HEDGEFUNDIE's excellent adventure Part II: The next journey

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

Post by cflannagan »

Ramjet wrote: Thu Jul 22, 2021 7:35 am
LiveSimple wrote: Thu Jul 22, 2021 5:53 am Is the HedgeFundie strategy is for tax deferred accounts or in taxable as well.
In taxable see a lot of short term capital gains ??? if we rebalance frequently ?
Most are doing it in Roth
Curious where, if there are popular choices other than M1 Finance? Just for my reference so I can make comparisons & decisions for at beginning of 2022 (new Roth IRA acct)
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LiveSimple
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LiveSimple »

cflannagan wrote: Fri Jul 23, 2021 5:32 am Curious where, if there are popular choices other than M1 Finance? Just for my reference so I can make comparisons & decisions for at beginning of 2022 (new Roth IRA acct)
[ quote fixed by admin LadyGeek]


Try opening Roth at Fidelity or Charles Schwab, which are more traditional. Other brokerage firm will work as well.
Invest when you have the money, sell when you need the money, for real life expenses...
Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

FIRE55 wrote: Thu Jul 22, 2021 11:03 pm
Hydromod wrote: Thu Jul 22, 2021 9:43 pm I plugged in SPY/UPRO/TMF/EDV into my risk-budget minimum variance simulator, with synthetic funds going back to 1996.
...
If I set the stock/bond risk ratio to 75/25, I get a CAGR of 20% with volatility of 16%. Average weights are roughly 45/15/25/15 for SPY/UPRO/EDV/TMF.
...
If I set the stock/bond risk ratio to 50/50, I get a CAGR of 19.8% with volatility of 15.7%. Average weights are roughly 38/12/32/18 for SPY/UPRO/EDV/TMF.

Just for grins, I swapped TQQQ for UPRO. If I set the stock/bond risk ratio to 50/50, I get a CAGR of 22.8% with volatility of 15.9%. Average weights are roughly 40/10/30/20 for SPY/TQQQ/EDV/TMF. You get some diversification benefit because SPY and TQQQ aren't perfectly correlated, as well as the higher return for TQQQ.
OK, so allocations in the order of 30-40% to HFEA are coming out of your models too. Nice. That seems bonkers at first glance, but damn the math seems very plausible. I had maybe 5% or 10% allocations in mind when I started this line of thought.

Hehe. I've been tilting towards TQQQ anyway so VGT 46:EDV 28:TQQQ 16:TMF 9 looks almost too good to be true since 2010. CAGR of ~25% stdev 15%. Max drawdown of only -15% leads to a Sortino ratio of 3.38! I don't have suitable mutual fund proxies to hand to model back any farther right now.

/FIRE55
See my link for my surrogates for early years. I usually splice these to the most recent ETFs in my own code, but they were ok for quick and dirty.
stormcrow
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by stormcrow »

danielfp wrote: Thu Jul 22, 2021 9:52 am
LiveSimple wrote: Thu Jul 22, 2021 5:53 am Is the HedgeFundie strategy is for tax deferred accounts or in taxable as well.
In taxable see a lot of short term capital gains ??? if we rebalance frequently ?
I've been trading a levered ETF strategy for more than 5 years now - with most of my net worth - I usually rebalance yearly to avoid ST capital gains, but I have had to do intra-year balancing a couple of times and pay ST gains due to how absurdly out of balance the strategy became. I initially did 34/33/33 MIDU/TMF/TYD but the account grew so much I decided to cut it to 17/17/16/50 MIDU/TMF/TYD/CASH to fit my risk profile at this much larger capital level. I didn't just liquidate and move to a less levered approach using cheaper instruments to avoid paying more taxes than those necessary to just adjust my risk profile.
Hey you're still around. I think you were maybe the first person mentioning TYD back in the original thread. Congrats on hitting the "take profits" level!
Bilbo_Baggins
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Bilbo_Baggins »

Exactly one year into this strategy gives me the perfect impetus for a first time post. I jumped aboard the base 55% UPRO / 45% TMF with quarterly rebalance one year ago, on 7/22/2020. My quarterly rebalance hasn't been strict--at the end of a quarter I just rebalance when I get around to it.

Year one comparisons:

S&P 500 is up +34% in that time span. (3254.86 on 7/22/2020. It ended 7/22/2021 at 4367.48.)

My HFEA allocation is up +58% in that time span.

My previous strategy is up +32% in that time span.(60% VTI / 40% VXUS.)

It's just one year of data, sure, but obviously I'm pleased. I appreciate Hedgefundie for sharing this strategy.
danielfp
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by danielfp »

stormcrow wrote: Fri Jul 23, 2021 7:40 am Hey you're still around. I think you were maybe the first person mentioning TYD back in the original thread. Congrats on hitting the "take profits" level!
Thanks :D
LeverageWBeverage
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LeverageWBeverage »

Bilbo_Baggins wrote: Fri Jul 23, 2021 8:47 am Exactly one year into this strategy gives me the perfect impetus for a first time post. I jumped aboard the base 55% UPRO / 45% TMF with quarterly rebalance one year ago, on 7/22/2020. My quarterly rebalance hasn't been strict--at the end of a quarter I just rebalance when I get around to it.

Year one comparisons:

S&P 500 is up +34% in that time span. (3254.86 on 7/22/2020. It ended 7/22/2021 at 4367.48.)

My HFEA allocation is up +58% in that time span.

My previous strategy is up +32% in that time span.(60% VTI / 40% VXUS.)

It's just one year of data, sure, but obviously I'm pleased. I appreciate Hedgefundie for sharing this strategy.
Congrats!
FIRE55
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by FIRE55 »

FIRE55 wrote: Mon Jul 19, 2021 11:41 am Today TMF came back into a tiny profit and triggered my 10% imbalance alert. I sold some TMF @ $30.36 (lot cb $18.45) to buy UPRO at $109.91.

/FIRE55
And for what it's worth, I just turned a 100% gain, doubled my money. I've been in since early 2019, but for 2019 and 2020 I was rebalancing with inbound cash because I didn't want to deal with the sales/taxes. This year straight-up rebalancing. XIRR ~= 34.2%. What started off as an experiment in a tiny taxable account has taught me a TON about constructing a Modern Portfolio.

/FIRE55
Last edited by FIRE55 on Fri Jul 23, 2021 1:43 pm, edited 1 time in total.
Impatience
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Impatience »

cflannagan wrote: Fri Jul 23, 2021 5:32 am
Ramjet wrote: Thu Jul 22, 2021 7:35 am
LiveSimple wrote: Thu Jul 22, 2021 5:53 am Is the HedgeFundie strategy is for tax deferred accounts or in taxable as well.
In taxable see a lot of short term capital gains ??? if we rebalance frequently ?
Most are doing it in Roth
Curious where, if there are popular choices other than M1 Finance? Just for my reference so I can make comparisons & decisions for at beginning of 2022 (new Roth IRA acct)
Interactive Brokers is great for it. I made over $10 last month just lending my shares of UPRO. Not bad for an account less than $100k. Good app too and of course dirt cheap margin (short SQQQ? Sure).
Camster9000
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Camster9000 »

Bilbo_Baggins wrote: Fri Jul 23, 2021 8:47 am Exactly one year into this strategy gives me the perfect impetus for a first time post. I jumped aboard the base 55% UPRO / 45% TMF with quarterly rebalance one year ago, on 7/22/2020. My quarterly rebalance hasn't been strict--at the end of a quarter I just rebalance when I get around to it.

