DMoogle wrote: ↑Wed Mar 31, 2021 12:47 pm
RovenSkyfall wrote: ↑Wed Mar 31, 2021 12:42 pmYeah will rebalance today as well, but am hoping some smart people look at more of the 200dMA approach with some alternatives (like 80/20 UPRO/TMF) and switch to HFEA when it drops below sp500 200dma.
My biggest concern at the moment is that some of the hypothetical modeled LETF backtests are garbage, producing an overly rosy result. Haven't confirmed that yet.
Worst comes to worst, can't be THAT bad to follow both strategies concurrently.
Yeah the backtesting isn't intended to correctly predict the future. It is just an attempt to show how a particular strategy performed in certain situations in the past and how those responses compare to the alternatives.
It seems like preparing for multiple likely potential futures is more valuable than preparing for just the best possible future.
I have no idea what TMF is going to do in the next 10 years. It clearly has room to go down. It has room to go up.
I
do know that the declining rate environment lead to TMF significantly adding to the return of the HFEA (and makes that historical CAGR really attractive), but I am doubtful (but unsure) that TMF will continue to have that secondary effect. I agree with HEDGEFUNDIE that recent economic policies seem more likely to be repeated than the policies of the 70s, 80s or even 90s. The Fed seems to like to reduce rates in a downturn (at least for the most recent past ones), which makes me think TMF is still of value.
The nebulous long term expected returns of TMF make me wonder if there might be a better way to utilize it. The concept that interests me the most is the 200dMA of the SP500. It seems like a good signal of when it might be an opportune time to get out of UPRO and into something else like TMF. With a 5% band (or even without) the number of trades per year only slightly increases over a quarterly rebalanced HFEA.
The potential pitfall of being 100% UPRO when SMA is above 200d is that you could get caught when the tide goes out if you miss your signal. A mix of 80/20% UPRO/TMF retains some small benefit of TMF if the tide rapidly goes out. Additionally, one could transition to HFEA 55/45 when the SP500 drops below the 200dMA. Uncorrelated showed at
the end of this post that binary on off can be worse for the CER than being in some combination of the two funds. The ultimate goal would be to hold less TMF in the good times when UPRO is driving returns while keeping the benefit of TMF if UPRO crashes.