HEDGEFUNDIE's excellent adventure Part II: The next journey

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
viajero
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by viajero »

LeverageWBeverage wrote: Tue Jan 18, 2022 9:37 am
viajero wrote: Mon Jan 17, 2022 9:54 pm Did anyone consider UBT (2x leveraged 20 year bonds) instead of TMF? It looks like that combo (60/40 UPRO/UBT) is doing slightly better in the last 10 years, and I would imagine it will do better if bond price dips along with a market correction due to rates going up this year. Ideas?
Pretty sure if you look back far enough it was discussed and I don't believe the portfolio would of survived the financial crisis. You have to look back at the simulated backtests once people were able to see before the last 10 year bull market.
I spent some time searching this topic and a haven't found anyone show that such a portfolio would die in the financial crisis. Do you have a pointer why?
Also, is it possible to simulate a leveraged fund with portfoliovisualizer? For back testing HFEA portfolio variations from 90s-00s?
DarkMatter731
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DarkMatter731 »

viajero wrote: Tue Jan 18, 2022 1:03 pm
LeverageWBeverage wrote: Tue Jan 18, 2022 9:37 am
viajero wrote: Mon Jan 17, 2022 9:54 pm Did anyone consider UBT (2x leveraged 20 year bonds) instead of TMF? It looks like that combo (60/40 UPRO/UBT) is doing slightly better in the last 10 years, and I would imagine it will do better if bond price dips along with a market correction due to rates going up this year. Ideas?
Pretty sure if you look back far enough it was discussed and I don't believe the portfolio would of survived the financial crisis. You have to look back at the simulated backtests once people were able to see before the last 10 year bull market.
I spent some time searching this topic and a haven't found anyone show that such a portfolio would die in the financial crisis. Do you have a pointer why?
Also, is it possible to simulate a leveraged fund with portfoliovisualizer? For back testing HFEA portfolio variations from 90s-00s?
If you want to leverage 2x for example, put your equity position as 200% and your CASHX position as -100% in 'Backtest portfolio.'

Alternatively, you can click 'Leveraged Type' in one of the options and use leverage that way.

I don't think the portfolio you suggested of UPRO/UBT would die.
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

viajero wrote: Tue Jan 18, 2022 1:03 pm
LeverageWBeverage wrote: Tue Jan 18, 2022 9:37 am
viajero wrote: Mon Jan 17, 2022 9:54 pm Did anyone consider UBT (2x leveraged 20 year bonds) instead of TMF? It looks like that combo (60/40 UPRO/UBT) is doing slightly better in the last 10 years, and I would imagine it will do better if bond price dips along with a market correction due to rates going up this year. Ideas?
Pretty sure if you look back far enough it was discussed and I don't believe the portfolio would of survived the financial crisis. You have to look back at the simulated backtests once people were able to see before the last 10 year bull market.
I spent some time searching this topic and a haven't found anyone show that such a portfolio would die in the financial crisis. Do you have a pointer why?
Also, is it possible to simulate a leveraged fund with portfoliovisualizer? For back testing HFEA portfolio variations from 90s-00s?
Regarding simulating a leveraged fund: the answer is not easily. If you Google around, you'll find several folks posting their own backtests, but most of them have SEVERE underlying issues (most prominent being not factoring in borrowing costs). There are, however, several folks on here have that worked on a very very good sim for leveraged funds. Check out the Simulating Leveraged ETFs thread for details. IIRC, you'll need a premium PV subscription to work with them though (for the custom upload privileges).

If you want to backtest a DIY leveraged approach that *isn't daily rebalanced*, then the simplest method would be overweight the ETF you choose and underweight cashx. E.g.:

VFINX 300%
CASHX -200%

The reason that the above example *isn't* a good approximation for UPRO is that it isn't daily rebalanced - best you can do on PV is monthly rebalancing.
kbourgu
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by kbourgu »

How long are we going to continue getting killed here? Shouldn't these rate hikes be priced in already?
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Meaty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Meaty »

kbourgu wrote: Tue Jan 18, 2022 1:41 pm How long are we going to continue getting killed here? Shouldn't these rate hikes be priced in already?
I dont know how so many have stayed in. I rode HFEA for about 2 years and ducked out mid-last year. Knowing rate hikes are coming suggests this strategy will under perform in the near term. I know i know - never market time but the Fed has literally outlined their plan to crush half this investment
"Discipline equals Freedom" - Jocko Willink
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

kbourgu wrote: Tue Jan 18, 2022 1:41 pm How long are we going to continue getting killed here? Shouldn't these rate hikes be priced in already?
There's a big misconception with the idea of something being "priced in." If something is the most likely result, then the market price will account for that, but it should also account for less-likely scenarios as well. Those less-likely scenarios affect the price as well.

