
It's like "why pay for car insurance, never had a wreck in 10 years?"
Car insurance cost is relative and consistent. It doesn't impact the value of your house by reducing the value of the house because you own the insurance.

There are times when TMF is not great insurance - like the first quarter of 2021.
Semantics
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Semantics »

perfectuncertainty wrote: Fri Apr 09, 2021 11:42 pm
taojaxx wrote: Fri Apr 09, 2021 9:58 pm
perfectuncertainty wrote: Fri Apr 09, 2021 9:07 pm There is a time to be out of TMF. I've posted about using SharpCharts to evaluate when to be out of it.

Another method is to use minimum variance between 3 assets and have the model pick the top 2 for allocation. Here is the PV for that using QLD, SSO, and TMF. Link
I totally understand the approach. But can you afford to be completely out of TMF at any time?
It's like "why pay for car insurance, never had a wreck in 10 years?"
Car insurance cost is relative and consistent. It doesn't impact the value of your house by reducing the value of the house because you own the insurance.

There are times when TMF is not great insurance - like the first quarter of 2021.
Yeah but 27/59 months this model chose TMF it was negative. Overall it was negative in 67/135 of months, which is almost the same ratio. Is the model really picking TMF at times when it's great insurance?

One or two months where you flip the decision could easily make the adaptive model do worse than equal weight. In fact if you only run it to the end of 2019 it does worse than equal weight.

I will say that AAA works well during a sustained bear market like we're in for bonds, which is expected, the problem is that during normal times it will bite on every head fake and potentially weigh down returns. I'm more inclined to run fixed weights and then adjust manually if I think we're in a bear market, despite the behavioral risk, after all this model put TMF in the portfolio in Aug and Oct of last year when at the time just looking at the 30-year yield made it obvious that was a bad idea.
perfectuncertainty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

Semantics wrote: Sat Apr 10, 2021 12:49 am
One or two months where you flip the decision could easily make the adaptive model do worse than equal weight. In fact if you only run it to the end of 2019 it does worse than equal weight.

I will say that AAA works well during a sustained bear market like we're in for bonds, which is expected, the problem is that during normal times it will bite on every head fake and potentially weigh down returns. I'm more inclined to run fixed weights and then adjust manually if I think we're in a bear market, despite the behavioral risk, after all this model put TMF in the portfolio in Aug and Oct of last year when at the time just looking at the 30-year yield made it obvious that was a bad idea.
Actually, through 2019 the model beat equal weight by over 1%.
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

HEDGEFUNDIE wrote: Sun Aug 11, 2019 9:41 pm 55% UPRO / 45% TMF

Hedgefundie, this has probably been asked before, but if your goal with this strategy is to get to $10M, then why not focus on the asset allocation that shows the highest CAGR in the backtests?

According to the Simba backtest spreadsheet (https://drive.google.com/file/d/1H5DvKA ... gA_o0/view), a 70/30 UPRO/TMF portfolio would have delivered a CAGR of 14.31%, while a 55/45 UPRO/TMF portfolio delivered 13.77% CAGR. (Both have the same Sharpe ratio)

Is there a reason why you are over weighting TMF, apart from reducing the volatility?
Semantics
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Semantics »

perfectuncertainty wrote: Sat Apr 10, 2021 5:26 am
Semantics wrote: Sat Apr 10, 2021 12:49 am
One or two months where you flip the decision could easily make the adaptive model do worse than equal weight. In fact if you only run it to the end of 2019 it does worse than equal weight.

I will say that AAA works well during a sustained bear market like we're in for bonds, which is expected, the problem is that during normal times it will bite on every head fake and potentially weigh down returns. I'm more inclined to run fixed weights and then adjust manually if I think we're in a bear market, despite the behavioral risk, after all this model put TMF in the portfolio in Aug and Oct of last year when at the time just looking at the 30-year yield made it obvious that was a bad idea.
Actually, through 2019 the model beat equal weight by over 1%.
I don't consider CAGR outperformance to be a "beat". Through 2019 equal weight has Sharpe 1.51, while the AAA model is 1.39.
rchmx1
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rchmx1 »

tradri wrote: Sun Apr 11, 2021 11:27 am
HEDGEFUNDIE wrote: Sun Aug 11, 2019 9:41 pm 55% UPRO / 45% TMF

Hedgefundie, this has probably been asked before, but if your goal with this strategy is to get to $10M, then why not focus on the asset allocation that shows the highest CAGR in the backtests?

