Very different since their holdings are not the same at all
HEDGEFUNDIE's excellent adventure Part II: The next journey
-
- Posts: 1574
- Joined: Sat Jan 20, 2018 4:40 pm
- Location: Land of Hypoxia
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I have been following this fantastic thread for a while. Thank you all for your significant contribution and thorough discussions about the strategy. Not sure if anyone talked about implementing by shorting -3x ETF pair 55/45 SPXU/TMV. I think managing these inverse ETFs has big rebalancing losses and high commissions. So shorting them turns these losses into additional returns. The back test on PV shows a higher CAGR and better Sharpe ratio, compared to OP's 55/45 UPRO/TMF.
2010-2022
CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio
55/45 UPRO/TMF 35.36% 22.44% 73.88% -14.16% -19.52% 1.45 2.85
-55/-45 SPXU/TMV 39.58% 20.65% 93.78% -12.26% -21.77% 1.71 3.58
Curious if anyone here uses this shorting strategy? Besides that it may be difficult to borrow SPXU and TMV, are there any other risks preventing us from being a little greedier? Thanks.
https://www.portfoliovisualizer.com/bac ... ion4_2=-45
2010-2022
CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio
55/45 UPRO/TMF 35.36% 22.44% 73.88% -14.16% -19.52% 1.45 2.85
-55/-45 SPXU/TMV 39.58% 20.65% 93.78% -12.26% -21.77% 1.71 3.58
Curious if anyone here uses this shorting strategy? Besides that it may be difficult to borrow SPXU and TMV, are there any other risks preventing us from being a little greedier? Thanks.
https://www.portfoliovisualizer.com/bac ... ion4_2=-45
-
- Posts: 1574
- Joined: Sat Jan 20, 2018 4:40 pm
- Location: Land of Hypoxia
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Looks like the only common ground is that they both hold Microsoft and Apple. That’s it, so safe for sure.Semantics wrote: ↑Fri Jan 21, 2022 10:01 amEven SPY and VOO are not considered substantially identical, so QQQ and TQQQ are absolutely not.parval wrote: ↑Fri Jan 21, 2022 9:22 amAre you sure those aren't close enough for wash sale? I mean QQQ for TQQQ seems super close, but I don't work for IRSChinchillaWhiplash wrote: ↑Fri Jan 21, 2022 9:03 am Don’t know if this has been discussed before but has anyone used their taxable to do mega TLH? I’m buying VOO, QQQ, and a SC index fund. If any of these drop 20% or more I will sell for a loss, claim loss on taxes and buy UPRO, TQQQ, TNA. Seems like a win win. Have your cake and eat it too? Anybody doing this?
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Some argue that because they're from different fund companies, they're different. So far IRS has not issue a ruling on what defines as substantially identical.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
There was some extensive discussion upthread a while back. The conclusion was high costs would make it unattractive. I seem to remember something about capped upside, but I could be wrong on that.zeejee wrote: ↑Fri Jan 21, 2022 10:46 am I have been following this fantastic thread for a while. Thank you all for your significant contribution and thorough discussions about the strategy. Not sure if anyone talked about implementing by shorting -3x ETF pair 55/45 SPXU/TMV. I think managing these inverse ETFs has big rebalancing losses and high commissions. So shorting them turns these losses into additional returns. The back test on PV shows a higher CAGR and better Sharpe ratio, compared to OP's 55/45 UPRO/TMF.
2010-2022
CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio
55/45 UPRO/TMF 35.36% 22.44% 73.88% -14.16% -19.52% 1.45 2.85
-55/-45 SPXU/TMV 39.58% 20.65% 93.78% -12.26% -21.77% 1.71 3.58
Curious if anyone here uses this shorting strategy? Besides that it may be difficult to borrow SPXU and TMV, are there any other risks preventing us from being a little greedier? Thanks.
https://www.portfoliovisualizer.com/bac ... ion4_2=-45
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
This was discussed extensively in this thread, I think one around mid-2020 and one just few months ago. The conclusion generally is that the borrowing cost is quite high (not being included in the PV simulation) and also big part of the out performance is due to long volatility decay of SPXU/TMV during the bull market run. Check out page 39/113 and maybe 10 pages back.zeejee wrote: ↑Fri Jan 21, 2022 10:46 am I have been following this fantastic thread for a while. Thank you all for your significant contribution and thorough discussions about the strategy. Not sure if anyone talked about implementing by shorting -3x ETF pair 55/45 SPXU/TMV. I think managing these inverse ETFs has big rebalancing losses and high commissions. So shorting them turns these losses into additional returns. The back test on PV shows a higher CAGR and better Sharpe ratio, compared to OP's 55/45 UPRO/TMF.
2010-2022
CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio
55/45 UPRO/TMF 35.36% 22.44% 73.88% -14.16% -19.52% 1.45 2.85
-55/-45 SPXU/TMV 39.58% 20.65% 93.78% -12.26% -21.77% 1.71 3.58
Curious if anyone here uses this shorting strategy? Besides that it may be difficult to borrow SPXU and TMV, are there any other risks preventing us from being a little greedier? Thanks.
https://www.portfoliovisualizer.com/bac ... ion4_2=-45
- hillclimber
- Posts: 136
- Joined: Wed Mar 10, 2021 2:32 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I think the benefits are small enough that the IRS doesn't seem to care about it, and there is some legal ambiguity, since the original wash sale rule predates index funds. That may change in the future though.To be safe, betterment flips between etfs that track different indices.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
At -15.23% HFEA 60/40 is (so far) just shy of the worst monthly drawdown in nearly 13 years, which was Oct 2018 (-16.11%). Thankfully, TMF has come to the rescue the past 2 days.