Year one comparisons:

S&P 500 is up +34% in that time span. (3254.86 on 7/22/2020. It ended 7/22/2021 at 4367.48.)

My HFEA allocation is up +58% in that time span.

My previous strategy is up +32% in that time span.(60% VTI / 40% VXUS.)

It's just one year of data, sure, but obviously I'm pleased. I appreciate Hedgefundie for sharing this strategy.
Wow, congrats. As someone looking to get in, do you have any suggestions or tips for making it more efficient? Are there better % levels you've found since?
investor.was.here
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by investor.was.here »

Has anyone tried to update this strategy using Bridgewater insights?

Some highlights:
- Replacing treasuries with index linked bonds (ie TIPS)?
- Adding gold and other inflation-linked hedges
- Adding an international component to equities

For my investment strategy, I need two portfolios:

1. Low-drawdown. I use a balanced fund currently. Considering a modified all-weather portfolio.
2. High growth. Considering a modified 3x All-weather portfolio.
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cos
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

danielfp wrote: Thu Jul 22, 2021 9:52 am I've been trading a levered ETF strategy for more than 5 years now - with most of my net worth - I usually rebalance yearly to avoid ST capital gains, but I have had to do intra-year balancing a couple of times and pay ST gains due to how absurdly out of balance the strategy became. I initially did 34/33/33 MIDU/TMF/TYD but the account grew so much I decided to cut it to 17/17/16/50 MIDU/TMF/TYD/CASH to fit my risk profile at this much larger capital level. I didn't just liquidate and move to a less levered approach using cheaper instruments to avoid paying more taxes than those necessary to just adjust my risk profile.
Why choose MIDU instead of UMDD? And why go all-in on the S&P 400 instead of the S&P 500?

Also, why TYD? Wouldn't EDV be a better choice for reducing effective duration exposure?

As someone who's been considering a large allocation to UMDD alongside UPRO for awhile now, I'm very interested in knowing how you arrived at your particular portfolio, and I'm especially puzzled by the inclusion of TYD.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

investor.was.here wrote: Fri Jul 23, 2021 6:10 pm Has anyone tried to update this strategy using Bridgewater insights?

Some highlights:
- Replacing treasuries with index linked bonds (ie TIPS)?
- Adding gold and other inflation-linked hedges
- Adding an international component to equities

For my investment strategy, I need two portfolios:

1. Low-drawdown. I use a balanced fund currently. Considering a modified all-weather portfolio.
2. High growth. Considering a modified 3x All-weather portfolio.
For your 2nd part, it's hard to find 3x Gold and good international LETFs and I don't think there's any 3X TIPS neither. But there is 3x utility and REITs that may be a reasonable substitute depending on your investment philosophy and risk tolerance.
Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

investor.was.here wrote: Fri Jul 23, 2021 6:10 pm Has anyone tried to update this strategy using Bridgewater insights?

Some highlights:
- Replacing treasuries with index linked bonds (ie TIPS)?
- Adding gold and other inflation-linked hedges
- Adding an international component to equities

For my investment strategy, I need two portfolios:

1. Low-drawdown. I use a balanced fund currently. Considering a modified all-weather portfolio.
2. High growth. Considering a modified 3x All-weather portfolio.
If you haven't already, you might want to glance through the Optimized Portfolio discussion of an All Weather Portfolio here. Some discussion of leverage and alternative assets.
investor.was.here
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by investor.was.here »

jarjarM wrote: Fri Jul 23, 2021 6:39 pm For your 2nd part, it's hard to find 3x Gold and good international LETFs and I don't think there's any 3X TIPS neither. But there is 3x utility and REITs that may be a reasonable substitute depending on your investment philosophy and risk tolerance.
That's... not a small problem! Any work arounds Best I've got is to increase the exposure by 50-75% on each of those asset classes to compensate. That will reduce the CAGR but it should still be very good.

I don't think we can exclude intl or TIPS, given the data provided. I wonder if TIPS perform as well as treasuries in market crashes. Do you know? That may be why they're including gold.
danielfp
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by danielfp »

cos wrote: Fri Jul 23, 2021 6:14 pm Why choose MIDU instead of UMDD? And why go all-in on the S&P 400 instead of the S&P 500?
I have a personal relationship with people at Direxion (I used to work for a hedge fund and traded a lot of their funds) so I prefer to use their products. The midcaps are - in my view - the best compromise between growth and value, where there is the most potential for gains in the next 10 years. There are no 3x levered small cap value funds - which I would prefer - so midcaps are the closest I can get. There are broad market levered small cap funds, but they are just too risky.
cos wrote: Fri Jul 23, 2021 6:14 pm Also, why TYD? Wouldn't EDV be a better choice for reducing effective duration exposure?
EDV is an extended duration treasury fund, the longest duration treasuries. A mistake people make here is that they think the long end is just like a levered short end, but the returns are NOT the same and their correlations to other assets are NOT the same. I therefore prefer a levered 7-10 year fund, instead of an unlevered 30+ year fund, because of how it correlates to the return of midcaps and the long end of the curve. Adding EDV does not produce the same effect as TYD if you analyze return correlations. For me, having uncorrelated treasuries is the most important part, EDV is too highly correlated with TMF/TLT.

If there was a 3x 7-10 year TIPS ETF, I would take that instead of TYD.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

danielfp wrote: Sat Jul 24, 2021 5:43 am [...]

If there was a 3x 7-10 year TIPS ETF, I would take that instead of TYD.
Thank you so much for your thoughtful response! This all makes a lot of sense to me, and I'm reassured by the fact that your interest in midcaps echoes my own. I'm honestly confused as to why they aren't receiving more attention around here.

Based on your statement above, would it be safe to summarize your interest in leveraged intermediate-term treasuries as a desire to mildly hedge against rising inflation and rising rates? Or would that be oversimplifying?

