HEDGEFUNDIE's excellent adventure Part II: The next journey

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Z33
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Z33 »

Ramjet wrote: Tue Jun 22, 2021 2:41 pm
Z33 wrote: Mon Jun 21, 2021 10:35 pm Just wanted to update the thread that I pulled the trigger last night. 55/45 and planning quarterly rebalancing.

Let’s see where this adventure takes me!
Nice. How much of your portfolio did you jump in with?
Just 10% of the portfolio. :happy
xeric
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by xeric »

Apologies if this strategy has been discussed before, I’m still wrapping my head around how to properly back-test portfolios.
But I was using Portfolio Visualizer to get a sense of how the hedgefundie approach would work as ~25% allocation of a larger portfolio and I came across this option:
VT 25%
TLT 50%
UPRO 15%
TMF 10%

It appears this has much lower volatility than 100% VT, and about on par with 80% VT / 20% TLT, but averages 15% annualized returns.

Here’s the results I have so far, but this only goes back to 2010
https://www.portfoliovisualizer.com/bac ... tion4_3=10
cogito
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cogito »

xeric wrote: Wed Jun 23, 2021 9:07 pm Apologies if this strategy has been discussed before, I’m still wrapping my head around how to properly back-test portfolios.
But I was using Portfolio Visualizer to get a sense of how the hedgefundie approach would work as ~25% allocation of a larger portfolio and I came across this option:
VT 25%
TLT 50%
UPRO 15%
TMF 10%

It appears this has much lower volatility than 100% VT, and about on par with 80% VT / 20% TLT, but averages 15% annualized returns.

Here’s the results I have so far, but this only goes back to 2010
https://www.portfoliovisualizer.com/bac ... tion4_3=10
Most followers of HFEA have decided to "bucket" this strategy off from the rest of their portfolio because of its speculative nature. Personally I would not want to commit myself to rebalancing into levered ETFs as part of my entire portfolio. I am rebalancing HFEA according to schedule but not in relation to the rest of my safe, bogleheady portfolio. If it goes to zero I am not going to be throwing money at it, destroying myself in the process. If HFEA works out it will bring up your CAGR anyways, but co-mingling with your entire portfolio strategy is even riskier than just taking the adventure with a bit of play money.
Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

cogito wrote: Wed Jun 23, 2021 9:41 pm
xeric wrote: Wed Jun 23, 2021 9:07 pm Apologies if this strategy has been discussed before, I’m still wrapping my head around how to properly back-test portfolios.
But I was using Portfolio Visualizer to get a sense of how the hedgefundie approach would work as ~25% allocation of a larger portfolio and I came across this option:
VT 25%
TLT 50%
UPRO 15%
TMF 10%

It appears this has much lower volatility than 100% VT, and about on par with 80% VT / 20% TLT, but averages 15% annualized returns.

Here’s the results I have so far, but this only goes back to 2010
https://www.portfoliovisualizer.com/bac ... tion4_3=10
Most followers of HFEA have decided to "bucket" this strategy off from the rest of their portfolio because of its speculative nature. Personally I would not want to commit myself to rebalancing into levered ETFs as part of my entire portfolio. I am rebalancing HFEA according to schedule but not in relation to the rest of my safe, bogleheady portfolio. If it goes to zero I am not going to be throwing money at it, destroying myself in the process. If HFEA works out it will bring up your CAGR anyways, but co-mingling with your entire portfolio strategy is even riskier than just taking the adventure with a bit of play money.
There was a whole bunch of discussion a while back about portfolio construction and whether or not to silo it off. As you are finding, it's about tuning the leverage and keeping overall volatility balanced, and you don't necessarily need both the equities and treasuries to be levered with small overall leverage.

For example, you could get just about the same effective portfolio returns and volatility with 80/20 SPY/TMF, it would be moderately cheaper, and some would feel better about not having UPRO at all.
devinbooker
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by devinbooker »

Do folks have opinions on lumpsum-ing or DCA-ing into the 55/45 UPRO/TMF strategy?
TheDoctor91
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by TheDoctor91 »

xeric wrote: Wed Jun 23, 2021 9:07 pm Apologies if this strategy has been discussed before, I’m still wrapping my head around how to properly back-test portfolios.
But I was using Portfolio Visualizer to get a sense of how the hedgefundie approach would work as ~25% allocation of a larger portfolio and I came across this option:
VT 25%
TLT 50%
UPRO 15%
TMF 10%

It appears this has much lower volatility than 100% VT, and about on par with 80% VT / 20% TLT, but averages 15% annualized returns.

Here’s the results I have so far, but this only goes back to 2010
https://www.portfoliovisualizer.com/bac ... tion4_3=10

My crude attempt for longer backtest

https://www.portfoliovisualizer.com/bac ... ion7_1=-20
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

devinbooker wrote: Thu Jun 24, 2021 12:21 am Do folks have opinions on lumpsum-ing or DCA-ing into the 55/45 UPRO/TMF strategy?
Same as with any portfolio allocation; lumpsum is superior for maximizing return, while DCA is superior for minimizing risk. Given how volatile this strategy is, I'd argue that the risk minimizing aspect is probably better for most individuals thinking about pursuing this.
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firebirdparts
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

xeric wrote: Wed Jun 23, 2021 9:07 pm Apologies if this strategy has been discussed before, I’m still wrapping my head around how to properly back-test portfolios.
But I was using Portfolio Visualizer to get a sense of how the hedgefundie approach would work as ~25% allocation of a larger portfolio and I came across this option:
VT 25%
TLT 50%
UPRO 15%
TMF 10%

It appears this has much lower volatility than 100% VT, and about on par with 80% VT / 20% TLT, but averages 15% annualized returns.