-
- Posts: 1574
- Joined: Sat Jan 20, 2018 4:40 pm
- Location: Land of Hypoxia
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
After digging into each ETF’s holding, the leveraged funds do hold the underlying index in addition to the different contracts. The funds are not identical due to this but they do contain the same securities. Not sure if the added contracts make them “different” enough? My guess is “Yes”. Also, SPXL vs UPRO, SPXL holds IVV and UPRO hold the individual securities. Both use different contracts with different financial institutions. Also guessing that these are different enough to not be “identical”. They are closer to the same than I thought though.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Sounds about right. I run 50-25-25 of IXUS, UPRO, and TMF in my Roth and it's down less than 9%. My whole portfolio is down like 6%. So, this really is pretty pedestrian so far... not to say it won't get worse, but this isn't even a 'correction' yet for me.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
-
- Posts: 158
- Joined: Thu Feb 25, 2021 11:43 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Wow a lot of the comments earlier this week in this thread are a little alarming. I highly recommend that if you can’t stomach this then to bail now. Remember, intramonth 2008 you probably saw close to an 80% total drawdown with much scarier headlines. People legitimately thought the world of finance was coming to an end. Millions underwater on homes, pension plans way underwater, SPY 50% drawdown etc.
So far, we’re at less than a 10% drawdown in SPY.
People were saying earlier in the week that LTT are done, fed is hawkish, inflation, rates rising, and so on. Yet, TMF up ~3% last 2 days each.
Why don’t these excellent market forecasters run a hedge fund instead? Would seem like a better use of talent.
I like how it’s accepted that we don’t know the future, but when it comes to rising rates people are much better at predicting and forecasting and building that in to their models than trillions of dollars of pensions and sovereign wealth funds.
Jeez. Get a grip.
So far, we’re at less than a 10% drawdown in SPY.
People were saying earlier in the week that LTT are done, fed is hawkish, inflation, rates rising, and so on. Yet, TMF up ~3% last 2 days each.
Why don’t these excellent market forecasters run a hedge fund instead? Would seem like a better use of talent.
I like how it’s accepted that we don’t know the future, but when it comes to rising rates people are much better at predicting and forecasting and building that in to their models than trillions of dollars of pensions and sovereign wealth funds.
Jeez. Get a grip.
-
- Posts: 224
- Joined: Sat Apr 25, 2020 8:28 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I think people overestimate their risk tolerance. It happened during the coronavirus crisis as well where people freak out.TheDoctor91 wrote: ↑Fri Jan 21, 2022 8:37 pm Wow a lot of the comments earlier this week in this thread are a little alarming. I highly recommend that if you can’t stomach this then to bail now. Remember, intramonth 2008 you probably saw close to an 80% total drawdown with much scarier headlines. People legitimately thought the world of finance was coming to an end. Millions underwater on homes, pension plans way underwater, SPY 50% drawdown etc.
So far, we’re at less than a 10% drawdown in SPY.
People were saying earlier in the week that LTT are done, fed is hawkish, inflation, rates rising, and so on. Yet, TMF up ~3% last 2 days each.
Why don’t these excellent market forecasters run a hedge fund instead? Would seem like a better use of talent.
I like how it’s accepted that we don’t know the future, but when it comes to rising rates people are much better at predicting and forecasting and building that in to their models than trillions of dollars of pensions and sovereign wealth funds.
Jeez. Get a grip.
I'm commenting for posterity here but I don't see a crisis looming personally. The fundamentals of the economy are still strong and this drawdown is nowhere significant (leverage is making it seem way more scary than it actually is).
With that said, I'm going to rotate out of equities soon based on my volatility model.
-
- Posts: 158
- Joined: Thu Feb 25, 2021 11:43 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I agree with you as well. Any crisis is in people’s heads. Corporations, the consumer, fundamentals, and the economy are very strong. The future looks good to me.DarkMatter731 wrote: ↑Fri Jan 21, 2022 9:49 pmI think people overestimate their risk tolerance. It happened during the coronavirus crisis as well where people freak out.TheDoctor91 wrote: ↑Fri Jan 21, 2022 8:37 pm Wow a lot of the comments earlier this week in this thread are a little alarming. I highly recommend that if you can’t stomach this then to bail now. Remember, intramonth 2008 you probably saw close to an 80% total drawdown with much scarier headlines. People legitimately thought the world of finance was coming to an end. Millions underwater on homes, pension plans way underwater, SPY 50% drawdown etc.
So far, we’re at less than a 10% drawdown in SPY.
People were saying earlier in the week that LTT are done, fed is hawkish, inflation, rates rising, and so on. Yet, TMF up ~3% last 2 days each.
Why don’t these excellent market forecasters run a hedge fund instead? Would seem like a better use of talent.
I like how it’s accepted that we don’t know the future, but when it comes to rising rates people are much better at predicting and forecasting and building that in to their models than trillions of dollars of pensions and sovereign wealth funds.
Jeez. Get a grip.
I'm commenting for posterity here but I don't see a crisis looming personally. The fundamentals of the economy are still strong and this drawdown is nowhere significant (leverage is making it seem way more scary than it actually is).
With that said, I'm going to rotate out of equities soon based on my volatility model.
I have a few models may rotate me out EOM as well, let’s see what monday brings.
