HEDGEFUNDIE's excellent adventure Part II: The next journey

[hiddenpower]

If you look at their portfolios they use swap agreements similar to futures and they publish the rates I think and they are close to market rate.

Right but it's not clear to me if they can, or do, also collateralize in tbills like you could for futures.

Upro holds a few hundred million in tbills so I think yes. The only reason we don't in individual accounts is the middle man broker. In a competitive efficient market we would interest on our collateral.

So using futures and letfs are efficient and have extremely low interest rates because of tbills with the excess cash
.
Using a margin loan or portfolio margin would be a different story entirely and you'd eat a 4%+ interest fee?
That about right?

Are LEAPS somewhere between the two?

I think you missed the main point.. futures and the swaps pay the market interest rate plus a bit extra on the full notional value of the contract... so near 4% now. Or $500 per year per MES.That's a bit lower than the 4.5% you'd get from ibkr right now for portfolio $20k margin but not much. And it's the same as what you'd pay on a box spread.

Yeah I guess I am missing something. So if rates ever hit 8% in our lifetime, then futures would have 8% baked in and same for LETFs? I thought it could be significantly offset with buying tbills. Whereas you could not do this with normal margin.

[skierincolorado]

Right but it's not clear to me if they can, or do, also collateralize in tbills like you could for futures.

Upro holds a few hundred million in tbills so I think yes. The only reason we don't in individual accounts is the middle man broker. In a competitive efficient market we would interest on our collateral.

So using futures and letfs are efficient and have extremely low interest rates because of tbills with the excess cash
.
Using a margin loan or portfolio margin would be a different story entirely and you'd eat a 4%+ interest fee?
That about right?

Are LEAPS somewhere between the two?

I think you missed the main point.. futures and the swaps pay the market interest rate plus a bit extra on the full notional value of the contract... so near 4% now. Or $500 per year per MES.That's a bit lower than the 4.5% you'd get from ibkr right now for portfolio $20k margin but not much. And it's the same as what you'd pay on a box spread.

Yeah I guess I am missing something. So if rates ever hit 8% in our lifetime, then futures would have 8% baked in and same for LETFs? I thought it could be significantly offset with buying tbills. Whereas you could not do this with normal margin.

Yes.. the financing is implicit in the futures and agreed upon in the swaps contracts. The fact that you have to hold cash that doesnt earn interest is an additional cost on top of paying implief interest on the whole futures contract. Let's compare two identical positions. Let's say I have 22k dollars and I want to own 40k of equities. I can either

1) buy 40k in stock and use 20k of margin and pay interest on 18k

Or

2) buy 20k stock and 1 MES.

Let's say that interest rates are 8%. In #1 I would pay 9% on 18k. If I used a box spread to refinance my margin loan to a lower rate, I would pay 8.4% on 18k.

In #2 I would pay 8.4% on 20k. I'm paying interest on 20k instead of 18k. So I'm paying more interest due to the 2k cash collateral. If the broker Let's me hold my 2k collateral in tbills then I am paying 8.4% in interest on 18k instead of 20k and the situation becomes identical to margin except the margin rate is a bit higher unless i refinance my margin loan with a box spread.

Interest is implicit in futures contracts. If the market doesn't go up, your futures contract will lose 8% on thr whole notional value (18k per contract currently) or whatever the current market interest rate is. If you don't earn interest on the collateral you are essentially paying interest on the collateral (2k currently per contract)

[comeinvest]

I think you missed the main point.. futures and the swaps pay the market interest rate plus a bit extra on the full notional value of the contract... so near 4% now. Or $500 per year per MES.That's a bit lower than the 4.5% you'd get from ibkr right now for portfolio $20k margin but not much. And it's the same as what you'd pay on a box spread.

/ES futures have a financing rate of about 0.5% 0.45% very consistently the last 10 years or so, which is the highest of all derivatives that I looked at. Box spreads are about 0.4%, treasury futures seem to fluctuate between 0% or sometimes somewhat negative, and ca. 0.35%.
I once verified the 0.5% 0.45% for /ES in the S&P500 site - there you can directly compare the funded futures and the underlying performance in one chart.

EDIT: 10-year average spread is now ca. 0.45% after the recent year that had about 0%. All international equity index futures had lower average financing spread to government bonds over the last 10 years or so. I don't know if bull markets generally entail higher spreads due to higher demand for leverage.