Here’s the results I have so far, but this only goes back to 2010
I'm not sure if this is deliberate, but in this period this seems to have exactly the same sharpe ratio as 55/45 UPRO/TMF. As you dial down the leverage with the same ingredients (I know VT is not exactly the same), you get less return and less volatility at the same sharpe ratio. There are infinitely many leverage amounts. There has been some discussion on the "ideal" amount of leverage already. Ultimately you don't want to spend too much time debating whether to invest 5% or 25% in this. Some guys put 200% in it. I'm not sure any of us can answer that.
This time is the same
xeric
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by xeric »

I guess what I was trying to replicate is if there’s a way to incorporate the high risk/reward HF portfolio with a very low risk/reward traditional portfolio in a way that gives you the best of both worlds. If I could get higher returns with less volatility, that’s obviously very appealing.

Big issue being of course the very small sample size I have. I was trying to upload the backtest data to Portfolio Visualizer, but ended up getting an error because the file was too big.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

Another bad day for TMF :oops:
rchmx1
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rchmx1 »

jarjarM wrote: Fri Jun 25, 2021 12:48 pm Another bad day for TMF :oops:
Ya, I expect this to be a volatile time for TMF for quite a while still.

On another note, I bit the bullet and switched the portion of my Roth in this strategy to a fixed AA just now, 33/33/33 UPRO/TQQQ/TMF. Quarterly rebalancing. Curious to see how it turns out vs the less disciplined version I'm running in my 401k.
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millennialmillions
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by millennialmillions »

After following this thread for a while, I decided it's time to join the adventure! I was inspired by this Redditor who is hoping to leverage the strategy to become a billionaire (his post history is worth a read).

Currently, my portfolio is 100% equities with a 70/30 domestic/international split. I am planning to allocate $100,000 (~7.5%) of my portfolio to this strategy and let it ride indefinitely. I could implement in either a Roth IRA, 401k, or regular taxable account. Since this strategy has lower tax efficiency than simple equity indexing, I am planning to implement in my Roth IRA.

As far as mechanics, I am planning to use $100,000 in my Fidelity account to buy $55,000 of UPRO and $45,000 of TMF. On the first trading day of every quarter, I will rebalance to a 55/45 allocation.

Questions I would like to confirm with the adventurers here:
  • I believe the asset allocation and rebalancing strategy I described above is the final recommendation by HEDGEFUNDIE that most here are following - is that right?
  • Am I correct that implementing in my Roth IRA would be the best move?
  • This is my first time buying a leveraged ETF. Anything special I should know about the mechanics of purchasing/rebalancing?
taojaxx
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by taojaxx »

millennialmillions wrote: Sat Jun 26, 2021 8:11 pm After following this thread for a while, I decided it's time to join the adventure! I was inspired by this Redditor who is hoping to leverage the strategy to become a billionaire (his post history is worth a read).

Currently, my portfolio is 100% equities with a 70/30 domestic/international split. I am planning to allocate $100,000 (~7.5%) of my portfolio to this strategy and let it ride indefinitely. I could implement in either a Roth IRA, 401k, or regular taxable account. Since this strategy has lower tax efficiency than simple equity indexing, I am planning to implement in my Roth IRA.

As far as mechanics, I am planning to use $100,000 in my Fidelity account to buy $55,000 of UPRO and $45,000 of TMF. On the first trading day of every quarter, I will rebalance to a 55/45 allocation.

Questions I would like to confirm with the adventurers here:
  • I believe the asset allocation and rebalancing strategy I described above is the final recommendation by HEDGEFUNDIE that most here are following - is that right?
  • Am I correct that implementing in my Roth IRA would be the best move?
  • This is my first time buying a leveraged ETF. Anything special I should know about the mechanics of purchasing/rebalancing?
1. Yes
2. Yes, as the expected return dwarfs the invested amount.
3. Make sure whichever broker you use allows the purchase of 3X LETFs. I believe Vanguard does not. Others request that you be an "accredited investor" (Minimal net worth and experience) or that you sign a document acknowledging that only reckless fools buy 3X LETFs.
Better lucky than smart.
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firebirdparts
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

Fidelity just makes you sign a statement saying “yes I’m an idiot” and then you’re good to go.
This time is the same
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

millennialmillions wrote: Sat Jun 26, 2021 8:11 pm After following this thread for a while, I decided it's time to join the adventure! I was inspired by this Redditor who is hoping to leverage the strategy to become a billionaire (his post history is worth a read).
There is some funny stuff in there...
The key thing Market Timer missed is the paper calls for monthly reset of the 2x leverage. If you monthly reset SPY you would not have been margin called in 2008.
Volatility decay is a myth. This article explains it a lot better than I can. You can buy and hold leveraged ETFs for long term!
15% is the max you can borrow indefinitely on this portfolio and not be margin called under the 75% historical drawdown on portfolio margin. Your position is now 2.5 million as before, you owe 1.5 million, and your equity is 1 million. You're at 60% buying power: 1-1/2.5 million = 60%. If you lose any more dollars you'll start getting portfolio margin calls.