-
- Posts: 1574
- Joined: Sat Jan 20, 2018 4:40 pm
- Location: Land of Hypoxia
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Well, after reading this article, seems like this will not hold water and the 30 days need to be used to not trigger a wash sale in the eyes of the IRS. Bummer One could switch from one index to another though. Not quite a direct TLH, but could work out favorably if they are similar in performance. https://www.morningstar.com/articles/10 ... -identicalChinchillaWhiplash wrote: ↑Fri Jan 21, 2022 9:03 am Don’t know if this has been discussed before but has anyone used their taxable to do mega TLH? I’m buying VOO, QQQ, and a SC index fund. If any of these drop 20% or more I will sell for a loss, claim loss on taxes and buy UPRO, TQQQ, TNA. Seems like a win win. Have your cake and eat it too? Anybody doing this?
SCHA and TNA would make good partners for Small Cap. Would guess that a large cap blend index could be partnered with UPRO. So there is some hope of using this strategy.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
You can use total market index etf VTI instead of VOO - it tracks pretty much the same as VOO but has a completely different underlying index which will prevent it from being considered a wash sale. There is also ITOT which also tracks with snp and total market index but is yet another different index and will not cause a wash sale when switched to UPRO.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I stumbled across a pretty comprehensive summary of HFEA on reddit. It covers TLH using SPXL for UPRO and synthetic long stocks for TMF, with an example of how to calculate the option positions to mimic TMF. To rule out any ambiguity around wash sale rules for UPRO/SPXL you could also use the same synthetic long stock method.
The idea that we're "Leaving the era of easy money" by raising rates from 0% to eventually 1% or 2% over several years seems like hyperbole. Will new Tech companies still achieve ridiculous valuations at slightly higher interest rates? Yes.
You're right - FUD has gripped the market and headlines and there is currently only one perceivable future for many. Declining PPI (link), PBOC cutting rates, VIX inversion (link) are a few indicators that signal other possibilities. The demographic megatrends putting downward pressure on interest rates also didn't suddenly vanish.TheDoctor91 wrote: ↑Fri Jan 21, 2022 8:37 pm I like how it’s accepted that we don’t know the future, but when it comes to rising rates people are much better at predicting and forecasting and building that in to their models than trillions of dollars of pensions and sovereign wealth funds.
The idea that we're "Leaving the era of easy money" by raising rates from 0% to eventually 1% or 2% over several years seems like hyperbole. Will new Tech companies still achieve ridiculous valuations at slightly higher interest rates? Yes.
-
- Posts: 116
- Joined: Sat Jul 13, 2019 4:54 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
It seems like Composer's iteration on this strategy is continuing to do a bit better during the recent volatility:
https://app.composer.trade/symphony/GRJ ... u/details
Interesting post:
https://www.composer.trade/blog/an-online-origin-story
It doesn't seem to get the same raw returns, but drawdowns are a lot more muted:
https://app.composer.trade/symphony/GRJ ... u/details
Interesting post:
https://www.composer.trade/blog/an-online-origin-story
It doesn't seem to get the same raw returns, but drawdowns are a lot more muted:
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Thanks for the clues. Went back to study those posts.Hydromod wrote: ↑Fri Jan 21, 2022 11:30 amThere was some extensive discussion upthread a while back. The conclusion was high costs would make it unattractive. I seem to remember something about capped upside, but I could be wrong on that.zeejee wrote: ↑Fri Jan 21, 2022 10:46 am I have been following this fantastic thread for a while. Thank you all for your significant contribution and thorough discussions about the strategy. Not sure if anyone talked about implementing by shorting -3x ETF pair 55/45 SPXU/TMV. I think managing these inverse ETFs has big rebalancing losses and high commissions. So shorting them turns these losses into additional returns. The back test on PV shows a higher CAGR and better Sharpe ratio, compared to OP's 55/45 UPRO/TMF.
2010-2022
CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio
55/45 UPRO/TMF 35.36% 22.44% 73.88% -14.16% -19.52% 1.45 2.85
-55/-45 SPXU/TMV 39.58% 20.65% 93.78% -12.26% -21.77% 1.71 3.58
Curious if anyone here uses this shorting strategy? Besides that it may be difficult to borrow SPXU and TMV, are there any other risks preventing us from being a little greedier? Thanks.
https://www.portfoliovisualizer.com/bac ... ion4_2=-45
Myself has a portion in the OP's original strategy. But one issue keeps puzzling me. This excellent adventure strategy has become quite popular across this forum, Reddit, and everywhere. Many dumped their portfolios into it. Conventional wisdom says a strategy will stop working if everyone practices it. Will HFEA be an exception? Maybe the rising interest rate kills it sooner than the conventional wisdom comes true. Time will tell.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
You can say the same about the Bogleheads 3-fund portfolio. The beauty of HFEA is that there's nothing magical about it. It's hardly a "strategy" - it's basically just a 55/45 portfolio levered up. It generally follows modern portfolio theory.zeejee wrote: ↑Sat Jan 22, 2022 10:06 amThanks for the clues. Went back to study those posts.
Myself has a portion in the OP's original strategy. But one issue keeps puzzling me. This excellent adventure strategy has become quite popular across this forum, Reddit, and everywhere. Many dumped their portfolios into it. Conventional wisdom says a strategy will stop working if everyone practices it. Will HFEA be an exception? Maybe the rising interest rate kills it sooner than the conventional wisdom comes true. Time will tell.
And I'd challenge that assumption on "conventional wisdom." Again, looking at a standard Bogleheads portfolio - sure, a ton of people are invested in the US stock market, but it still makes money because the underlying businesses (and bonds) it's invested in make money.
The only way something like this can be "overweight" is if the underlying LTTs and S&P500 were overweight, because HFEA is just leverage on those. And FWIW the NYSE has a total market cap of ~$30T. I'd be surprised if total investment in HFEA was more than $100M.
- firebirdparts
- Posts: 4411
- Joined: Thu Jun 13, 2019 4:21 pm
- Location: Southern Appalachia
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Well, I do wonder 'who are these people' who are the counterparties to UPRO? What kind of person would do that?zeejee wrote: ↑Sat Jan 22, 2022 10:06 am Thanks for the clues. Went back to study those posts.