Consider this example: imagine I offered to flip a coin. On heads, I pay you $2. On tails, you pay me $1. Your expected value is ($2 * 50%) + (-$1 * 50%) = $0.50 per flip. Meaning you might be willing to pay me up to $0.50 to engage in that flip. However, despite your expected value being $0.50, your realized value will always be either +$2 or -$1.

In that example, the expected value is the market price before the result is announced. Obviously the day's price is always going to be influenced by a zillion factors, not just rates.

If this is causing you stress, then it's worth reevaluating your risk tolerance and whether such a high-risk strategy is right for you.
Semantics
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Semantics »

Meaty wrote: Tue Jan 18, 2022 1:58 pm
kbourgu wrote: Tue Jan 18, 2022 1:41 pm How long are we going to continue getting killed here? Shouldn't these rate hikes be priced in already?
I dont know how so many have stayed in. I rode HFEA for about 2 years and ducked out mid-last year. Knowing rate hikes are coming suggests this strategy will under perform in the near term. I know i know - never market time but the Fed has literally outlined their plan to crush half this investment
Rates rose each year from 2016-2018, and during that time HFEA returned 14.68% CAGR to 9.11% for the S&P 500, with a similar risk-adjusted return.

I don't think it's obvious that the Fed plans to "crush" this investment or that that will happen. Some say that the Fed follows the markets, not the other way around, and besides, there's been no correlation between 3-month t-bills and long term treasuries (at least, not in the past two decades).

I think a lot of us anticipated a reversion in treasury yields, since they dropped so dramatically during the pandemic, but now that we're at pre-pandemic levels will they go significantly higher? Who knows?
comeinvest
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by comeinvest »

Semantics wrote: Tue Jan 18, 2022 2:37 pm Rates rose each year from 2016-2018, and during that time HFEA returned 14.68% CAGR to 9.11% for the S&P 500, with a similar risk-adjusted return.
Can you please remind me, in simple words, where did the 5.57% difference come from, and in which proportion? Treasuries yield carry return > loss from rate hike? Rebalancing bonus?
EDIT: I looked at the charts.
Consider:
- Long-term (30-year) treasury rates did NOT move much during 2016-2018.
- The yield curve was quite steep, resulting in nice carry returns.
Different from the current forward curve.
Obviously a yield increase at the long end would crush HFEA, not at the short end.
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tomphilly
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

The market is now pricing in the possibility of a 0.5% rate hike in March, which would be the first 0.5% hike since 2000 - that is the red we saw today. I slightly regret dumping VXX and pumping TMF back up to 40%, but c’est la vie. 20-yr yields are at 2.18% as of today - they went as high as 2.43% last March.
Last edited by tomphilly on Tue Jan 18, 2022 4:43 pm, edited 1 time in total.
CletusCaddy
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by CletusCaddy »

comeinvest wrote: Tue Jan 18, 2022 3:23 pm
Semantics wrote: Tue Jan 18, 2022 2:37 pm Rates rose each year from 2016-2018, and during that time HFEA returned 14.68% CAGR to 9.11% for the S&P 500, with a similar risk-adjusted return.
Can you please remind me, in simple words, where did the 5.57% difference come from, and in which proportion? Treasuries yield carry return > loss from rate hike? Rebalancing bonus?
EDIT: I looked at the charts.
Consider:
- Long-term (30-year) treasury rates did NOT move much during 2016-2018.
- The yield curve was quite steep, resulting in nice carry returns.
Different from the current forward curve.
Obviously a yield increase at the long end would crush HFEA, not at the short end.
It remains to be seen if the long end of the curve will rise more than it did in ‘16-‘18, but one similarity is that long minus short now is as steep as it was back then.
DarkMatter731
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DarkMatter731 »

DMoogle wrote: Tue Jan 18, 2022 1:26 pm
viajero wrote: Tue Jan 18, 2022 1:03 pm
LeverageWBeverage wrote: Tue Jan 18, 2022 9:37 am
viajero wrote: Mon Jan 17, 2022 9:54 pm Did anyone consider UBT (2x leveraged 20 year bonds) instead of TMF? It looks like that combo (60/40 UPRO/UBT) is doing slightly better in the last 10 years, and I would imagine it will do better if bond price dips along with a market correction due to rates going up this year. Ideas?
Pretty sure if you look back far enough it was discussed and I don't believe the portfolio would of survived the financial crisis. You have to look back at the simulated backtests once people were able to see before the last 10 year bull market.
I spent some time searching this topic and a haven't found anyone show that such a portfolio would die in the financial crisis. Do you have a pointer why?
Also, is it possible to simulate a leveraged fund with portfoliovisualizer? For back testing HFEA portfolio variations from 90s-00s?
Regarding simulating a leveraged fund: the answer is not easily. If you Google around, you'll find several folks posting their own backtests, but most of them have SEVERE underlying issues (most prominent being not factoring in borrowing costs). There are, however, several folks on here have that worked on a very very good sim for leveraged funds. Check out the Simulating Leveraged ETFs thread for details. IIRC, you'll need a premium PV subscription to work with them though (for the custom upload privileges).