I feel comfortable borrowing up to 10% on margin indefinitely on Hedgefundie's portfolio. I'm on the fence with 15-20% given the historical vs future outlook of this portfolio. Definitely borrowing past 20% on margin is irresponsible.

One thing that has me curious is this part. Are they right in that Proshares or Direxion will move in to buy shares or sell new shares if there is a liquidity problem?:
No I won't. ETFs have authorized participants that help with liquidity in ETFs. Also ETFs are required to post their indicative Net Asset Value (iNAV) every 15 seconds. You can look to see what the quotes are vs the most current iNAV.
[...]
Finally, if you do have a large enough position you need to re-balance from that an Authorized Participant will take - the process is simple. Make a phone call to your brokerage's block trading desk and they'll help you out.
stormcrow
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by stormcrow »

To be clear, I am not sure the reddit guy you mentioned is doing anything beyond throwing money at the wall and hoping it sticks (to kill two metaphors with one stone):

https://www.reddit.com/r/wallstreetbets ... al_damage/
h82goslw
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by h82goslw »

stormcrow wrote: Mon Jun 28, 2021 7:40 am To be clear, I am not sure the reddit guy you mentioned is doing anything beyond throwing money at the wall and hoping it sticks (to kill two metaphors with one stone):…..
Well done use of multiple metaphors in a sentence!
Ramjet
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

Just wanted to check back in and confirm that there is not a viable 3X fund for U.S. SCV or Total International that would add diversification to this strategy
rchmx1
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rchmx1 »

Ramjet wrote: Tue Jun 29, 2021 9:28 am Just wanted to check back in and confirm that there is not a viable 3X fund for U.S. SCV or Total International that would add diversification to this strategy
TNA is a SCV 3x ETF, but I wouldn't view it as a diversifier. Personally I wouldn't consider including it in a long term strategy. It would just add a ton of extra volatility, and when problems arise in the markets or the economy, it feels like SCV is particularly sensitive. I'm not aware of a 3x total world etf.
Ramjet
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

rchmx1 wrote: Tue Jun 29, 2021 11:55 am
Ramjet wrote: Tue Jun 29, 2021 9:28 am Just wanted to check back in and confirm that there is not a viable 3X fund for U.S. SCV or Total International that would add diversification to this strategy
TNA is a SCV 3x ETF, but I wouldn't view it as a diversifier. Personally I wouldn't consider including it in a long term strategy. It would just add a ton of extra volatility, and when problems arise in the markets or the economy, it feels like SCV is particularly sensitive. I'm not aware of a 3x total world etf.
Thx
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cos
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

rchmx1 wrote: Tue Jun 29, 2021 11:55 am
Ramjet wrote: Tue Jun 29, 2021 9:28 am Just wanted to check back in and confirm that there is not a viable 3X fund for U.S. SCV or Total International that would add diversification to this strategy
TNA is a SCV 3x ETF, but I wouldn't view it as a diversifier. Personally I wouldn't consider including it in a long term strategy. It would just add a ton of extra volatility, and when problems arise in the markets or the economy, it feels like SCV is particularly sensitive. I'm not aware of a 3x total world etf.
URTY is more efficient than TNA if you're targeting small caps. However, if you're targeting value, UMDD is far more efficient than either of those.

I am personally considering a 30/30/40 UPRO/UMDD/TMF portfolio for this reason.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

Ramjet wrote: Tue Jun 29, 2021 9:28 am Just wanted to check back in and confirm that there is not a viable 3X fund for U.S. SCV or Total International that would add diversification to this strategy
I personally went with URTY for the size tilt. But as rchmx1 mentioned upthread, I won't do this for long term hold strategy. The volatility is quite significant so volatility decay is more serious.
Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

jarjarM wrote: Tue Jun 29, 2021 12:58 pm I personally went with URTY for the size tilt. But as rchmx1 mentioned upthread, I won't do this for long term hold strategy. The volatility is quite significant so volatility decay is more serious.
Any idea whether a rebalancing bonus might take advantage of such volatility?

When I backtest using my risk budget minimum variance strategy with UPRO/TQQQ/URTY/TMF versus UPRO/TQQQ/UMDD/TMF, I don't see any significant difference between the two. At least since 1995, mixing with DRN had a bit better CAGR and Sharpe than either URTY or UMDD. Maybe because of the smaller correlation.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

Hydromod wrote: Tue Jun 29, 2021 1:30 pm
jarjarM wrote: Tue Jun 29, 2021 12:58 pm I personally went with URTY for the size tilt. But as rchmx1 mentioned upthread, I won't do this for long term hold strategy. The volatility is quite significant so volatility decay is more serious.
Any idea whether a rebalancing bonus might take advantage of such volatility?