P.S.: Almost all global equity index futures financing spreads significantly increased after ca. 2015, supposedly due to regulatory changes for the hedging counterparties.

[comeinvest]

... The fact that you have to hold cash that doesnt earn interest is an additional cost on top of paying implief interest on the whole futures contract...

I think this is not correctly said, if by "on the whole futures contract" you mean on the notional value of the futures contract.
Any futures maintenance margin collateral, and/or any excess cash, will reduce the implied interest that you pay on the notional value of the futures contract. If none of your cash earns anything, then the implied interest of the futures contract, applied to the notional value, is the maximum you pay (implicitly), which would be very suboptimal. Ideally you you want to only pay the implied interest on the portion of your equities exposure that is actually above 100% of NAV, which you can achieve by investing the cash in box spreads for example.
So for example: T-bill rates are 8%, you have 160% of NAV in /ES with 8.5% implied financing rate, and 100% of NAV in cash-equivalents (box spreads) earning 8.5%. Your cost of leverage is 8.5% on 60% of NAV.

[bling]

are interest rates on futures contracts locked for the duration like box spreads or do they float like margin?

[Hydromod]

I don't want to be a grump, but isn't all of this discussion about futures etc. kind of the point of the modified HFEA thread? It just seems a bit cleaner for folks to have that discussion in one place...

[hiddenpower]

Thanks for the low down on interest rates to different derivatives, it sounds like it's close enough to not sweat the small stuff.

I don't want to be a grump, but isn't all of this discussion about futures etc. kind of the point of the modified HFEA thread? It just seems a bit cleaner for folks to have that discussion in one place...

So... How about that round trip for HEDGEFUNDIE? You can join the adventure with a mirrored portfolio to the OG now

[chrisdds98]

long treasuries yielding 4% is actually pretty attractive. i don't hate buying TMF as much anymore check back if the the 10 year passes 5%!

[rama13]

Having to hold cash as collateral while earning no interest is an additional cost. In an IRA this can be significant at current interest rates since the collateral is 2x more. To avoid this cost you can sell box spreads on futures options within the commodities subaccount. The futures options box spread will both earn interest and satisfy the collateral requirement. Or loon for a broker that allows you to hold tbills as collateral.

Did you mean buy box spreads?

[CletusCaddy]

long treasuries yielding 4% is actually pretty attractive. i don't hate buying TMF as much anymore check back if the the 10 year passes 5%!

It’s the spread between the yield and the borrowing cost that matters. I don’t think that’s changed from when LTTs were only yielding 2%

[comeinvest]

I don't want to be a grump, but isn't all of this discussion about futures etc. kind of the point of the modified HFEA thread? It just seems a bit cleaner for folks to have that discussion in one place...

No, futures, options, and other implementations of HFEA were discussed here long before the mHFEA thread. Unfortunately there is how a big overlap.

[elderwise]

With nasdaq futes telegraphing a deep red I wonder what tomorrow I'll bring to this Hf strategy

The 3x is only magnifying the drawdown and unfortunately at this time both stock and bond side.

For those who are heavy on this strategy & with Portfolio Margin to increase leverage like Private farmer what are you doing hodl? Add more from new cash?

Wanting to enter but waiting..it seems it's only dropping further and further

[ChinchillaWhiplash]

Want to pose another question on UPRO. How safe are it’s holdings and do they endanger the ETF’s existence in general? I see that there are swaps from UBS and Credit Suisse. Both of these banks are barely treading water. CS has just agreed to do a restructuring starting this month. UBS has had it share of problems too. A lot is going on with the EU that make these banks seem even more vulnerable to failure. What happens to UPRO if these banks go under since it holds +10% in swaps with both of these institutions? Making holding these LETFs less appealing. I know SSO survived the Great Recession. Thinking it went through similar issues? 2x should be less prone to failure though.

[LTCM]

are interest rates on futures contracts locked for the duration like box spreads or do they float like margin?

I'm keen to know this too.

[moneyflowin]

are interest rates on futures contracts locked for the duration like box spreads or do they float like margin?

I'm keen to know this too.

When you buy a futures contract, you lock in that rate at the time you buy, while the traded contracts will float according to market rates.