Further, when leveraged bonds make up, say, only 40% of the portfolio with the remaining 60% being leveraged equities, does allocating any of that to TYD still make sense? Or do you think it would be better to allocate the full 40% to TMF as a means of maximizing diversification on the portfolio level?
danielfp
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by danielfp »

cos wrote: Sat Jul 24, 2021 2:15 pm Thank you so much for your thoughtful response! This all makes a lot of sense to me, and I'm reassured by the fact that your interest in midcaps echoes my own. I'm honestly confused as to why they aren't receiving more attention around here.
You're welcome! I'm glad you found my answers useful.
cos wrote: Sat Jul 24, 2021 2:15 pm Based on your statement above, would it be safe to summarize your interest in leveraged intermediate-term treasuries as a desire to mildly hedge against rising inflation and rising rates? Or would that be oversimplifying?
I wouldn't describe it that way. The TYD allocation does not come from a direct desire to "hedge" anything in particular, it comes from a quantitative effort to find an investment with long term upside which has different enough returns compared to long term treasuries and equities in order to provide diversification and increase risk adjusted returns. I would use levered TIPS, just because their return streams would provide better diversification, not because I want to directly hedge against any particular market outcome.
cos wrote: Sat Jul 24, 2021 2:15 pm Further, when leveraged bonds make up, say, only 40% of the portfolio with the remaining 60% being leveraged equities, does allocating any of that to TYD still make sense? Or do you think it would be better to allocate the full 40% to TMF as a means of maximizing diversification on the portfolio level?
I personally haven't looked at this case, as anything above 33% 3x levered equities has always been above my risk tolerance. You would have to do the pertinent simulations and see if it makes sense. However, the issue with a 60% levered equity allocation is that you immediately require a strong levered high duration bet in order to diminish the risk of that position during market downturns, so you probably have no room for something like TYD because you have a more urgent need to hedge the downside of equities during crises events. The TYD position has the job to increase risk adjusted returns through diversification when there is the capital for it, but I have a hard time seeing its place if the equity position is so big.

I was able to emotionally manage 34/33/33 MIDU/TMF/TYD pretty well until the covid crisis came, but because my portfolio had already increased almost 10x from the point where I started (thanks to both returns and investments), that crisis was psychologically hard to endure and it just became reasonable to reduce my exposure to 50%.

It is worth noting that I was also trading 50-200M in the bond markets everyday for my job at that point, so I was forced to watch and live the market much more than your average Joe and couldn't just ignore everything that was going on.
RettW
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RettW »

Adaptive asset allocation. I’ve read several posts with angst about asset allocations, rebalancing, etc. Here is a method that backtests well over the past 7 years:
Candidate assets: AMZN, MSFT, GNRC, MMC, MOAT, GOOG, STK, DBC, IEI, VTIP, NAD,SCHD,and LIT. Note diversification, crash protection potential, and forecasted trends up.
Each month, record each asset total return; each month calculate average and standard deviation of the group.
Each month, calculate the percentile position of each asset in the group using the Excel NORMDIST command x13.
Modify each asset’s percentile by the exponent (1 minus 5x its return%).
Divide each modified percentile by the square root of the asset’s standard deviation over the prior 8 months.
Normalize and allocate to each asset for the next month, respectively.
The results may be constrained in Excel, but generally give an average annual return of 17% and downside semideviation of 5%.
Omega ratio is over 4. Worst months are a few in the -4% range; best months are in the 12% range. Cumulative gain is 210% over 7 years. Note that allocations flock to IEI and VTIP for crash protection after any bad months,like Feb and March 2020.
Exchange out any stock for a better cumulative one as time progresses, like AAPL for MMC.
This adaptive asset allocation works well monthly, provided your mix has high flyers AND safety nets.
danielfp
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by danielfp »

RettW wrote: Sat Jul 24, 2021 8:23 pm Adaptive asset allocation. I’ve read several posts with angst about asset allocations, rebalancing, etc. Here is a method that backtests well over the past 7 years:
Candidate assets: AMZN, MSFT, GNRC, MMC, MOAT, GOOG, STK, DBC, IEI, VTIP, NAD,SCHD,and LIT. Note diversification, crash protection potential, and forecasted trends up.
Each month, record each asset total return; each month calculate average and standard deviation of the group.
Each month, calculate the percentile position of each asset in the group using the Excel NORMDIST command x13.
Modify each asset’s percentile by the exponent (1 minus 5x its return%).
Divide each modified percentile by the square root of the asset’s standard deviation over the prior 8 months.
Normalize and allocate to each asset for the next month, respectively.
The results may be constrained in Excel, but generally give an average annual return of 17% and downside semideviation of 5%.
Omega ratio is over 4. Worst months are a few in the -4% range; best months are in the 12% range. Cumulative gain is 210% over 7 years. Note that allocations flock to IEI and VTIP for crash protection after any bad months,like Feb and March 2020.
Exchange out any stock for a better cumulative one as time progresses, like AAPL for MMC.
This adaptive asset allocation works well monthly, provided your mix has high flyers AND safety nets.
The problem with these approaches is datamining and selection bias. Selecting a large group of assets (>3) with the benefit of hindsight for an asset rotation strategy greatly overestimates the positive statistics and underestimates the negative ones for future returns. Approaches like this have way higher risk than they appear, the backtest doesn't show these because these are hidden by the data mining bias incurred when multiple tests were done to find the "optimal" assets. Rotations strategies like this almost always heavily disappoint in their out of sample statistics under live market conditions.

Rotating assets monthly is also VERY tax inefficient, making this only practical in non-taxable accounts.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

I've noticed lately this strategy getting a lot more acceptance on reddit. Years ago you might hear about it only on /r/wallstreetbets, and criticized elsewhere, but lately I've seen posters swearing by it in more mainstream investing hubs like /r/investing. I wonder, if a lot more investors come around to this strategy, what could it mean long term? I'm guessing that indexes ultimately rely on investors trading the underlying company stocks to move an index - I guess this has been an emerging threat with passive investing for a while now.

We are definitely at a fearless stage in a bull market where there is a mainstream acceptance of high risk investing, evidenced by a broadening acceptance of HFEA, and things like the meme stock sector, and the 1-in-3 crypto investors that don't know what crypto is, to name a few.

The 70% drawdown this strategy experienced in Feb 2009 is just not on anybody's mind anymore. I finally got the PV pro subscription to load the historic dataset and see it for myself. The 3 and 5 year underwater periods for subprime and dotcom crashes respectively would break most investors of this strategy, I'm sure - as someone mentioned earlier, the main risk to this strategy is behavioral (seeing red and pulling the plug). Need to be mindful of this.

This is sort of a parachute addon to HFEA - does anyone buy cheap, deep OTM "black swan event" SPY options to provide an additional hedge to this strategy? It really dampens returns, but seems worth considering at ATH's.
danielfp
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by danielfp »

tomphilly wrote: Sun Jul 25, 2021 8:57 am I've noticed lately this strategy getting a lot more acceptance on reddit. Years ago you might hear about it only on /r/wallstreetbets, and criticized elsewhere, but lately I've seen posters swearing by it in more mainstream investing hubs like /r/investing. I wonder, if a lot more investors come around to this strategy, what could it mean long term? I'm guessing that indexes ultimately rely on investors trading the underlying company stocks to move an index - I guess this has been an emerging threat with passive investing for a while now.

We are definitely at a fearless stage in a bull market where there is a mainstream acceptance of high risk investing, evidenced by a broadening acceptance of HFEA, and things like the meme stock sector, and the 1-in-3 crypto investors that don't know what crypto is, to name a few.

The 70% drawdown this strategy experienced in Feb 2009 is just not on anybody's mind anymore. I finally got the PV pro subscription to load the historic dataset and see it for myself. The 3 and 5 year underwater periods for subprime and dotcom crashes respectively would break most investors of this strategy, I'm sure - as someone mentioned earlier, the main risk to this strategy is behavioral (seeing red and pulling the plug). Need to be mindful of this.