When I backtest using my risk budget minimum variance strategy with UPRO/TQQQ/URTY/TMF versus UPRO/TQQQ/UMDD/TMF, I don't see any significant difference between the two. At least since 1995, mixing with DRN had a bit better CAGR and Sharpe than either URTY or UMDD. Maybe because of the smaller correlation.
I did play around with this idea as well since I been quite into TAA for a while now. The best way to capture the volatility in URTY (or IWM) is via shorter interval rebalancing and since I'm doing this taxable account and in the highest marginal tax bracket, the tax drag is just too significant for me. Next year when DW is finally done with work and we'll be dropping a bracket or so then I'll probably revisit this.
langlands
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

cos wrote: Tue Jun 29, 2021 12:11 pm
rchmx1 wrote: Tue Jun 29, 2021 11:55 am
Ramjet wrote: Tue Jun 29, 2021 9:28 am Just wanted to check back in and confirm that there is not a viable 3X fund for U.S. SCV or Total International that would add diversification to this strategy
TNA is a SCV 3x ETF, but I wouldn't view it as a diversifier. Personally I wouldn't consider including it in a long term strategy. It would just add a ton of extra volatility, and when problems arise in the markets or the economy, it feels like SCV is particularly sensitive. I'm not aware of a 3x total world etf.
URTY is more efficient than TNA if you're targeting small caps. However, if you're targeting value, UMDD is far more efficient than either of those.

I am personally considering a 30/30/40 UPRO/UMDD/TMF portfolio for this reason.
I thought URTY would be more efficient than UMDD for value, but it appears you're right that UMDD is more efficient. Are you using portfolio visualizer for this? I don't see that it's much more efficient though and seems very close. Remember that size is positively correlated with value, so to get the regression coefficient against HML alone, you need to remove all the other FF factors. I get a loading of 1.51 for URTY and 1.56 for UMDD.

https://www.portfoliovisualizer.com/fac ... ssion=true
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cos
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

langlands wrote: Tue Jun 29, 2021 6:04 pm
cos wrote: Tue Jun 29, 2021 12:11 pm
rchmx1 wrote: Tue Jun 29, 2021 11:55 am
Ramjet wrote: Tue Jun 29, 2021 9:28 am Just wanted to check back in and confirm that there is not a viable 3X fund for U.S. SCV or Total International that would add diversification to this strategy
TNA is a SCV 3x ETF, but I wouldn't view it as a diversifier. Personally I wouldn't consider including it in a long term strategy. It would just add a ton of extra volatility, and when problems arise in the markets or the economy, it feels like SCV is particularly sensitive. I'm not aware of a 3x total world etf.
URTY is more efficient than TNA if you're targeting small caps. However, if you're targeting value, UMDD is far more efficient than either of those.

I am personally considering a 30/30/40 UPRO/UMDD/TMF portfolio for this reason.
I thought URTY would be more efficient than UMDD for value, but it appears you're right that UMDD is more efficient. Are you using portfolio visualizer for this? I don't see that it's much more efficient though and seems very close. Remember that size is positively correlated with value, so to get the regression coefficient against HML alone, you need to remove all the other FF factors. I get a loading of 1.51 for URTY and 1.56 for UMDD.

https://www.portfoliovisualizer.com/fac ... ssion=true
Yep, that's spot on. I'm targeting value more so than size, and if I can get equal or greater exposure with less volatility, I'll take it. UMDD provides that, not to mention its explicit tilt toward profitability. Like size, profitability is also highly correlated with value, and I have a feeling that UMDD's profitability screen is what gives it the edge over URTY in terms of value exposure.
langlands
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

cos wrote: Tue Jun 29, 2021 6:15 pm
langlands wrote: Tue Jun 29, 2021 6:04 pm
cos wrote: Tue Jun 29, 2021 12:11 pm
rchmx1 wrote: Tue Jun 29, 2021 11:55 am
Ramjet wrote: Tue Jun 29, 2021 9:28 am Just wanted to check back in and confirm that there is not a viable 3X fund for U.S. SCV or Total International that would add diversification to this strategy
TNA is a SCV 3x ETF, but I wouldn't view it as a diversifier. Personally I wouldn't consider including it in a long term strategy. It would just add a ton of extra volatility, and when problems arise in the markets or the economy, it feels like SCV is particularly sensitive. I'm not aware of a 3x total world etf.
URTY is more efficient than TNA if you're targeting small caps. However, if you're targeting value, UMDD is far more efficient than either of those.

I am personally considering a 30/30/40 UPRO/UMDD/TMF portfolio for this reason.
I thought URTY would be more efficient than UMDD for value, but it appears you're right that UMDD is more efficient. Are you using portfolio visualizer for this? I don't see that it's much more efficient though and seems very close. Remember that size is positively correlated with value, so to get the regression coefficient against HML alone, you need to remove all the other FF factors. I get a loading of 1.51 for URTY and 1.56 for UMDD.

https://www.portfoliovisualizer.com/fac ... ssion=true
Yep, that's spot on. I'm targeting value more so than size, and if I can get equal or greater exposure with less volatility, I'll take it. UMDD provides that, not to mention its explicit tilt toward profitability. Like size, profitability is also highly correlated with value, and I have a feeling that UMDD's profitability screen is what gives it the edge over URTY in terms of value exposure.
Can you give a link to the profitability screen please? I thought UMDD just followed the mid-cap index and URTY the Russell.
SCraw
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by SCraw »

millennialmillions wrote: Sat Jun 26, 2021 8:11 pm After following this thread for a while, I decided it's time to join the adventure! I was inspired by this Redditor who is hoping to leverage the strategy to become a billionaire (his post history is worth a read).