If you want to backtest a DIY leveraged approach that *isn't daily rebalanced*, then the simplest method would be overweight the ETF you choose and underweight cashx. E.g.:

VFINX 300%
CASHX -200%

The reason that the above example *isn't* a good approximation for UPRO is that it isn't daily rebalanced - best you can do on PV is monthly rebalancing.
If you use 'leveraged type', 'fixed leverage ratio' with 200% and add expenses of 3% per year, it tracks fairly well with UPRO and UPROSIM.

It's not perfect but it gets the job done. There are obviously much better ways of simulating UPRO/TMF but I've found that it works well enough for its purpose.
huzaing
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by huzaing »

Any thoughts/comments on the recent +ve correlation between UPRO and TMF? Both are going down together for a few days now.
Jags4186
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Jags4186 »

huzaing wrote: Wed Jan 19, 2022 6:40 am Any thoughts/comments on the recent +ve correlation between UPRO and TMF? Both are going down together for a few days now.
Inflation is up, long term rates are going up, long term treasuries are going down. Stock market movement is noise. No one asks for comments or thoughts when both TMF and UPRO go up together...

The goal is for TMF to be inversely correlated to UPRO when there is a catastrophe, not on a daily or weekly basis.
huzaing
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by huzaing »

Jags4186 wrote: Wed Jan 19, 2022 6:47 am The goal is for TMF to be inversely correlated to UPRO when there is a catastrophe, not on a daily or weekly basis.
Thank you
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firebirdparts
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

It wouldn't be idiotic to think of bonds going down on a longer term basis while interest rates are increasing over a long term, followed by a longer term recovery at least if you're thinking at 1X leverage. I mean, for instance, if the Fed raises rates 8 times over the next two years, you wouldn't need to call that a "daily fluctuation". It's systemic and fundamental. We all knew that when we started. Who knows, we might be rebalancing in the other direction. The problem, of course, is that we don't know if any of this will happen, and experience has shown that tactically guessing your way through doesn't really work reliably. There must be a pretty low ceiling on rates, but then we'll see.
This time is the same
BobWilson
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by BobWilson »

Greetings,

I'd like to convert my portfolio to the 55% UPRO / 45% TMF method but I'm not sure whether to DCA or lump sum my portfolio.

I've read through the threads and searched through them and can't find a definite answer whether its better to DCA or lump sum.

Could anyone please help?

Sincerely,

Bob Wilson
ninvester12349
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ninvester12349 »

What's the consensus on replacing UPRO with TQQQ? I know that people often cite the Y2K crash as a reason, but the tech industry now is significantly different than the dot com nothing companies.
Professoro
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Professoro »

BobWilson wrote: Wed Jan 19, 2022 9:24 pm Greetings,

I'd like to convert my portfolio to the 55% UPRO / 45% TMF method but I'm not sure whether to DCA or lump sum my portfolio.

I've read through the threads and searched through them and can't find a definite answer whether its better to DCA or lump sum.

Could anyone please help?

Sincerely,

Bob Wilson
The best study I am aware of is this one from Ben Felix. https://www.pwlcapital.com/wp-content/u ... esting.pdf
In summary, lump sum is better than DCA two thirds of the time. You can also hear his explanation here: https://rationalreminder.ca/podcast/101
er999
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by er999 »

BobWilson wrote: Wed Jan 19, 2022 9:24 pm Greetings,

I'd like to convert my portfolio to the 55% UPRO / 45% TMF method but I'm not sure whether to DCA or lump sum my portfolio.

I've read through the threads and searched through them and can't find a definite answer whether its better to DCA or lump sum.

Could anyone please help?

Sincerely,

Bob Wilson
Make sure it isn’t 100% of your portfolio— this is still highly speculative.
director84
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by director84 »

ninvester12349 wrote: Wed Jan 19, 2022 9:50 pm What's the consensus on replacing UPRO with TQQQ? I know that people often cite the Y2K crash as a reason, but the tech industry now is significantly different than the dot com nothing companies.
Does your crystal ball tell you tech will continue to outperform the rest of the market?

TQQQ is less diversified and riskier than UPRO. The top 7 holdings in the S&P500 are all tech companies, so it still benefits from any run up in tech.

I don't hold TQQQ, but I think people here who do have some combination of both UPRO and TQQQ.
AnilG
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by AnilG »

I am using TQQQ/UPRO/TMF 20/40/40 for this strategy. I don't look at TQQQ as representing "tech industry" only instead more of "growing upcoming new industries." With such segment, comes the much greater risk and variability in returns and potential for leveraged securities to be wiped out. As long as Nasdaq continue to attract new upcoming advanced new industries, QQQ and TQQQ are good representative for such segment. But I wouldn't bet the farm on a leveraged ETF representing such a segment.