This is sort of a parachute addon to HFEA - does anyone buy cheap, deep OTM "black swan event" SPY options to provide an additional hedge to this strategy? It really dampens returns, but seems worth considering at ATH's.
Psychologically most people have no idea what it feels to go through a 70% DD with a significant portion of your net worth. Most will inevitably bail. I personally have never been comfortable with HFEA as proposed, too risky. This is why I turned to the 34/33/33 MIDU/TMF/TYD configuration, which has much more reasonable risk for very good returns. However, even this became too risky for me as the account grew. I'm now at 17/17/16/50 MIDY/TMF/TYD/CASH, which should keep my max DD below 25% of my net worth, with a historical return >10%, which is great IMO.

Also the OTM puts require a lot of management. Anything that requires constant buying of positions will make you keep an eye on the market, which is likely going to make long term compliance with your plan harder. These OTM puts are also becoming more and more expensive with time, they are likely to be an even bigger drag going forward. Honestly I believe if you're thinking about OTM puts, you should just lower your overall risk.
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

tomphilly wrote: Sun Jul 25, 2021 8:57 am I've noticed lately this strategy getting a lot more acceptance on reddit. Years ago you might hear about it only on /r/wallstreetbets, and criticized elsewhere, but lately I've seen posters swearing by it in more mainstream investing hubs like /r/investing. I wonder, if a lot more investors come around to this strategy, what could it mean long term? I'm guessing that indexes ultimately rely on investors trading the underlying company stocks to move an index - I guess this has been an emerging threat with passive investing for a while now.
I wouldn't worry about this at all. HFEA is not an active/ timing strategy so I don't see how more cooks in the kitchen will be detrimental. Active traders will continue trading the underlying and even the leveraged ETFs themselves (they are the original intended audience). I have not seen any numbers indicating Mom and Pop B&H investors overshadowing traders.
tomphilly wrote: Sun Jul 25, 2021 8:57 am We are definitely at a fearless stage in a bull market where there is a mainstream acceptance of high risk investing, evidenced by a broadening acceptance of HFEA, and things like the meme stock sector, and the 1-in-3 crypto investors that don't know what crypto is, to name a few.
I am indeed seeing a lot of people that don't have a clue about investing (I mean the very basics of operating) opening up self-directed accounts and dumping money in all sorts of speculative investments. The saving grace is that most of these Reddit folks seem to be putting in a few hundred/ thousand dollars. Will minimize the impact on their end.

I don't lose sleep over it, but it did cross my mind whether there are any compounding aspects. Retail has been steadily increasing in terms of market share, but it still remains low (especially if you take into account that part of the figure includes things like employer/ retirement funds). The problem is that we don't see the full influence of the increasing use of alternative options (options, margin) by retail. I see this as especially problematic in less-regulated spaces like crypto, though. I am not forgetting about institutions, mind you; they are very capable of overdoing it and screwing things up for the rest of us. :mrgreen:
tomphilly wrote: Sun Jul 25, 2021 8:57 am The 70% drawdown this strategy experienced in Feb 2009 is just not on anybody's mind anymore. I finally got the PV pro subscription to load the historic dataset and see it for myself. The 3 and 5 year underwater periods for subprime and dotcom crashes respectively would break most investors of this strategy, I'm sure - as someone mentioned earlier, the main risk to this strategy is behavioral (seeing red and pulling the plug). Need to be mindful of this.
I've mentioned my take on this a couple of times: I do not agree that 3x is a tenable, long-term approach when you have significant funds invested. It's not only the much higher chance of intrinsic failure (versus 2x or 1x), but also the psychological aspect of holding through the deep drawdowns. I've seen some pretty cavalier comments on the forums, about being able to withstand massive drawdowns (talking 90% here). I'm wondering how many people actually have held strong with life-changing money on the line.

100% stocks is much easier when you have 100K at 25 then when you have 1M at 50.
tomphilly wrote: Sun Jul 25, 2021 8:57 am This is sort of a parachute addon to HFEA - does anyone buy cheap, deep OTM "black swan event" SPY options to provide an additional hedge to this strategy? It really dampens returns, but seems worth considering at ATH's.
If you haven't already, try searching in this thread. I recall people discussing the use of options in quite some detail, but I just don't remember the approx page numbers.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

danielfp wrote: Sun Jul 25, 2021 8:32 am
RettW wrote: Sat Jul 24, 2021 8:23 pm Adaptive asset allocation. I’ve read several posts with angst about asset allocations, rebalancing, etc. Here is a method that backtests well over the past 7 years:
Candidate assets: AMZN, MSFT, GNRC, MMC, MOAT, GOOG, STK, DBC, IEI, VTIP, NAD,SCHD,and LIT. Note diversification, crash protection potential, and forecasted trends up.
Each month, record each asset total return; each month calculate average and standard deviation of the group.
Each month, calculate the percentile position of each asset in the group using the Excel NORMDIST command x13.
Modify each asset’s percentile by the exponent (1 minus 5x its return%).
Divide each modified percentile by the square root of the asset’s standard deviation over the prior 8 months.
Normalize and allocate to each asset for the next month, respectively.
The results may be constrained in Excel, but generally give an average annual return of 17% and downside semideviation of 5%.
Omega ratio is over 4. Worst months are a few in the -4% range; best months are in the 12% range. Cumulative gain is 210% over 7 years. Note that allocations flock to IEI and VTIP for crash protection after any bad months,like Feb and March 2020.
Exchange out any stock for a better cumulative one as time progresses, like AAPL for MMC.
This adaptive asset allocation works well monthly, provided your mix has high flyers AND safety nets.
The problem with these approaches is datamining and selection bias. Selecting a large group of assets (>3) with the benefit of hindsight for an asset rotation strategy greatly overestimates the positive statistics and underestimates the negative ones for future returns. Approaches like this have way higher risk than they appear, the backtest doesn't show these because these are hidden by the data mining bias incurred when multiple tests were done to find the "optimal" assets. Rotations strategies like this almost always heavily disappoint in their out of sample statistics under live market conditions.

Rotating assets monthly is also VERY tax inefficient, making this only practical in non-taxable accounts.
While I'm not advocating using individual stocks in any way, there are aspects of the adaptive approach that I do think are effective. I agree only in tax-advantaged accounts though.

I can't speak to the exact strategy that RettW proposes, but I've looked at some aspects separately for LETFs.

As far as I can tell from testing on index funds, the expected return (at least for index funds) tends to be independent of volatility. In other words, next month's expected return is the same regardless of whether the asset's volatility is in its lowest decile or highest decile. So the same return would be expected for the same time-averaged portfolio fraction, whether the asset allocation is constant or adaptively adjusted. However, if a particular asset is adaptively invested in larger allocations during periods of low volatility, the asset tends to have smaller allocations during periods with large volatility (e.g., crashes), as RettW indicates, thus the time-averaged volatility is smaller and the risk-adjusted returns are improved. The suggested volatility weighting seems to capture that aspect. In my minimum variance approach, testing various index sets back to 1986, I see perhaps 20% smaller portfolio volatility with adaptive allocation (at the cost of relatively frequent rebalancing).