This means that in theory, the value of your contract can change if rates change, although in reality it won't change much because the implied borrowing cost is equivalent to a 3-mo T-bill, which has extremely low duration

An ES contract can be thought of as [long SPX + short T-bill].

[LTCM]

are interest rates on futures contracts locked for the duration like box spreads or do they float like margin?

I'm keen to know this too.

When you buy a futures contract, you lock in that rate at the time you buy, while the traded contracts will float according to market rates.

This means that in theory, the value of your contract can change if rates change, although in reality it won't change much because the implied borrowing cost is equivalent to a 3-mo T-bill, which has extremely low duration

An ES contract can be thought of as [long SPX + short T-bill].

Do you have a lot of experience with futures financing costs? We've been debating them for about a year over in the mHFEA thread...

[comeinvest]

Instructive charts: From an upward correlated to an anti-correlated to a downward correlated regime.

[randyharris]

Quarter End results for HFEA, Profit Farmer, and MAX PAIN.

Profit Farmer FTW at over 77% drawdown.

[seiyafan]

Quarter End results for HFEA, Profit Farmer, and MAX PAIN.

Profit Farmer FTW at over 77% drawdown.

What's the GPM and GPMv in the chart?

[randyharris]

Quarter End results for HFEA, Profit Farmer, and MAX PAIN.

Profit Farmer FTW at over 77% drawdown.

What's the GPM and GPMv in the chart?

GPM is an excellent strategy from Kelling and Keunig, GPMv is my variant of it.

[perfectuncertainty]

Quarter End results for HFEA, Profit Farmer, and MAX PAIN.

Profit Farmer FTW at over 77% drawdown.

Thanks, Randy - interesting comparison between Max Pain and HFEA. Max Pain seems to be quite far ahead on every time horizon and lower drawdown.

[Tamalak]

UPRO and TMF still horrifically correlated on both up and down days

[chrisdds98]

UPRO and TMF still horrifically correlated on both up and down days

it'll probably continue until it looks like inflation is going down

[langlands]

UPRO and TMF still horrifically correlated on both up and down days

it'll probably continue until it looks like inflation is going down

My thoughts as well. Seems very clear to me that TMF is not the hedge you want for UPRO right now. It makes sense that most people (both retail and institutions) have a strong inclination to own stocks as they are roughly an investment in the economic future of the country. Also, there is a lot of it ($50+ trillion worth) to go around. The major hedge for stocks is bonds, of which there is also a lot to go around. This to me is the main reason institutions own it. In aggregate, they have no choice as they are simply too big. Small players have much more flexibility in building their portfolios.

[elderwise]

Another bad bad day for HF strategy.

Is private farmer still here?

[privatefarmer]

Still here.

[AZAttorney11]

Still here.

How's your portfolio holding up? You doing okay?

[privatefarmer]

I think I’m down around only 80%…. But hopefully with time it’ll recover. Been pretty brutal.

[er999]

I think I’m down around only 80%…. But hopefully with time it’ll recover. Been pretty brutal.

Are you going to add any new money to it or stick to what you already have invested? By down 80% since you said only I hope you mean down 20% off your initial investment, not down 80% total. Upro down 62% year to date, tmf 69% and if I remember you have a modified version so hopefully not down 80%.

[elderwise]

I think I’m down around only 80%…. But hopefully with time it’ll recover. Been pretty brutal.

Is this YTD or since the start? The 3x fngu, tqqq, tmf all ate very badly down 80 90% ytd.

Hope you are only 80% ytd but even so it's a rough ride.

For @Marseille07 who deleted their post asking what is so bad bad.. well YTD 80 to 85% down is pretty bad hopefully it's over. But with the current micro / Macro environment it's hard to say.

[privatefarmer]

I’m down about 80% from the high hit around Xmas 2021. I’m in a mix of TQQQ/TMF/EDC/DRN/URTY so it’s probably done worse than HFEA this year. Thank goodness I didn’t quit my day job…. Hopefully it’ll fully recover someday but honestly even if it only recovers half of what I’ve lost I should be okay.

[Marseille07]

Is this YTD or since the start? The 3x fngu, tqqq, tmf all ate very badly down 80 90% ytd.

Hope you are only 80% ytd but even so it's a rough ride.

For @Marseille07 who deleted their post asking what is so bad bad.. well YTD 80 to 85% down is pretty bad hopefully it's over. But with the current micro / Macro environment it's hard to say.