I am actually looking at diversifying the stock side of this strategy to include leveraged ETF representing mid-cap stocks, such as MIDU, potentially TQQQ/UPRO/MIDU/TMF.
ninvester12349 wrote: Wed Jan 19, 2022 9:50 pm What's the consensus on replacing UPRO with TQQQ? I know that people often cite the Y2K crash as a reason, but the tech industry now is significantly different than the dot com nothing companies.
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Toth
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Toth »

If you think tech is a safer bet now, then why do you think there will also be a premium to overweight it? It's not like it's a secret how strong big tech is.
Last edited by Toth on Thu Jan 20, 2022 7:57 am, edited 1 time in total.
Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

ninvester12349 wrote: Wed Jan 19, 2022 9:50 pm What's the consensus on replacing UPRO with TQQQ? I know that people often cite the Y2K crash as a reason, but the tech industry now is significantly different than the dot com nothing companies.
No consensus. Some argue TQQQ is too concentrated, others argue it has outperformed UPRO for a while and should continue to do so going forward. The inverse correlation between TMF and TQQQ has tended to be weaker, so arguably TMF is not as good of a hedge for TQQQ.

From a risk parity standpoint, replacing some fraction of UPRO with TQQQ implies that the allocation to TMF should go up to compensate the additional volatility. A pure risk parity portfolio would have a bit more UPRO than TQQQ, and take into account the high correlation between UPRO and TQQQ.
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tomphilly
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

ninvester12349 wrote: Wed Jan 19, 2022 9:50 pm What's the consensus on replacing UPRO with TQQQ? I know that people often cite the Y2K crash as a reason, but the tech industry now is significantly different than the dot com nothing companies.
I hold 15% TQQQ, 45% UPRO in my HFEA 60/40. TQQQ is more volatile than UPRO, and it also correlates more with TMF. When there's FUD about rate hikes, TMF and TQQQ will tank together, which will be very painful.

If you were to go 60% TQQQ you're in for a wild ride - actually it only just caught up to UPRO/TMF 60/40 if you start in 2000.

With UPRO you're already getting a lot of the biggest names in QQQ. That said, I hold some TQQQ because I believe QQQ is to SPY what SPY was to the DOW - its eventual successor as the premier index - could be wrong, though.
Semantics
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Semantics »

comeinvest wrote: Tue Jan 18, 2022 3:23 pm
Semantics wrote: Tue Jan 18, 2022 2:37 pm Rates rose each year from 2016-2018, and during that time HFEA returned 14.68% CAGR to 9.11% for the S&P 500, with a similar risk-adjusted return.
Can you please remind me, in simple words, where did the 5.57% difference come from, and in which proportion? Treasuries yield carry return > loss from rate hike? Rebalancing bonus?
EDIT: I looked at the charts.
Consider:
- Long-term (30-year) treasury rates did NOT move much during 2016-2018.
- The yield curve was quite steep, resulting in nice carry returns.
Different from the current forward curve.
Obviously a yield increase at the long end would crush HFEA, not at the short end.
Exactly, part of my point is that the more aggressive the Fed is now on the short end of the curve, the less the long end of the curve will rise.

Also: since HFEA is 165% equities, the portfolio can outperform the S&P 500 even if the treasury component goes down, as long as equities compensate.
FIRE55
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by FIRE55 »

Hydromod wrote: Thu Jan 20, 2022 8:07 am
ninvester12349 wrote: Wed Jan 19, 2022 9:50 pm What's the consensus on replacing UPRO with TQQQ? I know that people often cite the Y2K crash as a reason, but the tech industry now is significantly different than the dot com nothing companies.
No consensus. Some argue TQQQ is too concentrated, others argue it has outperformed UPRO for a while and should continue to do so going forward. The inverse correlation between TMF and TQQQ has tended to be weaker, so arguably TMF is not as good of a hedge for TQQQ.

From a risk parity standpoint, replacing some fraction of UPRO with TQQQ implies that the allocation to TMF should go up to compensate the additional volatility. A pure risk parity portfolio would have a bit more UPRO than TQQQ, and take into account the high correlation between UPRO and TQQQ.
Here is the maximum Sharpe ratio from Mar 2010 - Dec 2021, according to PV:

Code: Select all

UPRO	ProShares UltraPro S&P500		13.07%
TQQQ	ProShares UltraPro QQQ			42.56%
TMF	Direxion Daily 20+ Yr Trsy Bull 3X ETF	44.36%

Annualized Return (CAGR)			40.70%
Expected Return					45.40%
Standard Deviation				26.40%
I'm doing 50:50 UPRO:TQQQ for my LETF stock allocation, FWIW.

