Frank Grossmann

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About Frank Grossmann

Frank studied Microtechnics at the Federal Institute of Technology in Lausanne and Business Administration at the Federal Institute of Technology in Zurich. After the Studies in 1989 he founded Labocontrol AG. Labocontrol developed high speed film scanners used in most of the photo labs for the production of Photo CD's. In 2000 Labocontrol was sold to Digital Now and Frank worked as Chief Scientist and later CTO of this Company. In Mai 2002 Frank founded Colour-Science AG a company specialized in image processing algorithms like face detection or red eye removal. Many of these algorithms could be also used to search for pattern in financial data, so Frank began to develop and back test rule based investment strategies. The main focus was to find strategies, which would allow a positive return also during a financial downturn or major financial crash. Based on this research, logical-invest developed some very successful strategies and due to its solid performance and positive returns, we decided to share our knowledge with you and publish it on a monthly basis through "rent-a-strategy".

ZIV/MYRS – how to go on after the crash

I have been asked in several emails on how to go on with existing ZIV positions, so here is a short note for our subscribers which still hold MYRS/ZIV positions. As you know underlying to ZIV are short positions of the VIX Futures month 4-7. So ZIV moves are about the same as the moves of the medium price of these Futures. As you can see in the above VIX term-structure chart, the medium price for this Futures is about 19.50$. On February 1st, this medium price was about 14.70$, so its up about 4.80$ which should translate in a 30% drop of ZIV. Today's price of 19.5$ however is still quite low, and this price can well go to the region of 25$. If the correction continues or markets go sideways with high volatility, then ZIV can further go down quite a lot. This said I would not recommend to invest in ZIV at the moment. We also already said this in our last monthly strategy post. However if you are not afraid and still want to profit from the volatility spike and if you can trade VIX Futures, then the much safer way is to buy VIX calendar spreads. For this you would for example sell the VIX May Future and buy the September VIX Future. The price for such a spread is - 1.30$. This way you only invest in the price difference of the Futures and if these go up to 25$ you will probability not notice much as the September Future will make up the losses of the May Future. This VIX Future spread price of -1.30$ is a very rare occasion. Normally the curve is in contango which means that the further out a VIX future is, the more expensive it is. We only [...]

2018-02-06T09:02:14+00:00By |23 Comments

Logical Invest strategy update for an inflation environment

Logical Invest strategy update for an inflation environment. The following strategy update will be in effective for the February rebalancing. QuantTrader user will get a notice of the updated QuantTrader.ini strategy file when they start QuantTrader. You can also download the file also manually from here: It is my opinion that going forward, inflation poses a serious risk for investors. From 1980 to 2015 Inflation went down from more than 10% to near 0%. Since 2015 inflation is steadily rising from nearly 0% to now more than 2%. Inflation is a bond's worst enemy. Since we use Treasuries to hedge our strategies, rising inflation may have a very negative impact on our TLT Treasury ETF positions. It is not just bonds. Inflation could negatively impact the equity markets as well. Many U.S. companies are running on cheap credit and are deeply in dept. The Russell 2000 small caps, in aggregate, have already negative earnings today. Higher credit costs due to inflation would mean the end of many of these companies, resulting in a strong market correction. All this could mean that stocks and bonds go down together which would negatively affect our strategies. One solution to this is to use Gold. Gold has always been one of the best hedges against inflation. So I decided to use it and build a more universal, "inflation-proof" hedge. The Hedge strategy This Hedge is now a separate strategy called “Hedge”. It is composed by TLT, the long term Treasury bond and a slightly redesigned GLD-USD strategy. The new Hedge did perform quite well in the past and can be used profitably as a standalone strategy. This is an advantage for the strategies which use it as a hedge. Most of the time the "Hedge" gets about a 50% allocation within the [...]

