It has been now 18 months since our post on “The power of diversification: Portfolios of Logical Invest Strategies”. Back then our main argument for diversification using a robust portfolio of several of our strategies was that “diversification is ‘a rare free lunch’, it is well accepted part of modern financial portfolios, and to stay financially healthy it is important not to skip lunch”. Several new strategies have been published since then, among them the “NASDAQ 100” strategy, the “Gold-Currency” strategy and our “Hell on Fire”, the 3x leveraged Universal Investment strategy. At the same time, we went through the bumpy start into 2016 and most recently the waves created by the BREXIT referendum. Does our stated hypothesis of formerly presented portfolios still hold true? How have the individual components performed, and most importantly, have they added value through low correlation? Have new optimum portfolios emerged since then?
La siguiente estrategia es una de nuestros favoritos, que muchos de nuestros amigos, clientes y nosotros mismos hemos utilizado ya por algunos años. La Estrategia de Rotación de Mercados Globales (“Global Market Rotation Strategy”, GMR) La Estrategia GMR rota mensualmente entre 6 ETF diferentes. El rendimiento histórico calculado de esta estrategia desde 2003 es bastante impresionante. Rendimiento anual (CAGR) = 36.7% (S&P 500 = 8,4%) Rendimiento total a partir de 2003 = 3924% (S&P 500 = 134%) 69% de las operaciones mensuales tienen una rentabilidad positiva Los mercados globales utilizados y ETF correspondientes son: Estados Unidos Europa Mercados emergentes América Latina Región del Pacífico
For our „All Strategies“ Subscriber who use the Portfolio Builder to blend their own mix of Logical Invest Strategies, here some updates and a short mid-year review: We have now included the “World Top 4 Strategy” into both the online an offline tool. To keep the charts readable, we opted for replacing the Aggressive Version of our “Global Sector Rotation”. The preconfigured and optimized Markowitz Portfolios have been updated, only slight changes in the allocations occurred – all are <5%, so in most cases these can be neglected due to account size.
What an audience and what an experience! Thanks to the investors AAII Silicon Valley! As announced some weeks ago, on April 11 we hosted our first conference at the Silicon Valley chapter of the American Association of Individual Investors AAII in San Jose, CA. Sharing and discussing some of the topics which are close to our heart with an incredible audience in live mode was such a great opportunity we completely overran the anticipated schedule by more than an hour. Deep-diving into special interests during follow up face-to-face meetings with individual investors and getting challenged by the computerized investment group helped to clarify expectations and ideas for further developments. Recorded investors AAII conference 1.) AAII Board Introduction Opening remarks by Lynn Gillette, President of the AAII SV, and Al Zmyslowski, head of the computerized investment group. 2) Who we are & What we stand for Introduction of the Logical Invest team, what drives us, and some of our core beliefs in investing 3) Constructing your ‘all weather’ self-managed portfolio The Logical Invest way of constructing portfolios using smart building blocks of assets, diversifiers, and different tactical approaches at the strategy and portfolio level 4) Building a well-balanced crash protection Why Buy & Hold is dead and how to set up your portfolio for success even in the next correction 5) Harvesting the ‘Fear Premium’ and 'Rebalancing losses' Highly geeky ways to further improve your portfolio returns by investing in inverse volatility and shorting 3 times leveraged bear treasury ETF. 6) Markowitz Meets Logical Invest How our own approach to portfolio construction evolved over time, and how to build dynamic weighted Meta-Strategies (aka Strategy of Strategies) Or see the full investors AAII Youtube playlist list online. [...]
Summary: -Aggressive leveraged version of our previously published Universal Investment Strategy -Variable SPY-TLT allocations dynamically adapted to the market conditions. -45% annual return with a Sharpe Ratio of 1.3 since 2002. Due to its simplicity and low correlation to the S&P 500, there is a continued interest in the UIS version that uses 3x leveraged ETFs: ETF SPXL (Direxion Daily S&P 500 Bull 3X Shares ETF) and TMF (Direxion Daily 30-Year Treasury Bull 3x Shares ETF). Following the suggested nomenclature by Al from AAII SV - and to honor their interest, we call this version “Hell on fire”, which alludes to the high risk/return profile of the strategy. We will show ways to blend this strategy in a well-balanced and risk-optimized portfolio as to overcome the generally negative perception of private investors towards leveraged ETF.
By request of several followers, we have now included the version with 3x leverage of the Universal Investment Strategy using synthetic SPXL and TMF data from 2002. Portfolio Builder now with leverage We're about to publish a full article on this exciting option for this weekend, but want to pre-alert you about this upcoming adition. While this is a very aggressive strategy with leverage, it blends very nicely with a 10%-20% allocation into a portfolio targeting Maximum annual return with a 10% or 20% volatility constraint. We have therefore also updated the optimized portfolios, and by another request included the MaxCAGR with volatility constraint of 20% and 25% volatility. Here a preview of the full backtest since 2002 of the version with leverage A visualization of the new portfolio options with blends of this strategy with leverage: And the timeseries of the synthetically constructed SPXL and TMF /3x leverage) since 2002 (both ETF have an inception date in 2009). We will explain the methodology of this more in detail in the upcoming post. Stay tuned for our next post, but review the portfolio options in our Portfolio Builder before, which now includes the version with leverage. A team of followers and us is working on an advanced offline Portfolio Builder, which offers additional features to optimize and customize your portfolios, as well as full daily return and equity data. This is still in development, but feel free to preview and join the team if interested. If you are new to our site, here an overview of our Universal Investment strategy: "The SPY-TLT Universal Investment Strategy (UIS) is one of our new core investment strategies. Probably the most basic of all rotation strategies, is the switching strategy between the S&P 500 US stock market (SPY) and long duration Treasuries (TLT). The [...]