/FIRE55
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

viajero wrote: Tue Jan 18, 2022 1:03 pm
LeverageWBeverage wrote: Tue Jan 18, 2022 9:37 am
viajero wrote: Mon Jan 17, 2022 9:54 pm Did anyone consider UBT (2x leveraged 20 year bonds) instead of TMF? It looks like that combo (60/40 UPRO/UBT) is doing slightly better in the last 10 years, and I would imagine it will do better if bond price dips along with a market correction due to rates going up this year. Ideas?
Pretty sure if you look back far enough it was discussed and I don't believe the portfolio would of survived the financial crisis. You have to look back at the simulated backtests once people were able to see before the last 10 year bull market.
I spent some time searching this topic and a haven't found anyone show that such a portfolio would die in the financial crisis. Do you have a pointer why?
Also, is it possible to simulate a leveraged fund with portfoliovisualizer? For back testing HFEA portfolio variations from 90s-00s?
You don't really want to use less leverage on the bond side to compensate for significant equity drawdown (dotcom bust and financial crisis type). Bond is in this for a reason. If you feel adventurous, then move to higher stock allocation temporarily until the rate is more stabilize. Another possibility is to move to shorter duration (less interest rate risk) but leverage up more. See skier's modified HFEA thread.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

ninvester12349 wrote: Wed Jan 19, 2022 9:50 pm What's the consensus on replacing UPRO with TQQQ? I know that people often cite the Y2K crash as a reason, but the tech industry now is significantly different than the dot com nothing companies.
But also substantial price growth is already priced into current QQQ valuation. See the most recent drawdown (2022 version), QQQ moved down significantly more when compare to SPY. I'm satisfy with just holding UPRO in my HFEA standalone account. Full disclosure, I do hold large quantity of TQQQ in my taxable but that's accumulated during the last 2 years when QQQ was significant lower than current level.
kbourgu
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by kbourgu »

jarjarM wrote: Thu Jan 20, 2022 12:41 pm
ninvester12349 wrote: Wed Jan 19, 2022 9:50 pm What's the consensus on replacing UPRO with TQQQ? I know that people often cite the Y2K crash as a reason, but the tech industry now is significantly different than the dot com nothing companies.
But also substantial price growth is already priced into current QQQ valuation. See the most recent drawdown (2022 version), QQQ moved down significantly more when compare to SPY. I'm satisfy with just holding UPRO in my HFEA standalone account. Full disclosure, I do hold large quantity of TQQQ in my taxable but that's accumulated during the last 2 years when QQQ was significant lower than current level.
TQQQ is getting rocked right now. I have one account where I did this strategy but with TQQQ, I started in 2021 with 6K and added another 3K at the beginning of 2022. Right now the value of the account is $8,757. I am definitely feeling a bit shaken at the moment I must say.
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

kbourgu wrote: Thu Jan 20, 2022 3:50 pm TQQQ is getting rocked right now. I have one account where I did this strategy but with TQQQ, I started in 2021 with 6K and added another 3K at the beginning of 2022. Right now the value of the account is $8,757. I am definitely feeling a bit shaken at the moment I must say.
My entire NW (and then some) is TQQQ/TMF 70/30. Down about $57K since ATH in late December. Still up just shy of $35K overall. Been applying my 5% rule to great success (buy 5% more TQQQ with TMF for every 5% QQQ drops). Let's get this party started. I will not stop buying TQQQ shares, minimum 30% drop in QQQ before I can't buy anymore and then I still have some cash as reserve. Emotionally, this is so much better than only rebalancing quarterly. I've been collecting drawdowns like infinity stones, every one makes me more powerful. Survived #2, #7 and #12 worst ones according to PV in only 2 years. If we remain at these levels to the end of the month, I can add #3 or #4 to the stash.
Last edited by Afrofreak on Thu Jan 20, 2022 6:54 pm, edited 1 time in total.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

kbourgu wrote: Thu Jan 20, 2022 3:50 pm
jarjarM wrote: Thu Jan 20, 2022 12:41 pm
ninvester12349 wrote: Wed Jan 19, 2022 9:50 pm What's the consensus on replacing UPRO with TQQQ? I know that people often cite the Y2K crash as a reason, but the tech industry now is significantly different than the dot com nothing companies.
But also substantial price growth is already priced into current QQQ valuation. See the most recent drawdown (2022 version), QQQ moved down significantly more when compare to SPY. I'm satisfy with just holding UPRO in my HFEA standalone account. Full disclosure, I do hold large quantity of TQQQ in my taxable but that's accumulated during the last 2 years when QQQ was significant lower than current level.
TQQQ is getting rocked right now. I have one account where I did this strategy but with TQQQ, I started in 2021 with 6K and added another 3K at the beginning of 2022. Right now the value of the account is $8,757. I am definitely feeling a bit shaken at the moment I must say.
That's what you sign up for with 3x LETFs, they can go much higher and also drop much faster. Hold on tight... :beer
huzaing
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by huzaing »