Currently, my portfolio is 100% equities with a 70/30 domestic/international split. I am planning to allocate $100,000 (~7.5%) of my portfolio to this strategy and let it ride indefinitely. I could implement in either a Roth IRA, 401k, or regular taxable account. Since this strategy has lower tax efficiency than simple equity indexing, I am planning to implement in my Roth IRA.

As far as mechanics, I am planning to use $100,000 in my Fidelity account to buy $55,000 of UPRO and $45,000 of TMF. On the first trading day of every quarter, I will rebalance to a 55/45 allocation.

Questions I would like to confirm with the adventurers here:
  • I believe the asset allocation and rebalancing strategy I described above is the final recommendation by HEDGEFUNDIE that most here are following - is that right?
  • Am I correct that implementing in my Roth IRA would be the best move?
  • This is my first time buying a leveraged ETF. Anything special I should know about the mechanics of purchasing/rebalancing?
I have money in the strategy, but by god... this post will convince no one.
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cos
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

langlands wrote: Tue Jun 29, 2021 6:20 pm Can you give a link to the profitability screen please? I thought UMDD just followed the mid-cap index and URTY the Russell.
From the index methodology explained here:
To be eligible for inclusion in the index, a company should be a U.S. company, have a market cap between USD 3.3 billion to USD 11.8 billion, maintain a public float of at least 10% of its shares outstanding, and its most recent quarter’s earnings and the sum of its trailing four consecutive quarters’ earnings must be
positive.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

cos wrote: Wed Jun 30, 2021 12:21 pm
langlands wrote: Tue Jun 29, 2021 6:20 pm Can you give a link to the profitability screen please? I thought UMDD just followed the mid-cap index and URTY the Russell.
From the index methodology explained here:
To be eligible for inclusion in the index, a company should be a U.S. company, have a market cap between USD 3.3 billion to USD 11.8 billion, maintain a public float of at least 10% of its shares outstanding, and its most recent quarter’s earnings and the sum of its trailing four consecutive quarters’ earnings must be
positive.
Thanks, had no idea about this difference and that Russell doesn't use a profitability screen. I think there's an index called the S&P Small Cap 600 that's supposed to be a competitor to Russell and also uses a profitability screen like S&P Midcap 400. Strangely, proshares only offers SSA, which is a 2x leveraged version of the S&P Small Cap 600 index.

Actually, I just made the connection that S&P 400, 500, 600 are all related...and it's well known that S&P 500 has a profitability screen. S&P 500 is so much more dominant than the other two that I never even realized they're in the same fund family.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cappuccino »

It seems like everything here is very US investor centric...

Has anyone looked into this with the addition of levered global stocks and a non US investor perspective? Wondering if the results are similar or better.

Also, even if you are US investor, could you not improve return/risk with the addition of levered global stocks/bonds? 55% 3x world all stocks + 45% 3x world all bonds by market cap no good?
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cos
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

cappuccino wrote: Wed Jun 30, 2021 11:17 pm It seems like everything here is very US investor centric...

Has anyone looked into this with the addition of levered global stocks and a non US investor perspective? Wondering if the results are similar or better.

Also, even if you are US investor, could you not improve return/risk with the addition of levered global stocks/bonds? 55% 3x world all stocks + 45% 3x world all bonds by market cap no good?
Give the search feature a try here and in the previous thread. In short, yes, but the available investment vehicles leave a lot to be desired due to high expenses and inefficient implementations.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

For those who are rebalancing regularly, I saw an explanation at r/financialindependence for why turn of the month/turn of the quarter seems to work better than an arbitrary time of month/quarter. That's definitely been the case for quarterly rebalancing.

One factor is that 30-year treasury auctions are in the middle of the month.

The other speculated factor is that earning reports are less frequent around the turn of the quarter. I don't know how generally true that is, although with New Year's and July 4 there are holidays involved.

So the inference is that the flow of new information is relatively slower at the turn of the month/quarter.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

cappuccino wrote: Wed Jun 30, 2021 11:17 pm It seems like everything here is very US investor centric...
To be fair, Hedgefundie did state that this is a bet on the U.S. stock market
Tingting1013
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Tingting1013 »

Hydromod wrote: Thu Jul 01, 2021 9:03 am For those who are rebalancing regularly, I saw an explanation at r/financialindependence for why turn of the month/turn of the quarter seems to work better than an arbitrary time of month/quarter. That's definitely been the case for quarterly rebalancing.

One factor is that 30-year treasury auctions are in the middle of the month.

The other speculated factor is that earning reports are less frequent around the turn of the quarter. I don't know how generally true that is, although with New Year's and July 4 there are holidays involved.

So the inference is that the flow of new information is relatively slower at the turn of the month/quarter.
Why is trading on stale valuations better for returns?
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

cappuccino wrote: Wed Jun 30, 2021 11:17 pm It seems like everything here is very US investor centric...
Others mentioned that there aren't any good ex-US equivalents. Personally, I overweight the international portion of my non-HFEA portfolio to account for this.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by fidream »

SCraw wrote: Wed Jun 30, 2021 10:32 am
millennialmillions wrote: Sat Jun 26, 2021 8:11 pm After following this thread for a while, I decided it's time to join the adventure! I was inspired by this Redditor who is hoping to leverage the strategy to become a billionaire (his post history is worth a read).