Myself has a portion in the OP's original strategy. But one issue keeps puzzling me. This excellent adventure strategy has become quite popular across this forum, Reddit, and everywhere. Many dumped their portfolios into it. Conventional wisdom says a strategy will stop working if everyone practices it. Will HFEA be an exception? Maybe the rising interest rate kills it sooner than the conventional wisdom comes true. Time will tell.
Clearly there'll be a limit to how many of those positions exist at reasonable prices. Somebody out there has whatever billion dollars short position and is willing to change it for their convenience every single day. You could make some argument for being a counterparty to the bonds, but with stocks it just seems unwise.
Owning derivatives is not the same as owning the asset.
This time is the same
- hillclimber
- Posts: 136
- Joined: Wed Mar 10, 2021 2:32 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I think the bank offering the swap (or the investor shorting the future) generally owns S&P 500 positions to offset the risk and profits by collecting the implied financing rate. It's like selling covered calls on a stock.firebirdparts wrote: ↑Sat Jan 22, 2022 2:10 pmWell, I do wonder 'who are these people' who are the counterparties to UPRO? What kind of person would do that?zeejee wrote: ↑Sat Jan 22, 2022 10:06 am Thanks for the clues. Went back to study those posts.
Myself has a portion in the OP's original strategy. But one issue keeps puzzling me. This excellent adventure strategy has become quite popular across this forum, Reddit, and everywhere. Many dumped their portfolios into it. Conventional wisdom says a strategy will stop working if everyone practices it. Will HFEA be an exception? Maybe the rising interest rate kills it sooner than the conventional wisdom comes true. Time will tell.
Clearly there'll be a limit to how many of those positions exist at reasonable prices. Somebody out there has whatever billion dollars short position and is willing to change it for their convenience every single day. You could make some argument for being a counterparty to the bonds, but with stocks it just seems unwise.
Owning derivatives is not the same as owning the asset.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I have noticed this too - it is in a lot of places. There's even an /r/HFEA subreddit. But as DarkMatter731 pointed out earlier, TMF has only $400MM assets under management.zeejee wrote: ↑Sat Jan 22, 2022 10:06 am This excellent adventure strategy has become quite popular across this forum, Reddit, and everywhere. Many dumped their portfolios into it. Conventional wisdom says a strategy will stop working if everyone practices it. Will HFEA be an exception? Maybe the rising interest rate kills it sooner than the conventional wisdom comes true. Time will tell.
Last edited by tomphilly on Sat Jan 22, 2022 6:03 pm, edited 1 time in total.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I expect that most people here don't have enough money in order to get short-term treasury exposure via futures.DarkMatter731 wrote: ↑Thu Jan 13, 2022 9:47 pm Any efficient portfolio should have more TYD compared with TMF I'd have thought. Short-term treasuries are a much, much better hedge than long-term treasuries - it's slightly surprising to be honest that everyone has chosen to go with TMF when you can lever up short-term treasuries far more using derivatives to make it comparable to a 45% TMF allocation.
I don't carry a signature because people are easily offended.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
For the most part, the counterparty is the ETF manager. But they are not selling it to you naked.firebirdparts wrote: ↑Sat Jan 22, 2022 2:10 pmWell, I do wonder 'who are these people' who are the counterparties to UPRO? What kind of person would do that?zeejee wrote: ↑Sat Jan 22, 2022 10:06 am Thanks for the clues. Went back to study those posts.
Myself has a portion in the OP's original strategy. But one issue keeps puzzling me. This excellent adventure strategy has become quite popular across this forum, Reddit, and everywhere. Many dumped their portfolios into it. Conventional wisdom says a strategy will stop working if everyone practices it. Will HFEA be an exception? Maybe the rising interest rate kills it sooner than the conventional wisdom comes true. Time will tell.
Clearly there'll be a limit to how many of those positions exist at reasonable prices. Somebody out there has whatever billion dollars short position and is willing to change it for their convenience every single day. You could make some argument for being a counterparty to the bonds, but with stocks it just seems unwise.
Owning derivatives is not the same as owning the asset.
Say, they have $100M. They put the $100M down as collateral, and buy $300M worth of futures, roughly.
I don't carry a signature because people are easily offended.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Strictly speaking that is not true.
Bridgewater and those that follow Bridgewater have various versions of it.
The building blocks are the same:
- blend Stock vs Treasury in a way that maximizes sharpe, including picking the specific part of the treasury curve that is the juicies,
- leverage to 150%, 200%, etc.
Leverage is achieved using futures.
UPRO and TMF are rebalancing daily, taking some of the trade management burden OFF the investors.
Professionals doing that type of leveraged trades may or may not rebal daily, but will definitely rebal frequently to keep their exposure, relative to invested capital.
Several top asset management firms (in addition to Bridgewater) are running variations of this: JP Morgan, Goldman, in their "alternative" funds.
They may even have fancier versions, where they use options to lever, combination of buying and selling.
Note that levered stocks or levered treasuries do not give you additional exposure factors (or risk premia). Using options will give you access to other risk premia.
I don't carry a signature because people are easily offended.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Please note that fundamentally, NO trading participant has to be short in order to provide liquidity to the other side who is long HFEA.hillclimber wrote: ↑Sat Jan 22, 2022 3:48 pm
I think the bank offering the swap (or the investor shorting the future) generally owns S&P 500 positions to offset the risk and profits by collecting the implied financing rate. It's like selling covered calls on a stock.
The reason is that the total US stock market cap is like $30T and total supply of treasuries is like $20T.