The assets that RettW proposed indeed have low correlations, between 0.15 and 0.74 (excluding IEI) (see PV here). So they represented a good spectrum from a classical portfolio construction standpoint during the time period.

The tangency portfolio for this set over 2013 - present is 2/3 IEI (3-7 yr treasuries), with expected return of 10%, expected volatility of 4.26%, and Sharpe ratio of 2.14. Some of the funds are essentially 0 contribution over the entire efficient frontier transition map (I'm looking at you, DBC!). At the cited return of 17%, this would be a 61/39 portfolio highly concentrated into 5 equities plus IEI with an expected volatility of 7.4% and Sharpe ratio of 2.04. A 60/40 VFINX/IEI portfolio would have had a CAGR of 10.6%, the same volatility, and a Sharpe ratio of 1.27, so the adaptive approach significantly cut the volatility from the selected assets.

As far as I can tell from testing on index funds, you can achieve a small predictability regarding asset returns for a future month (correlations between predicted and actual returns of perhaps 5 to 15 percent). That's the momentum effect. I have not found any way that I can use that small predictability to switch assets reliably though. So I agree with danielfp that equity rotations on a monthly basis would be a crap shoot, and I'd stick with the same set of assets at all times. Perhaps reviewing the asset set every few years would be appropriate.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

danielfp wrote: Sun Jul 25, 2021 11:34 am Psychologically most people have no idea what it feels to go through a 70% DD with a significant portion of your net worth. Most will inevitably bail. I personally have never been comfortable with HFEA as proposed, too risky. This is why I turned to the 34/33/33 MIDU/TMF/TYD configuration, which has much more reasonable risk for very good returns. However, even this became too risky for me as the account grew. I'm now at 17/17/16/50 MIDY/TMF/TYD/CASH, which should keep my max DD below 25% of my net worth, with a historical return >10%, which is great IMO.
[...] Honestly I believe if you're thinking about OTM puts, you should just lower your overall risk.
We seem to be kindred spirits, when it comes to the high-level approach. haha :beer

I agree with the OTM puts, as well. At that point, what's the point? Just lower equity exposure (by % of 3x or go down to 2x, for example).
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

I'd say my biggest fear about the growing popularity of HFEA and similar strategies is regulation risk. We just had the SEC threatening to shut down 2x and 3x leveraged ETFs last Fall, and it seems we were lucky to get away with a mere ban on the creation of new 3x leveraged ETFs. Who knows what will happen in the midst of a drawdown after one too many investors jumps ship at the bottom?
While the rule allows existing funds with multiples of 3x or -3x to continue to operate, we disagree with the rule’s prohibition of the introduction of new geared funds with these multiples. We believe this provision is not in investors’ best interest because it limits innovation, choice, and competition.
Source: https://www.proshares.com/news/sec_regu ... ement.html
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

OohLaLa wrote: Sun Jul 25, 2021 12:12 pm I wouldn't worry about this at all. HFEA is not an active/ timing strategy so I don't see how more cooks in the kitchen will be detrimental. Active traders will continue trading the underlying and even the leveraged ETFs themselves (they are the original intended audience). I have not seen any numbers indicating Mom and Pop B&H investors overshadowing traders.
tomphilly wrote: Sun Jul 25, 2021 8:57 am The 70% drawdown this strategy experienced in Feb 2009 is just not on anybody's mind anymore. I finally got the PV pro subscription to load the historic dataset and see it for myself. The 3 and 5 year underwater periods for subprime and dotcom crashes respectively would break most investors of this strategy, I'm sure - as someone mentioned earlier, the main risk to this strategy is behavioral (seeing red and pulling the plug). Need to be mindful of this.
I've mentioned my take on this a couple of times: I do not agree that 3x is a tenable, long-term approach when you have significant funds invested. It's not only the much higher chance of intrinsic failure (versus 2x or 1x), but also the psychological aspect of holding through the deep drawdowns. I've seen some pretty cavalier comments on the forums, about being able to withstand massive drawdowns (talking 90% here). I'm wondering how many people actually have held strong with life-changing money on the line.
I maintain that an adaptive approach that uses a risk budget allocation will tend to mitigate portfolio drawdowns much better than holding the assets at a fixed allocation. Individual asset drawdowns are not necessarily all that material.

I pick three assets that had large drawdowns in 2000 (S&P 500, NASDAQ) and 2008 (S&P 500, NASDAQ, REIT) with 2x LETFs already in existence at the time of drawdown (ULPIX, UOPIX, and URE). For comparison, I show 3x LETFs (UPRO, TQQQ, DRN). I use synthetic histories prior to initiation; these may be optimistic with respect to ERs and rebalancing slippage, of course, but are representative. The balance asset is long-term treasuries.

Over 1986 - present, the 2x portfolio had a Sharpe ratio of 1.3, volatility of 17.5%, and CAGR above risk-free of 21%. Individual funds had extreme drawdowns but the worst portfolio drawdown was ~35% in 2009 and 2020. Occasional periods lost more than two years of returns, but only 2009 lost 3 years of returns.

Over 1986 - present, the 3x portfolio had a Sharpe ratio of 1.9, volatility of 26.6%, and CAGR above risk-free of 47%. Individual funds had extreme drawdowns but the worst portfolio drawdown was ~50% in 2020. Occasional periods lost more than a year of returns, but only 2020 lost 2 years (for a couple of months); 2017 lost almost 2 years.

I'd argue that from the utility perspective, the 2x and 3x portfolios are almost identical (Sharpe/volatility = 7.3 and 7.1, respectively).

Just S&P 500 over 1980 to present (a little worse than 1986 present) had a Sharpe ratio of 0.46, volatility of 18%, and CAGR above risk-free of 6.6%; Sharpe/volatility = 2.5. For that you put up with drawdowns of 50% and a 14-year underwater period.

I consider the 2x and 3x portfolios as highly risk averse compared to 100% S&P 500, actually, when the assets are handled with appropriate respect. Sure, usual caveats going forward about performance, changing economic conditions, rising interest rates, etc., but still.

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

Post by drumboy256 »

tomphilly wrote: Sun Jul 25, 2021 8:57 am I've noticed lately this strategy getting a lot more acceptance on reddit. Years ago you might hear about it only on /r/wallstreetbets, and criticized elsewhere, but lately I've seen posters swearing by it in more mainstream investing hubs like /r/investing. I wonder, if a lot more investors come around to this strategy, what could it mean long term? I'm guessing that indexes ultimately rely on investors trading the underlying company stocks to move an index - I guess this has been an emerging threat with passive investing for a while now.

We are definitely at a fearless stage in a bull market where there is a mainstream acceptance of high risk investing, evidenced by a broadening acceptance of HFEA, and things like the meme stock sector, and the 1-in-3 crypto investors that don't know what crypto is, to name a few.

The 70% drawdown this strategy experienced in Feb 2009 is just not on anybody's mind anymore. I finally got the PV pro subscription to load the historic dataset and see it for myself. The 3 and 5 year underwater periods for subprime and dotcom crashes respectively would break most investors of this strategy, I'm sure - as someone mentioned earlier, the main risk to this strategy is behavioral (seeing red and pulling the plug). Need to be mindful of this.