I deleted it because I thought you were talking about yesterday's trading, and I talked about the bond market, however I believe the bond market was closed yesterday.

[hilink73]

Still here.

Same.

(Down to 62k from 100k initially.)

[PoorHomieQuan]

I'm surprised anyone stayed the course earlier this year when it became obvious bonds would not be a good hedge for equities in this environment.

It makes more sense to me to switch over to managed futures as the hedge, since that should do well in all sorts of environments (the actual hedge changes; this year it's largely been short bonds). I have an allocation to DBMF I started in August and it's definitely softened the pain of the last 2 months. I have faith in it long term even after a huge runup (it won't keep winning forever but I doubt it will ever lose bigly).

The backtest below has a short timeframe and all, but the premise seems more likely to succeed now and into the future given changing macro environments. Typically, managed future funds do a whole lotta nothing during stable/bull markets and outperform in bears. Seems like a good "store" of positive returns during the good years and softens the blow for down years.

HFEA was just juiced by long bond performance during the great moderation and it seems we've moved beyond that now.

https://www.portfoliovisualizer.com/bac ... ion3_2=100

[hiddenpower]

I'm surprised anyone stayed the course earlier this year when it became obvious bonds would not be a good hedge for equities in this environment.

It makes more sense to me to switch over to managed futures as the hedge, since that should do well in all sorts of environments (the actual hedge changes; this year it's largely been short bonds). I have an allocation to DBMF I started in August and it's definitely softened the pain of the last 2 months. I have faith in it long term even after a huge runup (it won't keep winning forever but I doubt it will ever lose bigly).

The backtest below has a short timeframe and all, but the premise seems more likely to succeed now and into the future given changing macro environments. Typically, managed future funds do a whole lotta nothing during stable/bull markets and outperform in bears. Seems like a good "store" of positive returns during the good years and softens the blow for down years.

HFEA was just juiced by long bond performance during the great moderation and it seems we've moved beyond that now.

https://www.portfoliovisualizer.com/bac ... ion3_2=100

Managed futures don’t do well in all environments. For example the past 10 years they were pretty meh. You’re buying high and performance chasing just like many of us did with risk parity.

[Marseille07]

I'm surprised anyone stayed the course earlier this year when it became obvious bonds would not be a good hedge for equities in this environment.

It makes more sense to me to switch over to managed futures as the hedge, since that should do well in all sorts of environments (the actual hedge changes; this year it's largely been short bonds). I have an allocation to DBMF I started in August and it's definitely softened the pain of the last 2 months. I have faith in it long term even after a huge runup (it won't keep winning forever but I doubt it will ever lose bigly).

The backtest below has a short timeframe and all, but the premise seems more likely to succeed now and into the future given changing macro environments. Typically, managed future funds do a whole lotta nothing during stable/bull markets and outperform in bears. Seems like a good "store" of positive returns during the good years and softens the blow for down years.

HFEA was just juiced by long bond performance during the great moderation and it seems we've moved beyond that now.

https://www.portfoliovisualizer.com/bac ... ion3_2=100

Many posters here don't believe in timing the bond market. It wasn't obvious to them that bonds would not be a good hedge.

Basically their argument boils down to the notion that the Fed controls the FFR, but the market controls the Ten and the 20Y.

[PoorHomieQuan]

I'm surprised anyone stayed the course earlier this year when it became obvious bonds would not be a good hedge for equities in this environment.

It makes more sense to me to switch over to managed futures as the hedge, since that should do well in all sorts of environments (the actual hedge changes; this year it's largely been short bonds). I have an allocation to DBMF I started in August and it's definitely softened the pain of the last 2 months. I have faith in it long term even after a huge runup (it won't keep winning forever but I doubt it will ever lose bigly).

The backtest below has a short timeframe and all, but the premise seems more likely to succeed now and into the future given changing macro environments. Typically, managed future funds do a whole lotta nothing during stable/bull markets and outperform in bears. Seems like a good "store" of positive returns during the good years and softens the blow for down years.

HFEA was just juiced by long bond performance during the great moderation and it seems we've moved beyond that now.

https://www.portfoliovisualizer.com/bac ... ion3_2=100

Managed futures don’t do well in all environments. For example the past 10 years they were pretty meh. You’re buying high and performance chasing just like many of us did with risk parity.