You can think of the ENTIRE supply of US Stock Market + Treasuries as available for liquidty.
There are a few special things about HFEA:
- leverage (100%, 200%, whatever),
- the proportion (ex: 55/45)
- the rebalance aspect.
I don't carry a signature because people are easily offended.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
If I were to guess, it costs 4% a year to short SPXU and TMV.zeejee wrote: ↑Fri Jan 21, 2022 10:46 am I have been following this fantastic thread for a while. Thank you all for your significant contribution and thorough discussions about the strategy. Not sure if anyone talked about implementing by shorting -3x ETF pair 55/45 SPXU/TMV. I think managing these inverse ETFs has big rebalancing losses and high commissions. So shorting them turns these losses into additional returns. The back test on PV shows a higher CAGR and better Sharpe ratio, compared to OP's 55/45 UPRO/TMF.
2010-2022
CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio
55/45 UPRO/TMF 35.36% 22.44% 73.88% -14.16% -19.52% 1.45 2.85
-55/-45 SPXU/TMV 39.58% 20.65% 93.78% -12.26% -21.77% 1.71 3.58
Curious if anyone here uses this shorting strategy? Besides that it may be difficult to borrow SPXU and TMV, are there any other risks preventing us from being a little greedier? Thanks.
https://www.portfoliovisualizer.com/bac ... ion4_2=-45
So, that 4% a year cost is NOT shown in your PV chart.
I don't carry a signature because people are easily offended.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
This is a great website, thank you for sharing.no simpler wrote: ↑Sat Jan 22, 2022 8:31 am It seems like Composer's iteration on this strategy is continuing to do a bit better during the recent volatility:
https://app.composer.trade/symphony/GRJ ... u/details
Interesting post:
https://www.composer.trade/blog/an-online-origin-story
It doesn't seem to get the same raw returns, but drawdowns are a lot more muted:
I have a couple of questions for you:
(1) how did you get that comparison: HFEAR to the other ones (HFEA and SPY), i.e., this image: https://i.imgur.com/5KxzAv7.png
(2) you said, "it doesn't seem to get the same raw returns", but drawdowns are a lot more muted.
What do you mean, "same raw returns"?
TY
I don't carry a signature because people are easily offended.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
In addition, this month is a perfect case in point of how the shorting strategy is riskier, even if borrowing costs were zero, because it pulls your leverage above 3x in a drawdown.AlphaLess wrote: ↑Sat Jan 22, 2022 6:23 pmIf I were to guess, it costs 4% a year to short SPXU and TMV.zeejee wrote: ↑Fri Jan 21, 2022 10:46 am I have been following this fantastic thread for a while. Thank you all for your significant contribution and thorough discussions about the strategy. Not sure if anyone talked about implementing by shorting -3x ETF pair 55/45 SPXU/TMV. I think managing these inverse ETFs has big rebalancing losses and high commissions. So shorting them turns these losses into additional returns. The back test on PV shows a higher CAGR and better Sharpe ratio, compared to OP's 55/45 UPRO/TMF.
2010-2022
CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio
55/45 UPRO/TMF 35.36% 22.44% 73.88% -14.16% -19.52% 1.45 2.85
-55/-45 SPXU/TMV 39.58% 20.65% 93.78% -12.26% -21.77% 1.71 3.58
Curious if anyone here uses this shorting strategy? Besides that it may be difficult to borrow SPXU and TMV, are there any other risks preventing us from being a little greedier? Thanks.
https://www.portfoliovisualizer.com/bac ... ion4_2=-45
So, that 4% a year cost is NOT shown in your PV chart.
Short SQQQ: -45% this month, you'd be at about 4.37x leverage on the equities portion if no intra-month rebalancing
Long TQQQ: -34% this month, you're always at 3x leverage
In a prolonged decline the short position can easily blow up your account because it compounds against you. Your exposure to the market just keeps going up and up and up until you rebalance.
- hillclimber
- Posts: 136
- Joined: Wed Mar 10, 2021 2:32 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Swaps and futures are types of contracts. One party makes money if the underlying goes up, the "long" side. The other party makes money if the underlying goes down, the "short" side. If you look at the UPRO daily holdings, it makes use of total return swaps from banks like Citibank and JP Morgan. It also uses futures to gain exposure.
If you buy UPRO, you are on the long side while the bank, through the total return swap, is on the short side.
You could implement HFEA using margin, but I was talking about how Citibank and JPM probably hedge their short exposure.
-
- Posts: 717
- Joined: Wed Mar 25, 2009 12:58 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I don't have the numbers, but during the 2008 crises long term treasuries were booming. So I doubt this strategy was ever down 80% in 2008.TheDoctor91 wrote: ↑Fri Jan 21, 2022 8:37 pm Wow a lot of the comments earlier this week in this thread are a little alarming. I highly recommend that if you can’t stomach this then to bail now. Remember, intramonth 2008 you probably saw close to an 80% total drawdown with much scarier headlines. People legitimately thought the world of finance was coming to an end. Millions underwater on homes, pension plans way underwater, SPY 50% drawdown etc.
So far, we’re at less than a 10% drawdown in SPY.
People were saying earlier in the week that LTT are done, fed is hawkish, inflation, rates rising, and so on. Yet, TMF up ~3% last 2 days each.
Why don’t these excellent market forecasters run a hedge fund instead? Would seem like a better use of talent.
I like how it’s accepted that we don’t know the future, but when it comes to rising rates people are much better at predicting and forecasting and building that in to their models than trillions of dollars of pensions and sovereign wealth funds.
Jeez. Get a grip.
So far YTD you've got UPRO (-22%) and TMF (-9.1%) tanking at the same time. I don't think this drawdown is as insignificant as you indicate.