This is sort of a parachute addon to HFEA - does anyone buy cheap, deep OTM "black swan event" SPY options to provide an additional hedge to this strategy? It really dampens returns, but seems worth considering at ATH's.
I would agree that "leverage" and "margin" seem to be common vernacular in the investment "savvy" crowd these days which, for better or worse is here to stay. That said, I'm getting ready to jump in with my Roth IRA account which is such a small amount just due to late start on getting finances in place. Total is less than 1% of my portfolio of which if anything, it may allow for catch up while seeing some of the more interesting aspects of the market at work. :beer
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson | 20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hillclimber »

tomphilly wrote: Sun Jul 25, 2021 8:57 am I've noticed lately this strategy getting a lot more acceptance on reddit. Years ago you might hear about it only on /r/wallstreetbets, and criticized elsewhere, but lately I've seen posters swearing by it in more mainstream investing hubs like /r/investing. I wonder, if a lot more investors come around to this strategy, what could it mean long term? I'm guessing that indexes ultimately rely on investors trading the underlying company stocks to move an index - I guess this has been an emerging threat with passive investing for a while now.
It'll be interesting to find out what happens as more retail traders use more and more leveraged products. Institutional traders already use leverage to reach their goals. Archegos was leveraged 5x before they blew up. From what I hear, Ray Dalio's Bridgewater uses leverage on the all weather portfolio to boost returns. Remember a few months ago when Burry was buying call options on 3x short treasuries? Leveraged investing is already common in the institutional world.
In the retail world, a lot of wealth is held by people nearing or in retirement. It wouldn't make sense for them to be doing leveraged investing. The wallstreetbets crowd is pretty small in the grand scheme of things.
I think leverage, independent of HFEA, is increasing P/E ratios, lowering expected returns. Imagine a world where you need 2x leverage to get an 8% return. :twisted:
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by investor.was.here »

hillclimber wrote: Mon Jul 26, 2021 1:31 pm From what I hear, Ray Dalio's Bridgewater uses leverage on the all weather portfolio to boost returns.
I'm currently trying to build a leveraged all weather portfolio, using new insights. It's not trivial, since we lack leveraged TIPS/GOLD. I thought maybe increase the allocation by effective leverage but that would put bonds at 90% of the portfolio. Here's what I came up with.

Original:

30% URPO (3x S&P500)
40% TMF (3x LT treasuries)
15% TYD (3x IT treasuries)
7.5% UTSL (3x utilities)
7.5% UGLD (3x gold)

Revised:

22.5% UPRO (3x S&P500)
7.5% EDC (3x intl)
40% TMF (3x LT treasuries)
15% TIP (TIPS, looks IT)
7.5% UTSL (3x utilities)
7.5% UGL (2x gold)

Hardly any backtesting. Thoughts on how to go back further? Or thoughts in general about it?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

investor.was.here wrote: Mon Jul 26, 2021 3:45 pm
hillclimber wrote: Mon Jul 26, 2021 1:31 pm From what I hear, Ray Dalio's Bridgewater uses leverage on the all weather portfolio to boost returns.
I'm currently trying to build a leveraged all weather portfolio, using new insights. It's not trivial, since we lack leveraged TIPS/GOLD. I thought maybe increase the allocation by effective leverage but that would put bonds at 90% of the portfolio. Here's what I came up with.

Original:

30% URPO (3x S&P500)
40% TMF (3x LT treasuries)
15% TYD (3x IT treasuries)
7.5% UTSL (3x utilities)
7.5% UGLD (3x gold)

Revised:

22.5% UPRO (3x S&P500)
7.5% EDC (3x intl)
40% TMF (3x LT treasuries)
15% TIP (TIPS, looks IT)
7.5% UTSL (3x utilities)
7.5% UGL (2x gold)

Hardly any backtesting. Thoughts on how to go back further? Or thoughts in general about it?
You can try something like this to get back to 2005.

Personally I don't think TIP and UGL should be considered as giving much more than store of value going forward. Hard to say whether TIP would be better than TYD, but both returns should be small compared to the equities.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

hillclimber wrote: Mon Jul 26, 2021 1:31 pm
In the retail world, a lot of wealth is held by people nearing or in retirement. It wouldn't make sense for them to be doing leveraged investing. The wallstreetbets crowd is pretty small in the grand scheme of things.
I think leverage, independent of HFEA, is increasing P/E ratios, lowering expected returns. Imagine a world where you need 2x leverage to get an 8% return. :twisted:
The highlighted is part of my fear too. Leverage essentially pulls in future returns via borrowing so I fear an investing world with low return in the next 2-30 years. However, in my retirement plan, my expected return is 0-2% real so I'm okay with it either way :twisted:
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hillclimber »

Right now I'm experimenting with poor man's covered calls to get leveraged exposure to emerging markets. Once I get used to it, I'll be trying it out on gold. I'm not sure what's up with EDC, but if you look at it, it underperforms unleveraged EEM . I guess it's due to volatility decay and the expense ratio. Other than that, it looks fine.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by danielfp »

investor.was.here wrote: Mon Jul 26, 2021 3:45 pm I'm currently trying to build a leveraged all weather portfolio, using new insights. It's not trivial, since we lack leveraged TIPS/GOLD. I thought maybe increase the allocation by effective leverage but that would put bonds at 90% of the portfolio. Here's what I came up with.

Original:

30% URPO (3x S&P500)
40% TMF (3x LT treasuries)
15% TYD (3x IT treasuries)
7.5% UTSL (3x utilities)
7.5% UGLD (3x gold)

Revised:

22.5% UPRO (3x S&P500)
7.5% EDC (3x intl)
40% TMF (3x LT treasuries)
15% TIP (TIPS, looks IT)
7.5% UTSL (3x utilities)
7.5% UGL (2x gold)

Hardly any backtesting. Thoughts on how to go back further? Or thoughts in general about it?
For any daily reset levered strategy to make more sense than the 1x strategy, the asset needs to have a sufficiently high long term average daily return. This is not the case with either gold or international funds. In these cases, you aren't gaining anything from daily reset leverage, because it all gets consumed by the volatility decay, you are literally just paying interest to gain leverage that is not very useful to you.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

hillclimber wrote: Mon Jul 26, 2021 6:23 pm Right now I'm experimenting with poor man's covered calls to get leveraged exposure to emerging markets. Once I get used to it, I'll be trying it out on gold. I'm not sure what's up with EDC, but if you look at it, it underperforms unleveraged EEM . I guess it's due to volatility decay and the expense ratio. Other than that, it looks fine.
That's due to the volatility decay. The 3x EEM in the link is rebalance annually (not daily) so it won't show the decay rate as significant, change it to monthly you'll see them get close. Backtest on quanconnect with daily rebalance and you're see it match up to EDC (minus the fee) rather well. EDC is not returning any thing over the last 10 years.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

danielfp wrote: Mon Jul 26, 2021 6:27 pm For any daily reset levered strategy to make more sense than the 1x strategy, the asset needs to have a sufficiently high long term average daily return. This is not the case with either gold or international funds. In these cases, you aren't gaining anything from daily reset leverage, because it all gets consumed by the volatility decay, you are literally just paying interest to gain leverage that is not very useful to you.
Do you have a good source for long-term average daily returns? What do the numbers look like for the assets in your portfolio?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

cos wrote: Sun Jul 25, 2021 1:02 pm I'd say my biggest fear about the growing popularity of HFEA and similar strategies is regulation risk. We just had the SEC threatening to shut down 2x and 3x leveraged ETFs last Fall, and it seems we were lucky to get away with a mere ban on the creation of new 3x leveraged ETFs. Who knows what will happen in the midst of a drawdown after one too many investors jumps ship at the bottom?
While the rule allows existing funds with multiples of 3x or -3x to continue to operate, we disagree with the rule’s prohibition of the introduction of new geared funds with these multiples. We believe this provision is not in investors’ best interest because it limits innovation, choice, and competition.
Source: https://www.proshares.com/news/sec_regu ... ement.html
I get cold sweats thinking of a world where leveraged funds are outlawed. brrrrrrrr