Meh is totally fine if you are applying leverage on the other side of that meh. 60% UPRO still gives pretty good returns! The bond allocation in HFEA is supposedly crash protection and not returns. It has failed at crash protection. I believe managed futures will continue to provide crash protection through all environments. They do well in volatility.

If you are going to DCA into this strategy then "meh" for a decade (hard to call 20% cagr "meh") is better than soaring, then crashing, since your cost basis will be lower:

https://www.portfoliovisualizer.com/bac ... tion4_3=40

I also find it ironic to be accused of performance chasing in a thread about HFEA.

[hiddenpower]

I'm surprised anyone stayed the course earlier this year when it became obvious bonds would not be a good hedge for equities in this environment.

It makes more sense to me to switch over to managed futures as the hedge, since that should do well in all sorts of environments (the actual hedge changes; this year it's largely been short bonds). I have an allocation to DBMF I started in August and it's definitely softened the pain of the last 2 months. I have faith in it long term even after a huge runup (it won't keep winning forever but I doubt it will ever lose bigly).

The backtest below has a short timeframe and all, but the premise seems more likely to succeed now and into the future given changing macro environments. Typically, managed future funds do a whole lotta nothing during stable/bull markets and outperform in bears. Seems like a good "store" of positive returns during the good years and softens the blow for down years.

HFEA was just juiced by long bond performance during the great moderation and it seems we've moved beyond that now.

https://www.portfoliovisualizer.com/bac ... ion3_2=100

Managed futures don’t do well in all environments. For example the past 10 years they were pretty meh. You’re buying high and performance chasing just like many of us did with risk parity.

Meh is totally fine if you are applying leverage on the other side of that meh. 60% UPRO still gives pretty good returns! The bond allocation in HFEA is supposedly crash protection and not returns. It has failed at crash protection. I believe managed futures will continue to provide crash protection through all environments. They do well in volatility.

If you are going to DCA into this strategy then "meh" for a decade (hard to call 20% cagr "meh") is better than soaring, then crashing, since your cost basis will be lower:

https://www.portfoliovisualizer.com/bac ... tion4_3=40

I also find it ironic to be accused of performance chasing in a thread about HFEA.

I’m saying it’s no different wrt performance chasing

[PoorHomieQuan]

I'm surprised anyone stayed the course earlier this year when it became obvious bonds would not be a good hedge for equities in this environment.

It makes more sense to me to switch over to managed futures as the hedge, since that should do well in all sorts of environments (the actual hedge changes; this year it's largely been short bonds). I have an allocation to DBMF I started in August and it's definitely softened the pain of the last 2 months. I have faith in it long term even after a huge runup (it won't keep winning forever but I doubt it will ever lose bigly).

The backtest below has a short timeframe and all, but the premise seems more likely to succeed now and into the future given changing macro environments. Typically, managed future funds do a whole lotta nothing during stable/bull markets and outperform in bears. Seems like a good "store" of positive returns during the good years and softens the blow for down years.

HFEA was just juiced by long bond performance during the great moderation and it seems we've moved beyond that now.

https://www.portfoliovisualizer.com/bac ... ion3_2=100

Managed futures don’t do well in all environments. For example the past 10 years they were pretty meh. You’re buying high and performance chasing just like many of us did with risk parity.

Meh is totally fine if you are applying leverage on the other side of that meh. 60% UPRO still gives pretty good returns! The bond allocation in HFEA is supposedly crash protection and not returns. It has failed at crash protection. I believe managed futures will continue to provide crash protection through all environments. They do well in volatility.

If you are going to DCA into this strategy then "meh" for a decade (hard to call 20% cagr "meh") is better than soaring, then crashing, since your cost basis will be lower:

https://www.portfoliovisualizer.com/bac ... tion4_3=40

I also find it ironic to be accused of performance chasing in a thread about HFEA.

I’m saying it’s no different wrt performance chasing

Literally everything can be dismissed at performance chasing. Perhaps investing in the TSM is performance chasing based on 55 years of post ww2 performance. Since 2000, returns have been muted.

[CletusCaddy]

I'm surprised anyone stayed the course earlier this year when it became obvious bonds would not be a good hedge for equities in this environment.