Afrofreak wrote: Thu Jan 20, 2022 4:08 pm
kbourgu wrote: Thu Jan 20, 2022 3:50 pm TQQQ is getting rocked right now. I have one account where I did this strategy but with TQQQ, I started in 2021 with 6K and added another 3K at the beginning of 2022. Right now the value of the account is $8,757. I am definitely feeling a bit shaken at the moment I must say.
My entire NW (and then some) is TQQQ/TMF 70/30. Down about $57K since ATH in late December. Still up just shy of $35K overall. Been applying my 5% rule to great success (buy 5% more TQQQ with TMF for every 5% QQQ drops). Let's get this party started. I will not stop buying TQQQ shares, minimum 30% drop in QQQ before I can't buy anymore and then I still have some cash as reserve. Emotionally, this is so much better than only rebalancing quarterly. I've been collecting drawdowns like infinity stones. Survived #2, #7 and #12 worst ones according to PV in only 2 years. If we remain at these levels to the end of the month, I can add #3 or #4 to the stash.
Which one is #2? The covid crash?
And what about #1?
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

huzaing wrote: Thu Jan 20, 2022 5:37 pm Which one is #2? The covid crash?
And what about #1?
#1 was US-China trade war at the end of 2018, #2 was September 2020 growth P/E contraction, #3 was Covid crash.
comeinvest
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by comeinvest »

Semantics wrote: Thu Jan 20, 2022 11:48 am
comeinvest wrote: Tue Jan 18, 2022 3:23 pm
Semantics wrote: Tue Jan 18, 2022 2:37 pm Rates rose each year from 2016-2018, and during that time HFEA returned 14.68% CAGR to 9.11% for the S&P 500, with a similar risk-adjusted return.
Can you please remind me, in simple words, where did the 5.57% difference come from, and in which proportion? Treasuries yield carry return > loss from rate hike? Rebalancing bonus?
EDIT: I looked at the charts.
Consider:
- Long-term (30-year) treasury rates did NOT move much during 2016-2018.
- The yield curve was quite steep, resulting in nice carry returns.
Different from the current forward curve.
Obviously a yield increase at the long end would crush HFEA, not at the short end.
Exactly, part of my point is that the more aggressive the Fed is now on the short end of the curve, the less the long end of the curve will rise.

Also: since HFEA is 165% equities, the portfolio can outperform the S&P 500 even if the treasury component goes down, as long as equities compensate.
That's a different story, but what you should wish for, depends on your time horizon. If your time horizon is short, muted long-term rates are better. If your time horizon is long, higher long-term rates are better. Same as for the stock market - if you are relatively young, you want to wish for muted stock market gains for the foreseeable future, otherwise you can't reinvest your dividends profitably. There is a breakeven point. Consider this: If the yield curve flattens to 2% throughout, you won't lose much with your TMF from now on, but you will never gain much if anything. The party is over. If on the other hand, the Fed were more dovish and the yield curve were to steepen to 1% (short) - 3% (long) and stay there, you would lose about 19% now on your 25-year treasuries (maturity 19 years) (before leverage), but you would collect 2% p.a. term premium in perpetuity with your treasuries. Plus, if long-term rates were to rise to 3%, then any time in the future drop back to 2% about where they are now for any reason (economic crash) or "no" reason (savings glut), you would gain what you initially lost, plus collect the term premium in the interim. Clearly, I think a dovish Fed is preferable for HFEA. My personal time horizon is still more than 10 years, as should probably be that of everybody who starts HFEA.
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cos
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

AnilG wrote: Thu Jan 20, 2022 6:13 am I am actually looking at diversifying the stock side of this strategy to include leveraged ETF representing mid-cap stocks, such as MIDU, potentially TQQQ/UPRO/MIDU/TMF.
I recommend using UMDD instead of MIDU. It's better managed and has a lower expense ratio.
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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by privatefarmer »

:D
Afrofreak wrote: Thu Jan 20, 2022 4:08 pm
kbourgu wrote: Thu Jan 20, 2022 3:50 pm TQQQ is getting rocked right now. I have one account where I did this strategy but with TQQQ, I started in 2021 with 6K and added another 3K at the beginning of 2022. Right now the value of the account is $8,757. I am definitely feeling a bit shaken at the moment I must say.
My entire NW (and then some) is TQQQ/TMF 70/30. Down about $57K since ATH in late December. Still up just shy of $35K overall. Been applying my 5% rule to great success (buy 5% more TQQQ with TMF for every 5% QQQ drops). Let's get this party started. I will not stop buying TQQQ shares, minimum 30% drop in QQQ before I can't buy anymore and then I still have some cash as reserve. Emotionally, this is so much better than only rebalancing quarterly. I've been collecting drawdowns like infinity stones, every one makes me more powerful. Survived #2, #7 and #12 worst ones according to PV in only 2 years. If we remain at these levels to the end of the month, I can add #3 or #4 to the stash.
THIS is the exact right attitude to have. Realizing that these drawdowns are all part of the game, the price of admission, and to look at it light heartedly rather than freak out. Granted, it’s a little bit different when you have millions invested instead of thousands, but same philosophy. I’m also down now 25% from my ATH, realizing that 30% drawdowns come once about every 5 years or so with my strategy, so this is all “normal”
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by AnilG »

I don't have enough qualitative info to say which one is better managed. But I went with MIDU mainly because of AUM, 30d Bid/Ask spread, and Trading volume.