The government needs to protect us from ourselves, it seems. :mrgreen: I was happy enough with all the constant warnings and fear-mongering material surrounding the funds. I would say that worked very well, when you look at 99% of the comments from people on the web about these funds.

At least they let us have new 2x... for now.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

cos wrote: Sun Jul 25, 2021 1:02 pm I'd say my biggest fear about the growing popularity of HFEA and similar strategies is regulation risk. We just had the SEC threatening to shut down 2x and 3x leveraged ETFs last Fall, and it seems we were lucky to get away with a mere ban on the creation of new 3x leveraged ETFs. Who knows what will happen in the midst of a drawdown after one too many investors jumps ship at the bottom?
While the rule allows existing funds with multiples of 3x or -3x to continue to operate, we disagree with the rule’s prohibition of the introduction of new geared funds with these multiples. We believe this provision is not in investors’ best interest because it limits innovation, choice, and competition.
Source: https://www.proshares.com/news/sec_regu ... ement.html
Yikes, not sure how I missed this news. I guess I would just invest in PSLDX or something similar then :|
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Miggsy »

investor.was.here wrote: Mon Jul 26, 2021 3:45 pm
hillclimber wrote: Mon Jul 26, 2021 1:31 pm From what I hear, Ray Dalio's Bridgewater uses leverage on the all weather portfolio to boost returns.
I'm currently trying to build a leveraged all weather portfolio, using new insights. It's not trivial, since we lack leveraged TIPS/GOLD. I thought maybe increase the allocation by effective leverage but that would put bonds at 90% of the portfolio. Here's what I came up with.

Original:

30% URPO (3x S&P500)
40% TMF (3x LT treasuries)
15% TYD (3x IT treasuries)
7.5% UTSL (3x utilities)
7.5% UGLD (3x gold)

Revised:

22.5% UPRO (3x S&P500)
7.5% EDC (3x intl)
40% TMF (3x LT treasuries)
15% TIP (TIPS, looks IT)
7.5% UTSL (3x utilities)
7.5% UGL (2x gold)

Hardly any backtesting. Thoughts on how to go back further? Or thoughts in general about it?
I have been running a Ray Dalio All-Weather inspired leveraged portfolio since July of last year. I first came across Dalio's all-weather portfolio ETF recommendation in Tony Robbins' book, Money: Master the Game, and sought to replicate it with leverage. The recommendation Dalio gave was 30% stocks, 40% long Treasuries, 15% intermediate Treasuries, 7.5% gold, 7.5% commodities.

I originally implemented the strategy in my Roth IRA with the following: 30% SPXL, 40% TMF, 15% TYD, 7.5% UGL, 7.5% GSG. If there were 3x gold and commodities ETFs I would have used them. In December I removed GSG and replaced that allocation with UGL, so now I invest in 15% UGL. This was admittedly poor timing but I'm sticking with it. I would like this "alternatives" or "inflation-hedge" sleeve of the portfolio to be levered and I didn't like the fact that commodities were unlevered. I recognize gold isn't a reliable inflation hedge.

My Roth and a taxable account are both invested in this leveraged all-weather portfolio of 30% SPXL, 40% TMF, 15% TYD, 15% UGL. I rebalance the Roth if any asset is 10% from these targets, which has occurred twice thus far as SPXL has run (November 2020 and April 2021). I'm making regular additions to the taxable account and invest in whichever security is underweight these targets; this has meant buying a lot of TMF, but I've gotten my basis down to $29.06. Thanks to these additions, I have yet to have to consider rebalancing the taxable portfolio as it hasn't gotten outside the 10% bands.

The gold and intermediate Treasury exposure somewhat combat my inflation fears. I understand gold is not a reliable hedge but it's the best I see out there in the leveraged space at the moment.

I've nicknamed this strategy 3x All-Weather Gold, 3x AWG in the portfolio visualizer link below. The backtest in the link has plenty of flaws but is good enough for me at this point. I'm using Vanguard mutual funds to backtest to the early 90's. Hedgefundie's 55/45 strategy outperforms 3x AWG, but with far more volatility, more significant drawdowns, and lower Sharpe/Sortino scores. The rolling returns are highly interesting to me as the 3x AWG has not suffered a negative 60 month return; the same can't be said for the Hedgefundie strategy. As a result, I view this strategy as a little more conservative and *perhaps* more resilient in a rising rate or inflationary environment... perhaps!

https://www.portfoliovisualizer.com/bac ... ymbol8=IJR

This is my first post but I've been a long-time lurker. Thanks for all your contributions.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

Ramjet wrote: Tue Jul 27, 2021 12:00 pm
cos wrote: Sun Jul 25, 2021 1:02 pm I'd say my biggest fear about the growing popularity of HFEA and similar strategies is regulation risk. We just had the SEC threatening to shut down 2x and 3x leveraged ETFs last Fall, and it seems we were lucky to get away with a mere ban on the creation of new 3x leveraged ETFs. Who knows what will happen in the midst of a drawdown after one too many investors jumps ship at the bottom?
While the rule allows existing funds with multiples of 3x or -3x to continue to operate, we disagree with the rule’s prohibition of the introduction of new geared funds with these multiples. We believe this provision is not in investors’ best interest because it limits innovation, choice, and competition.
Source: https://www.proshares.com/news/sec_regu ... ement.html
Yikes, not sure how I missed this news. I guess I would just invest in PSLDX or something similar then :|
They may take our leverage... but they will never take our freeeeedooommm!