According to the Simba backtest spreadsheet (https://drive.google.com/file/d/1H5DvKA ... gA_o0/view), a 70/30 UPRO/TMF portfolio would have delivered a CAGR of 14.31%, while a 55/45 UPRO/TMF portfolio delivered 13.77% CAGR. (Both have the same Sharpe ratio)

Is there a reason why you are over weighting TMF, apart from reducing the volatility?
You're shouting at the wind. Hedgefundie hasn't participated in this forum for almost a year. But I'm sure he went into copious detail about his AA choice in various older posts in the thread and p 1. Visit his profile and hunt through his old posts.
Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

tradri wrote: Sun Apr 11, 2021 11:27 am
HEDGEFUNDIE wrote: Sun Aug 11, 2019 9:41 pm 55% UPRO / 45% TMF

Hedgefundie, this has probably been asked before, but if your goal with this strategy is to get to $10M, then why not focus on the asset allocation that shows the highest CAGR in the backtests?

According to the Simba backtest spreadsheet (https://drive.google.com/file/d/1H5DvKA ... gA_o0/view), a 70/30 UPRO/TMF portfolio would have delivered a CAGR of 14.31%, while a 55/45 UPRO/TMF portfolio delivered 13.77% CAGR. (Both have the same Sharpe ratio)

Is there a reason why you are over weighting TMF, apart from reducing the volatility?
HEDGEFUNDIE is no longer participating on the forum, I think he got so much static at times that he got fed up.

He originally picked 40/60 UPRO/TMF as a risk limiting target, then bumped it to 55/45 because he became concerned that the TMF portion would no longer deliver as much performance.
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

rchmx1 wrote: Sun Apr 11, 2021 12:03 pm
You're shouting at the wind. Hedgefundie hasn't participated in this forum for almost a year. But I'm sure he went into copious detail about his AA choice in various older posts in the thread and p 1. Visit his profile and hunt through his old posts.
Hydromod wrote: Sun Apr 11, 2021 12:07 pm
HEDGEFUNDIE is no longer participating on the forum, I think he got so much static at times that he got fed up.

He originally picked 40/60 UPRO/TMF as a risk limiting target, then bumped it to 55/45 because he became concerned that the TMF portion would no longer deliver as much performance.
Thank you guys. Didn't know that he has left the thread. Honestly, can't blame him after 200+ pages...
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

tradri wrote: Sun Apr 11, 2021 12:12 pm Thank you guys. Didn't know that he has left the thread. Honestly, can't blame him after 200+ pages...
Oh, it wasn't his own thread that caused it. From what I gathered, it was wider-spread "irreconcilable differences" between his line of thinking and what he perceived to be that of many others.

HF is gone, gone... from the whole forum. And although he is not physically present, manning the keyboard, he is with us in spirit. Come drink the Kool-Aid with us over at the HFEA thread. lol
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

OohLaLa wrote: Sun Apr 11, 2021 12:36 pm Oh, it wasn't his own thread that caused it. From what I gathered, it was wider-spread "irreconcilable differences" between his line of thinking and what he perceived to be that of many others.

HF is gone, gone... from the whole forum. And although he is not physically present, manning the keyboard, he is with us in spirit. Come drink the Kool-Aid with us over at the HFEA thread. lol
LOL :beer

What exactly were those "irreconcilable differences"? The risks mentioned in this post: viewtopic.php?f=10&t=272007&start=250#p4371904?
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

tradri wrote: Sun Apr 11, 2021 12:48 pm
OohLaLa wrote: Sun Apr 11, 2021 12:36 pm Oh, it wasn't his own thread that caused it. From what I gathered, it was wider-spread "irreconcilable differences" between his line of thinking and what he perceived to be that of many others.