It makes more sense to me to switch over to managed futures as the hedge, since that should do well in all sorts of environments (the actual hedge changes; this year it's largely been short bonds). I have an allocation to DBMF I started in August and it's definitely softened the pain of the last 2 months. I have faith in it long term even after a huge runup (it won't keep winning forever but I doubt it will ever lose bigly).

The backtest below has a short timeframe and all, but the premise seems more likely to succeed now and into the future given changing macro environments. Typically, managed future funds do a whole lotta nothing during stable/bull markets and outperform in bears. Seems like a good "store" of positive returns during the good years and softens the blow for down years.

HFEA was just juiced by long bond performance during the great moderation and it seems we've moved beyond that now.

https://www.portfoliovisualizer.com/bac ... ion3_2=100

Managed futures don’t do well in all environments. For example the past 10 years they were pretty meh. You’re buying high and performance chasing just like many of us did with risk parity.

Meh is totally fine if you are applying leverage on the other side of that meh. 60% UPRO still gives pretty good returns! The bond allocation in HFEA is supposedly crash protection and not returns. It has failed at crash protection. I believe managed futures will continue to provide crash protection through all environments. They do well in volatility.

60% UPRO 40% DBMF would have performed similarly this year to 30% UPRO 30% TMF 40% DBMF.

I’d rather diversify my leveraged component.

[chrisdds98]

looks like BoE is going to stop their intervention on friday. that doesn't sound like good news for tmf!

[PoorHomieQuan]

I'm surprised anyone stayed the course earlier this year when it became obvious bonds would not be a good hedge for equities in this environment.

It makes more sense to me to switch over to managed futures as the hedge, since that should do well in all sorts of environments (the actual hedge changes; this year it's largely been short bonds). I have an allocation to DBMF I started in August and it's definitely softened the pain of the last 2 months. I have faith in it long term even after a huge runup (it won't keep winning forever but I doubt it will ever lose bigly).

The backtest below has a short timeframe and all, but the premise seems more likely to succeed now and into the future given changing macro environments. Typically, managed future funds do a whole lotta nothing during stable/bull markets and outperform in bears. Seems like a good "store" of positive returns during the good years and softens the blow for down years.

HFEA was just juiced by long bond performance during the great moderation and it seems we've moved beyond that now.

https://www.portfoliovisualizer.com/bac ... ion3_2=100

Managed futures don’t do well in all environments. For example the past 10 years they were pretty meh. You’re buying high and performance chasing just like many of us did with risk parity.

Meh is totally fine if you are applying leverage on the other side of that meh. 60% UPRO still gives pretty good returns! The bond allocation in HFEA is supposedly crash protection and not returns. It has failed at crash protection. I believe managed futures will continue to provide crash protection through all environments. They do well in volatility.

60% UPRO 40% DBMF would have performed similarly this year to 30% UPRO 30% TMF 40% DBMF.

I’d rather diversify my leveraged component.

I mean, this is all theory-crafting, certainly not financial advice, but that portfolio comes out way behind over the last decade:

https://www.portfoliovisualizer.com/bac ... tion4_1=30

The trick with managed futures is that they can go long or short any number of assets, including bonds. So DBMF is far more diversified than TLT/TBF already. What you're saying is equivalent to someone buying both VTI and QQQ in order to be more diversified.

The other issue with your proposed portfolio, to my mind, is that you're at less than 100% equities at that point, so even without taking into account fees and volatility decay, it doesn't look very promising compared to straight VOO. If you take into account the decay of 3x leverage with daily resets and the borrowing costs which are surely much higher going forward than over the last decade, I'm not sure it's worth it.

If I were a gutsier individual I would go for something like 60 sso/40 dbmf. However, this year has taught me that it lies outside my risk tolerance.

[CaptainFrontier]

Quarter End results for HFEA, Profit Farmer, and MAX PAIN.

Profit Farmer FTW at over 77% drawdown.

Where can I learn more about the methods used in MAXPAIN? I read the general theory, but I'm looking for the actual numbers employed to switch from one leveraged investment to the next.

[CaptainFrontier]

results through June 2022 for HFEA [and Profit Farmer, and MAX PAIN]

https://dualmomentumsystems.com/resourc ... 220630.pdf

Wondering where I can find more detailed explanations on the Profit Farmer and Max Pain strategies?