Currently, my portfolio is 100% equities with a 70/30 domestic/international split. I am planning to allocate $100,000 (~7.5%) of my portfolio to this strategy and let it ride indefinitely. I could implement in either a Roth IRA, 401k, or regular taxable account. Since this strategy has lower tax efficiency than simple equity indexing, I am planning to implement in my Roth IRA.

As far as mechanics, I am planning to use $100,000 in my Fidelity account to buy $55,000 of UPRO and $45,000 of TMF. On the first trading day of every quarter, I will rebalance to a 55/45 allocation.

Questions I would like to confirm with the adventurers here:
  • I believe the asset allocation and rebalancing strategy I described above is the final recommendation by HEDGEFUNDIE that most here are following - is that right?
  • Am I correct that implementing in my Roth IRA would be the best move?
  • This is my first time buying a leveraged ETF. Anything special I should know about the mechanics of purchasing/rebalancing?
I have money in the strategy, but by god... this post will convince no one.
Except, you know, the person you're replying to.
Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

Tingting1013 wrote: Thu Jul 01, 2021 9:09 am
Hydromod wrote: Thu Jul 01, 2021 9:03 am For those who are rebalancing regularly, I saw an explanation at r/financialindependence for why turn of the month/turn of the quarter seems to work better than an arbitrary time of month/quarter. That's definitely been the case for quarterly rebalancing.

One factor is that 30-year treasury auctions are in the middle of the month.

The other speculated factor is that earning reports are less frequent around the turn of the quarter. I don't know how generally true that is, although with New Year's and July 4 there are holidays involved.

So the inference is that the flow of new information is relatively slower at the turn of the month/quarter.
Why is trading on stale valuations better for returns?
I'm certainly not an expert, I'm just passing along a possible explanation for folks to consider (from the same redditor posted above).

My speculation is that new information adds noise during price discovery, which may interfere with rebalancing to some extent.

But that might all be hooey.
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dziuniek
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by dziuniek »

devinbooker wrote: Thu Jun 24, 2021 12:21 am Do folks have opinions on lumpsum-ing or DCA-ing into the 55/45 UPRO/TMF strategy?
This one scares me, so I am running a portfolio that's a heavily modified HFEA and DCA-ing into it monthly.
I'm too scared to not DCA into it. Haha. :sharebeer

About $21k in right now since September, 2020. Just a tad above Sp500 returns.
Get rich or die tryin'
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Tinkerer-in-Chief
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Tinkerer-in-Chief »

Hydromod wrote: Thu Jul 01, 2021 9:48 am
Tingting1013 wrote: Thu Jul 01, 2021 9:09 am
Hydromod wrote: Thu Jul 01, 2021 9:03 am For those who are rebalancing regularly, I saw an explanation at r/financialindependence for why turn of the month/turn of the quarter seems to work better than an arbitrary time of month/quarter. That's definitely been the case for quarterly rebalancing.

One factor is that 30-year treasury auctions are in the middle of the month.

The other speculated factor is that earning reports are less frequent around the turn of the quarter. I don't know how generally true that is, although with New Year's and July 4 there are holidays involved.

So the inference is that the flow of new information is relatively slower at the turn of the month/quarter.
Why is trading on stale valuations better for returns?
I'm certainly not an expert, I'm just passing along a possible explanation for folks to consider (from the same redditor posted above).

My speculation is that new information adds noise during price discovery, which may interfere with rebalancing to some extent.

But that might all be hooey.
To be a good Popperian: what sort of analysis might falsify the hypothesis that observed quarter-end/month-end rebalancing bonuses arise from these information lulls? Does it seem right to think that a good inference from the hypothesis is that asset volatilities should be lower during these lulls? So if historical (and maybe ongoing?) volatilities are found to be level throughout the year/otherwise not fit the information lull hypothesis, then we could falsify the hypothesis?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Semantics »

Monthly volatility *has* to be lower than daily volatility mathematically for monthly rebalancing to work better, since annual CAGR is just a mathematical function of returns and volatility at the rebalancing interval. So if the effect is observed then no you cam't falsify the hypothesis that way, this test just reflects the observation. Note that this observation implies a small mean-reversion effect on a monthly timescale. I recall seeing a paper on this, but I think it was from 2011 so slightly dated, and that this has only been true for about 20-30 years. Prior to that I think daily rebalancing actually did slightly better IIRC.
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Tinkerer-in-Chief
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Tinkerer-in-Chief »

Those are very good points, Semantics. Thank you. Although, I wasn’t thinking of monthly volatility itself, but the daily volatilities throughout the year, and whether there is a statistically significant difference in the magnitude of certain days’ daily volatilities.

To use weather as an analogy, each day’s average temperature instead of the season’s average.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rchmx1 »

Tinkerer-in-Chief wrote: Fri Jul 02, 2021 4:17 am Those are very good points, Semantics. Thank you. Although, I wasn’t thinking of monthly volatility itself, but the daily volatilities throughout the year, and whether there is a statistically significant difference in the magnitude of certain days’ daily volatilities.