Obviously this is the kind of volatility that people signed up for when they decided to try this strategy, but I'm not at all surprised it has shaken some people.
-
- Posts: 224
- Joined: Sat Apr 25, 2020 8:28 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Nobody should be risking more than they can afford to lose.thenextguy wrote: ↑Sat Jan 22, 2022 8:28 pmI don't have the numbers, but during the 2008 crises long term treasuries were booming. So I doubt this strategy was ever down 80% in 2008.TheDoctor91 wrote: ↑Fri Jan 21, 2022 8:37 pm Wow a lot of the comments earlier this week in this thread are a little alarming. I highly recommend that if you can’t stomach this then to bail now. Remember, intramonth 2008 you probably saw close to an 80% total drawdown with much scarier headlines. People legitimately thought the world of finance was coming to an end. Millions underwater on homes, pension plans way underwater, SPY 50% drawdown etc.
So far, we’re at less than a 10% drawdown in SPY.
People were saying earlier in the week that LTT are done, fed is hawkish, inflation, rates rising, and so on. Yet, TMF up ~3% last 2 days each.
Why don’t these excellent market forecasters run a hedge fund instead? Would seem like a better use of talent.
I like how it’s accepted that we don’t know the future, but when it comes to rising rates people are much better at predicting and forecasting and building that in to their models than trillions of dollars of pensions and sovereign wealth funds.
Jeez. Get a grip.
So far YTD you've got UPRO (-22%) and TMF (-9.1%) tanking at the same time. I don't think this drawdown is as insignificant as you indicate.
Obviously this is the kind of volatility that people signed up for when they decided to try this strategy, but I'm not at all surprised it has shaken some people.
I'm using a lot more leverage than 3x and running my own algo but I'm comfortable losing what I've got invested (which is not all of my portfolio).
I'm young, working in finance, and have a high income so I've got 40 years to earn money I lose.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
And that's UPRO. For the members here who are running TQQQ (-34%) and TMF (-9.1%), it's definitely a violent start.thenextguy wrote: ↑Sat Jan 22, 2022 8:28 pm I don't have the numbers, but during the 2008 crises long term treasuries were booming. So I doubt this strategy was ever down 80% in 2008.
So far YTD you've got UPRO (-22%) and TMF (-9.1%) tanking at the same time. I don't think this drawdown is as insignificant as you indicate.
Obviously this is the kind of volatility that people signed up for when they decided to try this strategy, but I'm not at all surprised it has shaken some people.
I suspect those running UPRO/TMF are chilling; while those running TQQQ/TMF are doing less well. Particularly when you look at the blue line here...
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Yes, I understand swaps, futures, and forwards very well.hillclimber wrote: ↑Sat Jan 22, 2022 8:26 pmSwaps and futures are types of contracts. One party makes money if the underlying goes up, the "long" side. The other party makes money if the underlying goes down, the "short" side. If you look at the UPRO daily holdings, it makes use of total return swaps from banks like Citibank and JP Morgan. It also uses futures to gain exposure.
If you buy UPRO, you are on the long side while the bank, through the total return swap, is on the short side.
You could implement HFEA using margin, but I was talking about how Citibank and JPM probably hedge their short exposure.
However, the bank on the other side of that future, swap, etc, is not naked short.
They have also hedged their exposure by buying the underlying stocks, or something equivalent.
I don't carry a signature because people are easily offended.
- hillclimber
- Posts: 136
- Joined: Wed Mar 10, 2021 2:32 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
That's literally what I was saying. Banks hedge their swaps with long positions. Were you meaning to reply to firebirdparts?
-
- Posts: 2709
- Joined: Mon Mar 12, 2012 6:57 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Do you have fund names of Bridgewater, or JP Morgan or Goldmand, by any chance? I was not able to find those funds googling.AlphaLess wrote: ↑Sat Jan 22, 2022 6:14 pmStrictly speaking that is not true.
Bridgewater and those that follow Bridgewater have various versions of it.
The building blocks are the same:
- blend Stock vs Treasury in a way that maximizes sharpe, including picking the specific part of the treasury curve that is the juicies,
- leverage to 150%, 200%, etc.
Leverage is achieved using futures.
UPRO and TMF are rebalancing daily, taking some of the trade management burden OFF the investors.
Professionals doing that type of leveraged trades may or may not rebal daily, but will definitely rebal frequently to keep their exposure, relative to invested capital.
Several top asset management firms (in addition to Bridgewater) are running variations of this: JP Morgan, Goldman, in their "alternative" funds.
They may even have fancier versions, where they use options to lever, combination of buying and selling.
Note that levered stocks or levered treasuries do not give you additional exposure factors (or risk premia). Using options will give you access to other risk premia.
-
- Posts: 116
- Joined: Sat Jul 13, 2019 4:54 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
1. You have to go into the more advanced backtest section by clicking the "edit a copy button". It's a bit hidden. See below:AlphaLess wrote: ↑Sat Jan 22, 2022 6:35 pmThis is a great website, thank you for sharing.no simpler wrote: ↑Sat Jan 22, 2022 8:31 am It seems like Composer's iteration on this strategy is continuing to do a bit better during the recent volatility:
https://app.composer.trade/symphony/GRJ ... u/details
Interesting post:
https://www.composer.trade/blog/an-online-origin-story
It doesn't seem to get the same raw returns, but drawdowns are a lot more muted:
I have a couple of questions for you:
(1) how did you get that comparison: HFEAR to the other ones (HFEA and SPY), i.e., this image: https://i.imgur.com/5KxzAv7.png
(2) you said, "it doesn't seem to get the same raw returns", but drawdowns are a lot more muted.