If they want to take my TQQQ, they will have to pry it from my cold, dead hands! Sorry guys, have to leave you... SEC agents are knocking at my door. :mrgreen:

In all seriousness, if Proshares and Direxion don't mess anything up and maintain the existing ones, even during rough weather, we should be good. I'm assuming now that new 3x are out of the question, they will not flippantly close the existing cash cows. I tried to find if there were any "expiration" dates on these ETFs (like on ETNs) but I came up short. I'm guessing it's open-ended (date-wise).
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

Miggsy wrote: Tue Jul 27, 2021 2:42 pm
investor.was.here wrote: Mon Jul 26, 2021 3:45 pm
Revised:

22.5% UPRO (3x S&P500)
7.5% EDC (3x intl)
40% TMF (3x LT treasuries)
15% TIP (TIPS, looks IT)
7.5% UTSL (3x utilities)
7.5% UGL (2x gold)

Hardly any backtesting. Thoughts on how to go back further? Or thoughts in general about it?
My Roth and a taxable account are both invested in this leveraged all-weather portfolio of 30% SPXL, 40% TMF, 15% TYD, 15% UGL. I rebalance the Roth if any asset is 10% from these targets, which has occurred twice thus far as SPXL has run (November 2020 and April 2021). I'm making regular additions to the taxable account and invest in whichever security is underweight these targets; this has meant buying a lot of TMF, but I've gotten my basis down to $29.06. Thanks to these additions, I have yet to have to consider rebalancing the taxable portfolio as it hasn't gotten outside the 10% bands.

The gold and intermediate Treasury exposure somewhat combat my inflation fears. I understand gold is not a reliable hedge but it's the best I see out there in the leveraged space at the moment.

I've nicknamed this strategy 3x All-Weather Gold, 3x AWG in the portfolio visualizer link below. The backtest in the link has plenty of flaws but is good enough for me at this point. I'm using Vanguard mutual funds to backtest to the early 90's. Hedgefundie's 55/45 strategy outperforms 3x AWG, but with far more volatility, more significant drawdowns, and lower Sharpe/Sortino scores. The rolling returns are highly interesting to me as the 3x AWG has not suffered a negative 60 month return; the same can't be said for the Hedgefundie strategy. As a result, I view this strategy as a little more conservative and *perhaps* more resilient in a rising rate or inflationary environment... perhaps!

https://www.portfoliovisualizer.com/bac ... ymbol8=IJR

This is my first post but I've been a long-time lurker. Thanks for all your contributions.
I think that it may be a mistake to leverage gold. Gold's role is as a store of value; the volatility per se doesn't buy you much, especially at 2x, and the return is smaller because of higher ER and volatility decay. Let the equities and treasuries handle the volatility.

Also, VFINX has a shorter average duration than TYD. I use DFIGX as a surrogate for leveraging to TYD instead. Not perfect but better.
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drumboy256
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by drumboy256 »

man oh man, only two days in and this is already entertaining! :beer
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson | 20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

drumboy256 wrote: Tue Jul 27, 2021 9:43 pm man oh man, only two days in and this is already entertaining! :beer
This'll help with keeping cool for changes in the remainder of your portfolio. Don't sweat 20 or 30 % swings, they're par for the course.
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drumboy256
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by drumboy256 »

Hydromod wrote: Tue Jul 27, 2021 10:25 pm
drumboy256 wrote: Tue Jul 27, 2021 9:43 pm man oh man, only two days in and this is already entertaining! :beer
This'll help with keeping cool for changes in the remainder of your portfolio. Don't sweat 20 or 30 % swings, they're par for the course.
No joke!! I'm kinda loving it!
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson | 20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

drumboy256 wrote: Tue Jul 27, 2021 10:41 pm
Hydromod wrote: Tue Jul 27, 2021 10:25 pm
drumboy256 wrote: Tue Jul 27, 2021 9:43 pm man oh man, only two days in and this is already entertaining! :beer
This'll help with keeping cool for changes in the remainder of your portfolio. Don't sweat 20 or 30 % swings, they're par for the course.
No joke!! I'm kinda loving it!
Regular index ETFs are the gateway drug, maaaan. This here stuff is the heavy kind, ya dig? Watch out if you're chasing the dragon or you're gonna end up stuck here with the rest of us Triplers. :mrgreen:
AllomancerJack
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by AllomancerJack »

Had someone evaluated using non-leveraged bond ETFs and less-than-3x-leverage stock ETFs?
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

AllomancerJack wrote: Wed Jul 28, 2021 10:09 am Had someone evaluated using non-leveraged bond ETFs and less-than-3x-leverage stock ETFs?
A lot of people were looking at EDV instead of TMF. Search the thread (and Part I)... there's some discussion on it farther back.
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cos
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

Quick update, primarily to keep myself honest about staying the course: I've officially switched from 63/42 UPRO/TMF (1.05x margin leverage) to 33/33/39 UPRO/UMDD/TMF (1.05x margin leverage) in an attempt to gain exposure to alternative risk factors like value, quality, profitability, and investment. Ideally, I won't make any further changes for another few years. However, I will permit myself very minor adjustments like reducing margin leverage and tilting more towards bonds should I find myself struggling with the volatility. Based on my emotional response to the COVID crash with 55/45 UPRO/TMF (no margin leverage), I believe my risk tolerance lies somewhere between 3:2 stocks/LTTs and 2:1 stocks/LTTs, with ~3x leverage. Any further adjustments will likely remain in that range, and I will document all of them here if any should come to pass.

As an aside, I'm a little sketched out by the limited liquidity available for UMDD. I managed to get a beautiful fill Monday afternoon, buying in quite near the bottom for the day, but if I start losing out on the spread too much going forward, I may switch back to using UPRO alone. For both tax-related and behavioral reasons, I'd prefer to avoid adding and removing securities too often, so things would have to get very bad for me to give up on UMDD.

Anyways, in two years, I expect to still be somewhere between 30/30/40 and 33/33/39 UPRO/UMDD/TMF with a small chance of dropping UMDD if liquidity becomes a problem. If this is not the case, I will have to thoroughly reevaluate my risk tolerance, and I will certainly let you all know about it.

I'm going to try and spend less time on the internet going forward so you might not hear from me as frequently. Until next time, good luck to all of you and thank you for the adventure! Cheers!
:sharebeer
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

AllomancerJack wrote: Wed Jul 28, 2021 10:09 am Had someone evaluated using non-leveraged bond ETFs and less-than-3x-leverage stock ETFs?
Lots of discussion of using EDV for bond (check out the first thread and look for mototrojan's comments). And hydromod has provide some good view on why not to use SSO (2x) due to similar expense in this thread, just a few pages back.
Ramjet
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

OohLaLa wrote: Tue Jul 27, 2021 2:44 pm
Ramjet wrote: Tue Jul 27, 2021 12:00 pm
cos wrote: Sun Jul 25, 2021 1:02 pm I'd say my biggest fear about the growing popularity of HFEA and similar strategies is regulation risk. We just had the SEC threatening to shut down 2x and 3x leveraged ETFs last Fall, and it seems we were lucky to get away with a mere ban on the creation of new 3x leveraged ETFs. Who knows what will happen in the midst of a drawdown after one too many investors jumps ship at the bottom?
While the rule allows existing funds with multiples of 3x or -3x to continue to operate, we disagree with the rule’s prohibition of the introduction of new geared funds with these multiples. We believe this provision is not in investors’ best interest because it limits innovation, choice, and competition.
Source: https://www.proshares.com/news/sec_regu ... ement.html
Yikes, not sure how I missed this news. I guess I would just invest in PSLDX or something similar then :|
They may take our leverage... but they will never take our freeeeedooommm!
Haha :mrgreen: :mrgreen: :mrgreen:
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