Code: Select all

Criteria	Expense Ratio	Gross ER	Avg Vol		30d Bid/Ask	AUM
UMDD		0.95%*		1.23%		26,152		0.31%		56.99 million
MIDU		1.03%/0.95%*	1.09%		54,922		0.18%		97.38 million

* Only applicable up to 9/30/22.
cos wrote: Thu Jan 20, 2022 10:07 pm
AnilG wrote: Thu Jan 20, 2022 6:13 am I am actually looking at diversifying the stock side of this strategy to include leveraged ETF representing mid-cap stocks, such as MIDU, potentially TQQQ/UPRO/MIDU/TMF.
I recommend using UMDD instead of MIDU. It's better managed and has a lower expense ratio.
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coingaroo
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by coingaroo »

We have the perfect storm for the destruction of value of HFEA.

* The Fed's forward guidance is arguably the most hawkish in multiple decades, with extreme inflationary pressures that make you think about the Volcker eras. Everyone in this thread who said 'inflation is over' and 'high interest rates are over' have gone quiet.

* Stock markets are still trading at ~95th-percentile valuations when looking at CAPE, even with the current dips. The reality is stocks are as richly valued as Dotcom bubble era, and while bulls have pointed to low interest rates as justification, the era of low interest ends is coming to a swift end.

* The combination of these two things (stock market in bubble valuations + sharp rises in interest rates) mean cash becomes valuable. Unfortunately for a strategy like HFEA, it is -200% short cash; which does not bode well if cash becomes the best performing asset class (by the virtue of maintaining its nominal value; while stocks reset their multiples to historical averages and so do bond yields; which reduce bond prices).

The last time this happened HFEA lost ~90-95% of its balance, and like they say, there's no free lunch. The price of 30-40% CAGR during the good years is paid by a 90-95% destruction of wealth during storms. I hope everyone has followed the advice that HFEA should only be a very small proportion of the portfolio, added and rebalanced separately.

If so, (as it is for me with HFEA being a small portion of my fun money), continue to follow your IPS. But if you are one of the folks whose portfolios are substantially or entirely HFEA, I would exercise significant caution and recommend posting in the personal investments section.

While stocks go up in the long run; there's no assurance that you'll see 3x leveraged daily-resetting swaps of 37x CAPE stocks and 2.17% yield LTTs ever make a new high in your lifetime.
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LiveSimple
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LiveSimple »

I am not invested in HFEA, but watching closely.
Do you had the opportunity to rebalance with this YTD pullback or waiting for the quarterly rebalancing only, just wondering....
Invest when you have the money, sell when you need the money, for real life expenses...
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firebirdparts
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

LiveSimple wrote: Fri Jan 21, 2022 6:26 am I am not invested in HFEA, but watching closely.
Do you had the opportunity to rebalance with this YTD pullback or waiting for the quarterly rebalancing only, just wondering....
Not tempting at all. These things take time.
This time is the same
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tomphilly
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

coingaroo wrote: Fri Jan 21, 2022 6:03 am The last time this happened HFEA lost ~90-95% of its balance, and like they say, there's no free lunch
What period did HFEA lose 90-95% of its value?
peturano
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by peturano »

This is exactly the situation when one has to exchange 3x LTT (TMF) for 3x ITT (TYD, maybe rather 2.5x TYA) and add 2x Gold (UGL). This combination earned significantly more between 1955 and 1980 (which is much closer to today's situation given the evolution of rates). And not just relying on UPRO, but combining all the caps, on the thirds of UPRO / UMDD / URTY.
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

coingaroo wrote: Fri Jan 21, 2022 6:03 am We have the perfect storm for the destruction of value of HFEA.

* The Fed's forward guidance is arguably the most hawkish in multiple decades, with extreme inflationary pressures that make you think about the Volcker eras. Everyone in this thread who said 'inflation is over' and 'high interest rates are over' have gone quiet.

* Stock markets are still trading at ~95th-percentile valuations when looking at CAPE, even with the current dips. The reality is stocks are as richly valued as Dotcom bubble era, and while bulls have pointed to low interest rates as justification, the era of low interest ends is coming to a swift end.