To use weather as an analogy, each day’s average temperature instead of the season’s average.
My impression is that the idea that "there [might be] a statistically significant difference in the magnitude of certain days’ daily volatilities" is akin to folk wisdom. For instance, you have folksy sayings like "sell in may and go away," and the proverbial wisdom that the beginning of January always consists of down days, but when you look at the data there's nothing of statistical significance to be found.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

I'm not suggesting that it is volatility per se that is changing over the month. I don't seem much evidence for that.

My hypothesis is more that the pricing is better equilibrated across asset classes when less new information is coming in and the market has had time to finish reacting. Which would imply that rebalancing is based on slightly better price estimates.

For example, a treasury auction might be a type of shock to the market, like a pebble dropped in a puddle. The pebble causes ripples that propagate through the puddle and gradually die out, with the average water level increased by the volume of the pebble divided by the surface area of the puddle. The end of the month might correspond to a point where the ripples from the treasury auction have died out and you can get a stable estimate of the water level.

It would be hard to test this out; this effect is a small change in return, and it's already hard to estimate rates of return.
MatthewLM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by MatthewLM »

Hello. This strategy is a curiosity to me so I thought I'd ask a couple of questions about it.

1. People speak about using this strategy as a separate "lottery ticket" to their primary portfolio, but have people considered spicing a portfolio with a similar stock/bond split but at lower leverage and then rebalancing the entire portfolio? For example a portfolio with 80% of an ordinary 1x S&P 500 ETF and 20% TMF would give 80% stock and 60% bond exposure with a much lower 1.4x leverage and around 57% of total exposure to stocks which is close to 55%. The 80% stock portion can be replaced with other equity investments such as international equity to give desired diversification. Of-course, exposures would change between rebalancing. Perhaps at lower leverage, a higher stock proportion can be afforded.

2. Why quarterly rebalancing? From what I can see, there has been talk about daily, monthly, quarterly or threshold rebalancing. Has there been consideration of longer-term rebalancing such as 6m, 1yr or even 2yrs? Leveraged ETFs could deviate quickly, so I imagine long-term rebalancing may cause significant change in bond/stock exposure though I wonder if longer periods between rebalancing better fits with market cyclicity. Also the deviation may not be as large of a concern if using lower overall leverage.
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

MatthewLM wrote: Sun Jul 04, 2021 7:39 am 1. People speak about using this strategy as a separate "lottery ticket" to their primary portfolio, but have people considered spicing a portfolio with a similar stock/bond split but at lower leverage and then rebalancing the entire portfolio? For example a portfolio with 80% of an ordinary 1x S&P 500 ETF and 20% TMF would give 80% stock and 60% bond exposure with a much lower 1.4x leverage and around 57% of total exposure to stocks which is close to 55%. The 80% stock portion can be replaced with other equity investments such as international equity to give desired diversification. Of-course, exposures would change between rebalancing. Perhaps at lower leverage, a higher stock proportion can be afforded.
Yes, spicing up a more traditional set of ETFs is a viable option and has actually been mentioned by a new user in the last couple pages. In fact, you can mix and match ETFs of different leverage (ex: SPY 1x, SSO 2x, UPRO 3x) to target a particular level of portfolio leverage.

One just needs to avoid seeing things like UPRO/ TQQQ as a simple "gains" ingredient and TMF/ TYD as a simple "lower volatility" ingredient. For example, if you massively overweight TMF, for "safety", you will in fact increase volatility and overall risk. Your 80% SPY, 20% TMF example is a good one of a balanced approach.
MatthewLM wrote: Sun Jul 04, 2021 7:39 am 2. Why quarterly rebalancing? From what I can see, there has been talk about daily, monthly, quarterly or threshold rebalancing. Has there been consideration of longer-term rebalancing such as 6m, 1yr or even 2yrs? Leveraged ETFs could deviate quickly, so I imagine long-term rebalancing may cause significant change in bond/stock exposure though I wonder if longer periods between rebalancing better fits with market cyclicity. Also the deviation may not be as large of a concern if using lower overall leverage.
-Quarterly simply due to historical results. People had their own hypotheses as to why this worked best (even in the last couple pages, new thoughts about this were added).
-Monthly is workable.
-I do not recall 6m and 2yrs being tested.
-I would not suggest either 1 or 2yrs because of the inherent volatility of this strategy and the very real possibility of being seriously derailed from one's risk target. Extreme AAs are no good here.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

OohLaLa wrote: Sun Jul 04, 2021 11:44 am
MatthewLM wrote: Sun Jul 04, 2021 7:39 am 1. People speak about using this strategy as a separate "lottery ticket" to their primary portfolio, but have people considered spicing a portfolio with a similar stock/bond split but at lower leverage and then rebalancing the entire portfolio? For example a portfolio with 80% of an ordinary 1x S&P 500 ETF and 20% TMF would give 80% stock and 60% bond exposure with a much lower 1.4x leverage and around 57% of total exposure to stocks which is close to 55%. The 80% stock portion can be replaced with other equity investments such as international equity to give desired diversification. Of-course, exposures would change between rebalancing. Perhaps at lower leverage, a higher stock proportion can be afforded.
Yes, spicing up a more traditional set of ETFs is a viable option and has actually been mentioned by a new user in the last couple pages. In fact, you can mix and match ETFs of different leverage (ex: SPY 1x, SSO 2x, UPRO 3x) to target a particular level of portfolio leverage.