What do you mean, "same raw returns"?
TY
2. I just meant the annualized returns. The original strategy has larger annualized returns, albeit larger drawdowns.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I can find out. However, I caution you that they are not selling a fund called: "Risk Parity" or something like that. Instead, it would be part of one of their funds.comeinvest wrote: ↑Sun Jan 23, 2022 4:40 amDo you have fund names of Bridgewater, or JP Morgan or Goldmand, by any chance? I was not able to find those funds googling.AlphaLess wrote: ↑Sat Jan 22, 2022 6:14 pmStrictly speaking that is not true.
Bridgewater and those that follow Bridgewater have various versions of it.
The building blocks are the same:
- blend Stock vs Treasury in a way that maximizes sharpe, including picking the specific part of the treasury curve that is the juicies,
- leverage to 150%, 200%, etc.
Leverage is achieved using futures.
UPRO and TMF are rebalancing daily, taking some of the trade management burden OFF the investors.
Professionals doing that type of leveraged trades may or may not rebal daily, but will definitely rebal frequently to keep their exposure, relative to invested capital.
Several top asset management firms (in addition to Bridgewater) are running variations of this: JP Morgan, Goldman, in their "alternative" funds.
They may even have fancier versions, where they use options to lever, combination of buying and selling.
Note that levered stocks or levered treasuries do not give you additional exposure factors (or risk premia). Using options will give you access to other risk premia.
I think I can find out the Goldman and Bridgewater. Stay put.
I don't carry a signature because people are easily offended.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Apologies. As long as we are on the same page.hillclimber wrote: ↑Sun Jan 23, 2022 12:31 amThat's literally what I was saying. Banks hedge their swaps with long positions. Were you meaning to reply to firebirdparts?
Good to clear up the confusion.
Thanks.
I don't carry a signature because people are easily offended.
-
- Posts: 2709
- Joined: Mon Mar 12, 2012 6:57 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Thanks. I can't find any fund on the Bridgewater site.AlphaLess wrote: ↑Sun Jan 23, 2022 2:49 pmI can find out. However, I caution you that they are not selling a fund called: "Risk Parity" or something like that. Instead, it would be part of one of their funds.comeinvest wrote: ↑Sun Jan 23, 2022 4:40 amDo you have fund names of Bridgewater, or JP Morgan or Goldmand, by any chance? I was not able to find those funds googling.AlphaLess wrote: ↑Sat Jan 22, 2022 6:14 pmStrictly speaking that is not true.
Bridgewater and those that follow Bridgewater have various versions of it.
The building blocks are the same:
- blend Stock vs Treasury in a way that maximizes sharpe, including picking the specific part of the treasury curve that is the juicies,
- leverage to 150%, 200%, etc.
Leverage is achieved using futures.
UPRO and TMF are rebalancing daily, taking some of the trade management burden OFF the investors.
Professionals doing that type of leveraged trades may or may not rebal daily, but will definitely rebal frequently to keep their exposure, relative to invested capital.
Several top asset management firms (in addition to Bridgewater) are running variations of this: JP Morgan, Goldman, in their "alternative" funds.
They may even have fancier versions, where they use options to lever, combination of buying and selling.
Note that levered stocks or levered treasuries do not give you additional exposure factors (or risk premia). Using options will give you access to other risk premia.
I think I can find out the Goldman and Bridgewater. Stay put.
-
- Posts: 2
- Joined: Wed Jan 19, 2022 9:49 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I understand a lot of people use Roth IRAs to minimize tax from rebalancing. However, I'm penalized from taking money out of the account until 59.5 years of age. As a 20 year old, this is quite a long time horizon, so while I plan to invest for 10-15 years at least, I'm wary of leaving it in there for 40 years.
Does anyone have numbers on how much worse off HFEA is in a taxable account?
Does anyone have numbers on how much worse off HFEA is in a taxable account?
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
About 2-3% tax drag if I recall correctly.ninvester12349 wrote: ↑Sun Jan 23, 2022 5:42 pm I understand a lot of people use Roth IRAs to minimize tax from rebalancing. However, I'm penalized from taking money out of the account until 59.5 years of age. As a 20 year old, this is quite a long time horizon, so while I plan to invest for 10-15 years at least, I'm wary of leaving it in there for 40 years.
Does anyone have numbers on how much worse off HFEA is in a taxable account?
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I estimated the equivalent of 1 to 2% ER from 1986 on federal taxes, assuming a 15% LTCG tax bracket and M1's strategy for selling shares (preferentially ST loss, LT loss, LT gain, ST gain). I forget the assumed tax bracket for STCG. No state taxes considered. This percentage bounced around from year to year quite a bit though. Others have come up with something similar.Afrofreak wrote: ↑Sun Jan 23, 2022 6:27 pmAbout 2-3% tax drag if I recall correctly.ninvester12349 wrote: ↑Sun Jan 23, 2022 5:42 pm I understand a lot of people use Roth IRAs to minimize tax from rebalancing. However, I'm penalized from taking money out of the account until 59.5 years of age. As a 20 year old, this is quite a long time horizon, so while I plan to invest for 10-15 years at least, I'm wary of leaving it in there for 40 years.
Does anyone have numbers on how much worse off HFEA is in a taxable account?
- hillclimber
- Posts: 136
- Joined: Wed Mar 10, 2021 2:32 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Yeah, no worries, I was a little confused, haha.AlphaLess wrote: ↑Sun Jan 23, 2022 2:50 pmApologies. As long as we are on the same page.hillclimber wrote: ↑Sun Jan 23, 2022 12:31 amThat's literally what I was saying. Banks hedge their swaps with long positions. Were you meaning to reply to firebirdparts?