* The combination of these two things (stock market in bubble valuations + sharp rises in interest rates) mean cash becomes valuable. Unfortunately for a strategy like HFEA, it is -200% short cash; which does not bode well if cash becomes the best performing asset class (by the virtue of maintaining its nominal value; while stocks reset their multiples to historical averages and so do bond yields; which reduce bond prices).

The last time this happened HFEA lost ~90-95% of its balance, and like they say, there's no free lunch. The price of 30-40% CAGR during the good years is paid by a 90-95% destruction of wealth during storms. I hope everyone has followed the advice that HFEA should only be a very small proportion of the portfolio, added and rebalanced separately.

If so, (as it is for me with HFEA being a small portion of my fun money), continue to follow your IPS. But if you are one of the folks whose portfolios are substantially or entirely HFEA, I would exercise significant caution and recommend posting in the personal investments section.

While stocks go up in the long run; there's no assurance that you'll see 3x leveraged daily-resetting swaps of 37x CAPE stocks and 2.17% yield LTTs ever make a new high in your lifetime.
I'm beginning to think we are very close to the bottom now when people start preaching armageddon. I would've expected this rhetoric at -35%, I'm a bit bummed that the party is already coming to an end.

The Fed hasn't even said anything recently, they are in a blackout period as of last weekend. People are just making wild speculations as to what they will do. Let's not forget initial jobless claims are ticking back up again due to Omicron and the PBOC cut interest rates. Let's also not forget that what kicked this all off was the release of the minutes of the Fed, again, no bad news has actually been confirmed. I'm not saying this is enough to make the Fed change its mind but to compare this to Volcker era when we are literally sitting at 0% Fed funds rate and the long-term expected rate below 3% is ridiculous. The 10 YR breakeven inflation rate is down since the last FOMC meeting and at its lowest point since late September 2021.

As for your assertion that stocks are as richly traded now as during the dot-com bubble... you've got to be kidding me.

"While stocks go up in the long run; there's no assurance that you'll see 3x leveraged daily-resetting swaps of 37x CAPE stocks and 2.17% yield LTTs ever make a new high in your lifetime." Cut the FUD. We all know the moment the Fed senses markets are uneasy they are going to right back to cutting interest rates.

You may be right in the end, but for now, the worst performing index is down 10%, not 50%. Relax.
Last edited by Afrofreak on Fri Jan 21, 2022 8:36 am, edited 1 time in total.
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tomphilly
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

peturano wrote: Fri Jan 21, 2022 8:13 am This is exactly the situation when one has to exchange 3x LTT (TMF) for 3x ITT (TYD, maybe rather 2.5x TYA) and add 2x Gold (UGL). This combination earned significantly more between 1955 and 1980 (which is much closer to today's situation given the evolution of rates). And not just relying on UPRO, but combining all the caps, on the thirds of UPRO / UMDD / URTY.
I don't know about switching out all components of HFEA, it's a lot of changes for the assumption we are entering a 1950-1980 period. I will just take out some black swan insurance today, probably SPY puts, and call it a day.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ChinchillaWhiplash »

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

Post by parval »

ChinchillaWhiplash 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?
Are you sure those aren't close enough for wash sale? I mean QQQ for TQQQ seems super close, but I don't work for IRS
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tomphilly
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

ChinchillaWhiplash 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?
I did something like this late last year - I closed my VXX hedge (formerly 5% of my HFEA) for an $8k loss and bought TMF. Not exactly a win win considering TMF continued to tank, but better than nothing. It made me think that there are occasional opportunities to TLH HFEA with alternating hedges.

Is selling QQQ and buying TQQQ considered a wash sale? I would be careful with that. You could sell VOO and buy TQQQ, wait thirty days, sell QQQ and buy UPRO - but I would get IRS advice on this.
Last edited by tomphilly on Fri Jan 21, 2022 9:34 am, edited 2 times in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ChinchillaWhiplash »

parval wrote: Fri Jan 21, 2022 9:22 am
ChinchillaWhiplash 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?
Are you sure those aren't close enough for wash sale? I mean QQQ for TQQQ seems super close, but I don't work for IRS
Not completely sure, but one holds futures contracts and the other holds actual securities. So I would think that these are not identical, but I don’t know how the IRS sees things. Hoping someone on here knows the answer.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Semantics »

parval wrote: Fri Jan 21, 2022 9:22 am
ChinchillaWhiplash 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?
Are you sure those aren't close enough for wash sale? I mean QQQ for TQQQ seems super close, but I don't work for IRS
Even SPY and VOO are not considered substantially identical, so QQQ and TQQQ are absolutely not.
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tomphilly
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

Semantics wrote: Fri Jan 21, 2022 10:01 am Even SPY and VOO are not considered substantially identical, so QQQ and TQQQ are absolutely not.
That seems crazy, they're virtually a single line on PV dating back to 2011. Are UPRO and SPXL considered different?
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