HF is gone, gone... from the whole forum. And although he is not physically present, manning the keyboard, he is with us in spirit. Come drink the Kool-Aid with us over at the HFEA thread. lol
LOL :beer

What exactly were those "irreconcilable differences"? The risks mentioned in this post: viewtopic.php?f=10&t=272007&start=250#p4371904?
Check out his last post. Basically, it was closed-mindedness on this forum that drove him away. I'm sure you've seen it in other threads that discuss leverage - sometimes people pop their head in, say basically "lol leverage is for suckers" and disappear.
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

DMoogle wrote: Sun Apr 11, 2021 1:32 pm Check out his last post. Basically, it was closed-mindedness on this forum that drove him away. I'm sure you've seen it in other threads that discuss leverage - sometimes people pop their head in, say basically "lol leverage is for suckers" and disappear.
To be fair, this forum is one of the most open-minded places on the internet when it comes to leveraged ETFs. Discussing these things in finance-related Subreddits is way more unproductive.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

tradri wrote: Sun Apr 11, 2021 1:54 pmTo be fair, this forum is one of the most open-minded places on the internet when it comes to leveraged ETFs. Discussing these things in finance-related Subreddits is way more unproductive.
Oh yeah I agree 100%. However, let's not forget that, ultimately, the theories presented here are supposed to be in line with fundamental Bogleheads concepts. While investing with leverage isn't necessarily against those per se, it's certainly a nonstandard approach. That fact instantly causes a lot of folks here to scoff and/or balk.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

Semantics wrote: Sun Apr 11, 2021 11:36 am
perfectuncertainty wrote: Sat Apr 10, 2021 5:26 am
Semantics wrote: Sat Apr 10, 2021 12:49 am
One or two months where you flip the decision could easily make the adaptive model do worse than equal weight. In fact if you only run it to the end of 2019 it does worse than equal weight.

I will say that AAA works well during a sustained bear market like we're in for bonds, which is expected, the problem is that during normal times it will bite on every head fake and potentially weigh down returns. I'm more inclined to run fixed weights and then adjust manually if I think we're in a bear market, despite the behavioral risk, after all this model put TMF in the portfolio in Aug and Oct of last year when at the time just looking at the 30-year yield made it obvious that was a bad idea.
Actually, through 2019 the model beat equal weight by over 1%.
I don't consider CAGR outperformance to be a "beat". Through 2019 equal weight has Sharpe 1.51, while the AAA model is 1.39.
I think you should take your name more seriously then :-)

When looking backward I would rather own the security that had the higher CAGR - its money in the bank - than any other factor. Looking forward, sure I'll take a risk-adjusted stance.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

When looking for an uncorrelated asset that can balance out UPRO, does it really make a difference whether one uses 3x long term treasuries or 3x intermediate term treasuries?

Looking at the Simba backtesting spreadsheet from 1955-2020, 70/30 UPRO/3xLTT does produce 0.28% higher CAGR than UPRO/3xITT.
However, when changing the end year to 2010 or 2000, UPRO/3xITT produces a little bit higher CAGR.

Does it therefore practically make a difference whichever one choses?

I am asking because WisdomTree Europe only offers 3x intermediate term treasuries.

Am I missing something, or is the difference neglibigle?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

tradri wrote: Sun Apr 11, 2021 4:03 pm When looking for an uncorrelated asset that can balance out UPRO, does it really make a difference whether one uses 3x long term treasuries or 3x intermediate term treasuries?

Looking at the Simba backtesting spreadsheet from 1955-2020, 70/30 UPRO/3xLTT does produce 0.28% higher CAGR than UPRO/3xITT.
However, when changing the end year to 2010 or 2000, UPRO/3xITT produces a little bit higher CAGR.

Does it therefore practically make a difference whichever one choses?

I am asking because WisdomTree Europe only offers 3x intermediate term treasuries.

Am I missing something, or is the difference neglibigle?
Small, but important warning: watch out for leveraged funds that are less sexy to traders, because those ETFs usually have very low liquidity and AUM.

Examples that come to mind: intermediate treasuries, international, sectors. There are some exceptions (ex: China 3x) that might still be doable but only in small amounts (ex: liquidity is decent but total assets is not good).