UPDATE: The tool is now available following this link “What? Another post about tools and infrastructure? Thought Logical Invest is going to show me the next 21st Century ETF Investment Strategy!” Yes, I know there have been plenty of posts regarding new features on our site, new portfolio options, new charting capabilities, and new portfolio builder features. Plus plenty of teasers of what is coming up in regard of strategies and meta-strategies. Is the Logical Invest team now only busy on this nice-to-have-but-not-money-making stuff? No, we’re not, our purpose and motivation has not changed! We’re determined to be your first choice for your smart investments! But based on your feedback, and seeing that more and more of you migrate from employing single-strategies towards blends and full-fletched portfolios of strategies, we know we need to develop our infrastructure to keep up with our pledge: “A few simple switches a month, which can be done in 15 minutes” We’ve given an insight into our long-term vision in our last (yes, silent) video, which is: Single Strategies for complementing your existing portfolio, or Full fixed-weight blends or portfolios of our strategies (Portfolio Builder), or Dynamic and smart meta-strategies which adapt to changes in market environment and strategy performance – Breaking through the traditional (more or less) efficient frontiers, or Top-notch custom portfolio solutions made to spec for larger accounts and institutional money managers. Now, while this means a time-warp evolution in performance and robustness, it undoubtable also means an increase in the complexity. Means, we need to provide you with tools to keep the execution process easy, and allow you to enjoy your free-time with your most beloved instead of doing advanced Excel Acrobatics on weekends. “Ok, got you. But where does this lead us?” [...]
From individual Strategies to Portfolio Optimization Based on the interest of our followers and our own investment philosophy, we have gradually evolved from offering single quantitative strategies towards blends or portfolios of strategies. The way we visualize our own development cycle might be best summarized in a chart: Where are we on this path and where are we heading? We believe we have now a stable set of 'core-strategies', which cover a broad spectrum of both risk/performance but also trading and hedging instruments. We will continue our research on new strategies, and will also in future come up with smart ideas in that area. However, we are currently increasing our effort in blending these strategies into portfolio solutions. The "Portfolio Builder" with fixed-weight allocations is here only the first step. Developing a dynamic Strategies of Strategies (or Meta-Strategies) which smartly allocate with changing weights among a set of our strategies is one of the projects we initiated since the four of us met in mid 2014. Our thought: Quickly reacting to or even anticipating changes in the market environment by changing horses on the fly, better dealing with changing correlations of markets and constantly challenging whether one of our strategies has lost ‘steam power’ should be even better than simply allocating funds with fixed weights or even worse discretionary among strategies. To continue the enhancement of our tools towards this vision, we’ve given our fixed-weight Portfolio Builder a major overhaul and implemented many of the requested features. Key features for portfolio optimization Some of the new key features for portfolio optimization are: Equity lines according to most recent strategy review Our subscribers know that we review our strategies periodically, either because we find improvements for the execution (change of IEV to FEZ in the Global Market Rotation), or introduce newly developed [...]
We‘re happy to have been invited to host a presentation at the Silicon Valley Chapter of the American Association of Individual Investors (AAII) on April 11, 2015. We obviously extend this invitation to whomever is around, join us for this first opportunity to meet in person. The presentation to AAII will especially focus on how to construct your self-managed portfolio using ETF and Mutual Fund Rotation Strategies, how to build in a well-balanced crash protection mechanism into your IRA and 401k account, and how to use inverse volatility to harvest the 'fear premium'. At AAII we will also provide a first glimpse at the new 'Portfolio Builder' for constructing fixed weight portfolios using our strategies, and how to break the Markowitz Efficient Frontier using our revolutionary dynamic weight meta-strategies. Drop me a line at firstname.lastname@example.org or as comment to set up some additional time. I’ll be around Friday till Monday and would love to collaborate and share more insights with AAII or people around Best Regards, Alexander Horn Invitation and online registration for AAII event: PDF file Saturday, April 11, 2015 INTELLIGENT, RULE-BASED ETF INVESTMENT STRATEGIES With hundreds of ETFs available, how can the individual investor successfully manage a portfolio? Logical Invest has developed algorithms that create alpha and reduce market exposure with simple, well-researched monthly ETF rotation strategies. These strategies protect your account with crash protection via U.S. Treasuries and harvest a “fear premium” from inverse volatility. These rotation strategies can be brought together with adaptive allocation in a custom-made portfolio right for each investor. You Will Learn: The key elements - and most common traps - of constructing your self-managed portfolio How to build in a well-balanced crash protection mechanism into your strategies How you can benefit from harvesting the “fear premium” by investing in inverse volatility Discussed by: Alexander Horn [...]
Diversification is a cornerstone to successful investing. In simple form, when measurably diverse assets are combined in a portfolio, the investors portfolio risks are reduced without any sacrifice of returns. This is a rare “free lunch”, it is well accepted part of modern financial portfolios, and to stay financially healthy it is important not to skip lunch. When one asset is going down while the other is going up, the portfolios risk is reduced without the normal penalty of risk/return trade-offs. We take advantage of that when our systems dynamically blend things like the S&P 500 and treasury bonds, which often exhibit negative correlation to each other (which is ideal). Applying Portfolio Diversification to Strategies: Our subscribers can take this take a step further. Our investing algorithms take on a blend of the properties of their underlying assets combined with the “alpha” edges from the investing rules. The returns of each investing strategy should be thought of as an asset, which are different and unique from the underlying holdings. So holding a portfolio of strategies functions much like holding a portfolio of assets. To evaluate the risk profile of the strategy, we examine the history of the returns of those strategies, much like when holding a basket of stocks the historical returns of each stock would be evaluated.