Good to clear up the confusion.
Thanks.
-
- Posts: 2709
- Joined: Mon Mar 12, 2012 6:57 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
How can we avoid the tax drag?Hydromod wrote: ↑Sun Jan 23, 2022 6:33 pmI estimated the equivalent of 1 to 2% ER from 1986 on federal taxes, assuming a 15% LTCG tax bracket and M1's strategy for selling shares (preferentially ST loss, LT loss, LT gain, ST gain). I forget the assumed tax bracket for STCG. No state taxes considered. This percentage bounced around from year to year quite a bit though. Others have come up with something similar.Afrofreak wrote: ↑Sun Jan 23, 2022 6:27 pmAbout 2-3% tax drag if I recall correctly.ninvester12349 wrote: ↑Sun Jan 23, 2022 5:42 pm I understand a lot of people use Roth IRAs to minimize tax from rebalancing. However, I'm penalized from taking money out of the account until 59.5 years of age. As a 20 year old, this is quite a long time horizon, so while I plan to invest for 10-15 years at least, I'm wary of leaving it in there for 40 years.
Does anyone have numbers on how much worse off HFEA is in a taxable account?
What if I don't rebalance in taxable when it would result in taxable gains?
I understand the portfolio will temporarily deviate from the target allocation, but let's say I implement HFEA with treasury futures, box spreads, and equity index ETFs (probably the most efficient implementation in taxable), and do all the regular rebalancing except from equities.
Short version of proposed strategy:
Two scenarios: 1. Equities crashed -> I sell treasury futures, buy equities; 2. treasuries crashed -> buy new treasury futures. Wait until the equities portion of the portfolio self-corrects.
Have we tested something like that somewhere in this thread?
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
You can remove your principal at any time penalty free. Just leave the gains.ninvester12349 wrote: ↑Sun Jan 23, 2022 5:42 pm I understand a lot of people use Roth IRAs to minimize tax from rebalancing. However, I'm penalized from taking money out of the account until 59.5 years of age. As a 20 year old, this is quite a long time horizon, so while I plan to invest for 10-15 years at least, I'm wary of leaving it in there for 40 years.
Does anyone have numbers on how much worse off HFEA is in a taxable account?
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I don't remember seeing a whole lot of analysis on tax implications. I'm almost certain nothing with futures.comeinvest wrote: ↑Mon Jan 24, 2022 3:08 am How can we avoid the tax drag?
What if I don't rebalance in taxable when it would result in taxable gains?
I understand the portfolio will temporarily deviate from the target allocation, but let's say I implement HFEA with treasury futures, box spreads, and equity index ETFs (probably the most efficient implementation in taxable), and do all the regular rebalancing except from equities.
Short version of proposed strategy:
Two scenarios: 1. Equities crashed -> I sell treasury futures, buy equities; 2. treasuries crashed -> buy new treasury futures. Wait until the equities portion of the portfolio self-corrects.
Have we tested something like that somewhere in this thread?
I'd be a bit careful about timing rebalancing around tax gains. Presumably the equity positions are going to usually outgain the treasury positions, so rebalancing is usually from equities. In backtesting with the 40/60 flavor of HFEA, the median duration before rebalancing was roughly 105/180/250 days for 10/15/20% bands. It can be years between crashes. So the portfolio can get really equity-rich between crashes without regular rebalancing, leaving more exposed and less for crash protection.
Of course, tax mitigation is important. But if taxes take the equivalent of 1 - 3% ER on a strategy that returns >20% CAGR, you should also consider how much you want to distort the crash protection required to get the >20% CAGR?
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
A little over 1 year invested in HFEA now. ~10% of my net worth. I've also contributed ~10% of my annual contributions.
At the peak, I had been up about 1500 bps over SPY. Now about breakeven. Unfortunately, it's a brutal day today for UPRO and not getting much help from TMF.
At the peak, I had been up about 1500 bps over SPY. Now about breakeven. Unfortunately, it's a brutal day today for UPRO and not getting much help from TMF.
-
- Posts: 187
- Joined: Tue Feb 22, 2011 6:33 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Hi,
This is a great place to get HFEA updates. There seems to be one on Reddit as well. I just learned about the composer's refinement.
Questions:
1. While we have two threads on HFEA (Part 1 and 2), is there somewhere that lists the refinements made? I saw the composer's, I see a few posts earlier an idea to short the inverse 3x ETFs etc. If someone has compiled a list and is tracking, please post.
2. HFEA is certainly quite interesting as many of us are following it, investing in it, plan to invest in it. I wonder if there are some other good ideas (many exist that follow the backtesting but not as interesting) that are listed somewhere. I stumbled on the HFEA a month ago and almost missed reading it... If there are some other interesting ideas, I would like to know.
I know both are a little wide nets but I guess I am not the only one thinking / thought about these questions...
Thanks!
This is a great place to get HFEA updates. There seems to be one on Reddit as well. I just learned about the composer's refinement.
Questions:
1. While we have two threads on HFEA (Part 1 and 2), is there somewhere that lists the refinements made? I saw the composer's, I see a few posts earlier an idea to short the inverse 3x ETFs etc. If someone has compiled a list and is tracking, please post.
2. HFEA is certainly quite interesting as many of us are following it, investing in it, plan to invest in it. I wonder if there are some other good ideas (many exist that follow the backtesting but not as interesting) that are listed somewhere. I stumbled on the HFEA a month ago and almost missed reading it... If there are some other interesting ideas, I would like to know.
I know both are a little wide nets but I guess I am not the only one thinking / thought about these questions...
Thanks!
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
So UPRO down 9+% TMF up 0.25% at pixel time. Time for resolve.
Better lucky than smart.