As for the ITT, I would have loved if it was more popular, because I would definitely do a blend of LTT + ITT to gradually lower the years to maturity.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

OohLaLa wrote: Sun Apr 11, 2021 4:13 pm Small, but important warning: watch out for leveraged funds that are less sexy to traders, because those ETFs usually have very low liquidity and AUM.

Examples that come to mind: intermediate treasuries, international, sectors. There are some exceptions (ex: China 3x) that might still be doable but only in small amounts (ex: liquidity is decent but total assets is not good).

As for the ITT, I would have loved if it was more popular, because I would definitely do a blend of LTT + ITT to gradually lower the years to maturity.
I don't know if this is true for other ETFs as well, but WisdomTree has a pdf stating that small AUM doesn't really matter. https://www.wisdomtree.com/-/media/us-m ... lained.pdf (I don't know whether they are only saying this to attract more people though...)

Basically, they are stating that multiple market makers ensure that liquidity is good for those low-AUM ETFs/ETPs.
Last edited by tradri on Sun Apr 11, 2021 5:08 pm, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

tradri wrote: Sun Apr 11, 2021 4:03 pm When looking for an uncorrelated asset that can balance out UPRO, does it really make a difference whether one uses 3x long term treasuries or 3x intermediate term treasuries?

Looking at the Simba backtesting spreadsheet from 1955-2020, 70/30 UPRO/3xLTT does produce 0.28% higher CAGR than UPRO/3xITT.
However, when changing the end year to 2010 or 2000, UPRO/3xITT produces a little bit higher CAGR.

Does it therefore practically make a difference whichever one choses?

I am asking because WisdomTree Europe only offers 3x intermediate term treasuries.

Am I missing something, or is the difference neglibigle?
You can get a little idea by comparing plots four and five here. Basically you need a larger fraction of 3x ITT to provide the same volatility cushion as 3x LTT, which eats away at how much UPRO you can use at a given risk level. Your choice is to (i) accept more risk with the same proportions of UPRO/3xITT as UPRO/3xLTT, or (ii) reduce the proportion of UPRO to restrain the risk levels. In that example, the TMF was at 35-45% 2010 - present roughly, while the TYD was at 40-65% over the same period.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Tinkerer-in-Chief »

Small AUM does matter because if a fund closes due to small AUM, then the investor no longer has exposure to the underlying investments. The investor can seek exposure elsewhere, but it is still a hassle and there may not be viable alternatives.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

Hydromod wrote: Sun Apr 11, 2021 4:32 pm
You can get a little idea by comparing plots four and five here. Basically you need a larger fraction of 3x ITT to provide the same volatility cushion as 3x LTT, which eats away at how much UPRO you can use at a given risk level. Your choice is to (i) accept more risk with the same proportions of UPRO/3xITT as UPRO/3xLTT, or (ii) reduce the proportion of UPRO to restrain the risk levels. In that example, the TMF was at 35-45% 2010 - present roughly, while the TYD was at 40-65% over the same period.
Why am I not seeing this effect in the Simba backtesting spreadsheet?

UPRO/3xLTT and UPRO/3xITT seem to have the exact same Sharpe ratio and for both of them 70/30 seems to maximize the CAGR.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

Tinkerer-in-Chief wrote: Sun Apr 11, 2021 4:43 pm Small AUM does matter because if a fund closes due to small AUM, then the investor no longer has exposure to the underlying investments. The investor can seek exposure elsewhere, but it is still a hassle and there may not be viable alternatives.
Yes, that is a risk. However, compared to the American leveraged ETFs, all of WisdomTree Europe's ETPs are tiny.

Also, this is their only leveraged US Fixed Income ETP, so if they shut down that, they might as well close all of their leveraged offerings.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

For what it's worth, I remember reading in the Simulating LETFs thread that Proshares was way better at managing the execution of their ETFs than Direxion... my takeaway from that was that it's probably best to steer clear of any LETF outside of a select few.

Keep in mind, with the daily rebalancing that these ETFs are fundamentally different from most funds.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

DMoogle wrote: Sun Apr 11, 2021 6:01 pm For what it's worth, I remember reading in the Simulating LETFs thread that Proshares was way better at managing the execution of their ETFs than Direxion... my takeaway from that was that it's probably best to steer clear of any LETF outside of a select few.