One just needs to avoid seeing things like UPRO/ TQQQ as a simple "gains" ingredient and TMF/ TYD as a simple "lower volatility" ingredient. For example, if you massively overweight TMF, for "safety", you will in fact increase volatility and overall risk. Your 80% SPY, 20% TMF example is a good one of a balanced approach.


Some folks (like me) don't have the luxury of rebalancing the overall portfolio, simply because almost all funds are locked into a retirement plan that doesn't allow the LETFs and doesn't allow transfers of funds in and out. So rebalancing with the main portfolio is not an option.

I've recently started running a somewhat more complex risk-budget approach that combines several equity LETFs with TMF as a balance. The model automatically calculates allocations based on the desired fraction of risk assigned to equities and bonds. I've tested the same type of approach with all sorts of combinations of 1x/2x/3x funds. I find that you can get fairly close results just as you suggested. You could also do a small fraction to UPRO and the rest to TLT.

With that said, I've gotten hints that with careful rebalancing to balance risks over time, it appears you may be able to get better overall risk-adjusted returns with a siloed 3x portfolio separate from the main portfolio (you can get a flavor here). This is because the 3x silo would grow fast enough to completely dominate a portfolio with smaller overall leverage (the lottery ticket).

I'm not at all recommending the alternative, I'm just intrigued by the math.

MatthewLM wrote: Sun Jul 04, 2021 7:39 am 2. Why quarterly rebalancing? From what I can see, there has been talk about daily, monthly, quarterly or threshold rebalancing. Has there been consideration of longer-term rebalancing such as 6m, 1yr or even 2yrs? Leveraged ETFs could deviate quickly, so I imagine long-term rebalancing may cause significant change in bond/stock exposure though I wonder if longer periods between rebalancing better fits with market cyclicity. Also the deviation may not be as large of a concern if using lower overall leverage.
-Quarterly simply due to historical results. People had their own hypotheses as to why this worked best (even in the last couple pages, new thoughts about this were added).
-Monthly is workable.
-I do not recall 6m and 2yrs being tested.
-I would not suggest either 1 or 2yrs because of the inherent volatility of this strategy and the very real possibility of being seriously derailed from one's risk target. Extreme AAs are no good here.


When I did some backtesting, I considered a range from daily to 1 year as well as the effect of bands. I used a metric based on a fixed duration (say 10 years) that started on every possible starting day in the record.

I found that the spread in 10-year results would have been wider as the rebalance duration increased. The spread was more-or-less similar for monthly and quarterly, although the starting point within the month or quarter seemed to make a difference. I didn't go past 1 year because the results were too affected by luck to draw any conclusions. But some may be satisfied with luck.

When I did variable bands, I thought that 10 to 15 percent deviation bands were workable but it was good practice to rebalance within a year regardless.

A lot of this flexibility was influenced by the long bull market with bonds providing a good tailwind. Who knows going forward.
hilink73
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hilink73 »

Quarterly rebalancing day came and went.
Allocation was at 60/40.
I'll leave it at this for now, so no rebalancing needed.

Who's still in?
cappuccino
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cappuccino »

DMoogle wrote: Thu Jul 01, 2021 9:14 am
cappuccino wrote: Wed Jun 30, 2021 11:17 pm It seems like everything here is very US investor centric...
Others mentioned that there aren't any good ex-US equivalents. Personally, I overweight the international portion of my non-HFEA portfolio to account for this.
Yes, I had a bit of a search and people have reported issues with levered international ETFs. I am overweight ex-US anyways so this would balance it out. Overweight international outside of HEFA would be a reasonable way to deal with this issue.

Replacing a 100% US stock allocation with HFEA is also an interesting way to handle downside risk for US equities atm.
MatthewLM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by MatthewLM »

Thanks for the responses!
OohLaLa wrote: Sun Jul 04, 2021 11:44 am -I would not suggest either 1 or 2yrs because of the inherent volatility of this strategy and the very real possibility of being seriously derailed from one's risk target. Extreme AAs are no good here.
Hydromod wrote: Sun Jul 04, 2021 2:15 pm
When I did some backtesting, I considered a range from daily to 1 year as well as the effect of bands. I used a metric based on a fixed duration (say 10 years) that started on every possible starting day in the record.

I found that the spread in 10-year results would have been wider as the rebalance duration increased. The spread was more-or-less similar for monthly and quarterly, although the starting point within the month or quarter seemed to make a difference. I didn't go past 1 year because the results were too affected by luck to draw any conclusions. But some may be satisfied with luck.
These results will no doubt be effected by the overall leverage ratio of the portfolio. Higher leverage will drift overall equity to bond allocations faster. Maybe with 1.4x leverage, for example, a longer rebalancing period for the total portfolio becomes reasonable. I wonder because I find a 1-2 year period works well in back-tests for my portfolio containing 100% equity with factor funds and 20% 3LUS (3x S&P 500) for 1.4x leverage. Maybe it's factor cyclicity that is driving the 1-2 year results for my own portfolio mix and it wouldn't apply to rebalancing stocks and bonds. Though my understanding is that generally a 1 year rebalancing period is suggested for unleveraged stocks and bonds and it might not be too different for relatively modest leverage.
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