Well this is my version of “profit farmer”

https://www.portfoliovisualizer.com/tes ... odWeight=0

I'm trying to understand how this rebalances based on the link. Does it automatically invest in the 3 leveraged ETFs (of the 5 chosen) that performed the best the previous 2 months? In example, for March it invests in the 3 that did the best in January and February?

[randyharris]

Quarter End results for HFEA, Profit Farmer, and MAX PAIN.

Profit Farmer FTW at over 77% drawdown.

Where can I learn more about the methods used in MAXPAIN? I read the general theory, but I'm looking for the actual numbers employed to switch from one leveraged investment to the next.

Let me first say that I have abandoned MAX PAIN in my strategies, only track it for fun to benchmark against HFEA and Profit Farmer, i think my LT Gain++ is a superior strategy especially risk adjusted.

Ok with that out of the way, here is a link to what is largely MAX PAIN, the only difference is that MP uses TMF only for the 1st month when in Treasuries, it uses EDV for all other months 2+.

[randyharris]

results through June 2022 for HFEA [and Profit Farmer, and MAX PAIN]

https://dualmomentumsystems.com/resourc ... 220630.pdf

Wondering where I can find more detailed explanations on the Profit Farmer and Max Pain strategies?

Well this is my version of “profit farmer”

https://www.portfoliovisualizer.com/tes ... odWeight=0

I'm trying to understand how this rebalances based on the link. Does it automatically invest in the 3 leveraged ETFs (of the 5 chosen) that performed the best the previous 2 months? In example, for March it invests in the 3 that did the best in January and February?

Here is the Profit farmer strategy.

[unemployed_pysicist]

Trying to understand in which scenario still holding TMF could be an advantage. I am not very knowledgeable concerning bonds so sorry in advance if I talk nonsense.

Currently the FED target rate is 0,75% - 1%. By what the FED hinted at we will reach 3% by the end of the year. By rule of thumb that scenario would mean the NAV value of a bond ETF with a duration of 20 years should roughly drop by 40% percent until year end correct? Of course some of it might be already priced in but still holding TMF will suffer that loss x3 due to leverage.

Am I correct here? If yes what scenario would have to play out in which holding TMF would make sense? Maybe the FED backtracking on planned rate hikes? Or a huge stock market crash with corresponding flight to bonds? I have a hard time thinking of a scenario where one could profit from holding TMF instead of STT or cash for the next 6-12 months...

You're not correct, since TMF is based on longer-term yields not the FF rate. The Ten is already 3.14% as of this writing and no one knows where the Ten will be by EOY.

I personally see the Ten hitting 4% by EOY but there are lots of posters here who disagree with my view.

Have to give credit here where credit is due; the ten year closed at 4.02% yield on Friday, October 14 (according to Marketwatch; other sources are similar, over 4%.)

If you had put the trade on, you would have made money.

[Marseille07]

Have to give credit here where credit is due; the ten year closed at 4.02% yield on Friday, October 14 (according to Marketwatch; other sources are similar, over 4%.)

If you had put the trade on, you would have made money.

Thanks, I don't have it bookmarked but I made the calls mid-April. I know this because my initial call was 3% by the May FOMC.

I don't actively trade bonds, but you can be assured I wasn't shoveling into the LTT furnace. If the yields get a lot higher then I will consider LTTs though.

[mrspock]

Just an FYI. This strategy is not suitable for a high inflation environment, and more so if it drags on for a while (years). IMO you move your chips back to an un-levered form until inflation normalizes. Back testing and the early pretty this thread, was pretty clear on this: this works approach beautifully until you get a period of sustained rising interest rates like we have now.

Like Buffet says, rule 1, 2 and 3 of investing: never lose capital. Make the hard call and live to do this strategy when the conditions are appropriate.

[PoorHomieQuan]

Just an FYI. Thus strategy is not suitable for a high inflation environment, and more so if it drags on for a while (years). IMO you move your chips back to an un-levered form until inflation normalizes. Back testing and the early pretty this thread, was pretty clear on this: this works approach beautifully until you get a period of sustained rising interest rates like we have now.

Like Buffet says, rule 1, 2 and 3 of investing: never lose capital. Make the hard call and live to do this strategy when the conditions are appropriate.

+1

It back tests well to the 80s, but this strategy would have been catastrophically bad during the 70s.

Investors have gotten burned all year betting that inflation will go away soon. Every day you stick to HFEA, you're betting sudden disinflation is right around the corner. Don't fight the Fed.