Keep in mind, with the daily rebalancing that these ETFs are fundamentally different from most funds.
I compared the UPRO and the WisdomTree 3x S&P 500 since inception, and it seems that UPRO does track the 3x S&P 500 simulation better. The WisdomTree ETP does not really do worse, it is just more rough around the edges and sometimes overshoots and undershoots the UPRO. But as long as the general trend is right, I won't complain.

When in doubt, use UPRO, but I don't have the option to hold UPRO in a tax-efficient way, so I'll have to settle for the European alternative.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

Have you considered adding gold to the strategy?

Hedgefundie stated that he believes we will never see the kind of inflation again that would make holding gold worthwhile. But it did happen in the past 50 years, so I think it makes sense to plan for that.

When looking at the Simba backtesting spreadsheet from 1969 to 2020, a 3x 55/25/20 stocks/treasuries/gold portfolio outperformed a 3x 70/30 stocks/treasuries portfolio, while having a lower volatility. (it even has a higher Sharpe ratio than the S&P 500)

Specifically, it saved the portfolio from the 1970s to the 1990s, where 3x 70/30 stocks/treasuries underperformed the S&P 500.

This makes sense, as it follows Ray Dalio's logic of the All Weather portfolio. Gold performs well in times when both inflation is high and economic growth is low, so it seems like a good, uncorrelated asset.

Are there any reasons for not adding gold to the 3x leveraged ETF strategy?
Last edited by tradri on Mon Apr 12, 2021 7:09 am, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by dziuniek »

tradri wrote: Mon Apr 12, 2021 6:24 am Have you considered adding gold to the strategy?

Hedgefundie stated that he believes we will never see the kind of inflation again that would make holding gold worthwhile. But it did happen in the past 50 years, so I think it makes sense to plan for that.

When looking at the Simba backtesting spreadsheet from 1969 to 2020, a 3x 55/25/20 stocks/treasuries/gold portfolio outperformed a 3x 70/30 stocks/treasuries portfolio, while having a lower volatility.

Specifically, it saved the portfolio from the 1970s to the 1990s, where 3x 70/30 stocks/treasuries underperformed the S&P 500.

This makes sense, as it follows Ray Dalio's logic of the All Weather portfolio. Gold performs well in times when both inflation is high and economic growth is low, so it seems like a good, uncorrelated asset.

Are there any reasons for not adding gold to the 3x leveraged ETF strategy?
Some articles floating online now about how bitcoin is replacing gold in that area now.
So maybe it wouldn't work as well going forward.

Would adding a more diversified basket of commodities do the trick in a high infaltion times?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

dziuniek wrote: Mon Apr 12, 2021 6:38 am
Some articles floating online now about how bitcoin is replacing gold in that area now.
So maybe it wouldn't work as well going forward.

Would adding a more diversified basket of commodities do the trick in a high infaltion times?
I don't want to get into the gold vs bitcoin debate, but gold has been valuable for 10,000 years, so I am willing to take the bet that it will continue like that in the future.

I think commodities are too volatile for a 3x leveraged ETF strategy, considering that gold has a similar effect with better returns. Just look at what happened to oil prices. LOL
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by dziuniek »

tradri wrote: Mon Apr 12, 2021 6:44 am
dziuniek wrote: Mon Apr 12, 2021 6:38 am
Some articles floating online now about how bitcoin is replacing gold in that area now.
So maybe it wouldn't work as well going forward.

Would adding a more diversified basket of commodities do the trick in a high infaltion times?
I don't want to get into the gold vs bitcoin debate, but gold has been valuable for 10,000 years, so I am willing to take the bet that it will continue like that in the future.

I think commodities are too volatile for a 3x leveraged ETF strategy, considering that gold has a similar effect with better returns. Just look at what happened to oil prices. LOL
Don't get me started on oil. I should've taken delivery when it went negative... ;)
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

dziuniek wrote: Mon Apr 12, 2021 7:19 am
Don't get me started on oil. I should've taken delivery when it went negative... ;)
Haha yes, get paid for the delivery and immediately dump it into the nearest river. :sharebeer
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