2018-01-26T08:04:47+00:00By |38 Comments

Invest in VIX volatility using ZIV

Update January 2017: The recent performance of investing in volatility can be seen here. You are probably wondering how we could achieve yearly performances of more than 50% with some of our rotation strategies. The reason is that the Maximum Yield Rotation Strategy and the Global Market Rotation Enhanced Strategy are investing in inverse volatility. Invest in inverse Volatility So, here are now some facts to show you why I like inverse volatility so much. In this chart you see the performance of the ZIV mid-term inverse volatility ETF compared to some other global market ETF from our rotation strategy. The ZIV performance of 76% for the last 12 month was just incredible. In the next chart you see a comparison of the VIX volatility index compared to the ZIV performance. ZIV has a inverse relation to the VIX index. This means that ZIV goes down when volatility or VIX goes up. For the 1 year period VIX is more or less the same (+0.19%). The VIX index is now at 15.6%. So, why did ZIV go up so much, when the VIX index is unchanged? This is because of the strong contango of the VIX mid-term futures of which the ZIV ETF is composed. If I calculate, then I get an average monthly performance of 4.8% (=12. root of 1.76), during the last 12 month, due to the strong contango of the VIX futures which track volatility. At the moment the monthly "roll yield" of ZIV is a little bit lower, but it is still about 3% per month. Now, if you look at the ZIV performance you see that ZIV only made 0.69% since April 12. Why this??? If you look at the VIX Index, you see that during the same period, it went up by almost 30%. [...]

2017-10-02T20:00:00+00:00By |0 Comments

A Global Market Rotation Strategy with an annual performance of 41.4% since 2003

The following ETF strategy is one of my favorite rotation strategies, which many of my friends, customers and I use now for some years. The Global Market ETF Rotation Strategy (GMR) The GMR Strategy switches between 6 different ETF on a monthly basis. The back tested return of this strategy since 2003 is quite impressive. Annual performance (CAGR) = 41.4% (S&P500=8.4%) Total performance since 2003 = 3740% (S&P500=134%) 69% of trades have positive return versus 31% with negative return You find the most recent performance table here. ETF These global markets and ETF are: US Market (MDY - S&P MidCap 400 SPDRs) Europe (IEV - iShares S&P Europe 350 Index Fund) Emerging Markets (EEM - iShares MSCI Emerging Markets) Latin America (ILF - iShares S&P Latin America) Pacific region (EPP - iShares MSCI Pacific ex-Japan) During market corrections I invest in: US Treasury Bonds (EDV - Vanguard Extended Duration Treasuries (25+yr)) Cash or SHY (SHY - Barclays Low Duration US Treasury) Selection of the strategy ETF For the design of a well performing rotation strategy, it is important that the selected ETF are not too volatile, show longer term visible trends and have a good market volume, so that they cannot be manipulated. They all should have more or less the same volatility. The 5 global markets ETF fulfill this condition. They all are capitalized enough, so that they cannot be manipulated in the short term. Why rotating? The 5 ETFs follow slightly different economic cycles and there are long periods where one market outperforms the other until it becomes so overpriced and investors begin to remove their money from that market in order to invest in other cheaper valued markets. Looking back 12 month, we see that the US market was the clear winner and the [...]

2017-10-02T20:00:00+00:00By |7 Comments

Harvesting Contango: How To Build An ETF Rotation Strategy With More Than 50% Annualized Returns

In this paper I want to explain the readers how the Maximum Yield Rotation Strategy of is built. This strategy harvests the so called Contango. Harvesting Contango by investing in inverse volatility This Strategy harvests contango and achieves very high returns investing in inverse volatility. From 2011 to today the annual performance was more than 70% per year. Year to date the performance is 40.9%. The Sharpe Ratio (Return/Risk) of 2.12 is a "DREAM VALUE" and I doubt that someone can show me a strategy with a higher ratio. The strategy invests in 4 different ETFs and harvests the contango: US Market (MDY - S&P MidCap 400 SPDRs) U.S. Treasury Bonds - (EDV Vanguard Extended Duration Treasury 25+yr) Volatility - (ZIV VelocityShares Inverse VIX Medium-Term) cash - (SHY Barclays Low Duration Treasury) only if Treasury correlation to SPY > -0.25 The Maximum Yield Strategy switches semi-monthly between these 4 ETFs. For the switching I use a ranking system like the one I explained in my SeekingAlpha article of the Global Market Rotation Strategy. The ranking system is also using 3 month historical performance and 20 day volatility. Using also volatility is quite important for harvesting contango, because it reduces the ranking of high volatile ETFs like ZIV. However, if you want to play such a rotation strategy by yourself, then you can also just look at the 3 month historical performance to benefit from contango. In this strategy the ZIV ETF is the most important performance driver. ZIV can only be backtested since 2011, so that I cannot present a longer backtest for the whole strategy, but the way the strategy is built, you can backtest parts of it for more than 10 years. Benefit from Contango The Maximum Yield Rotation Strategy is composed by several smaller sub-rotation strategies. Here is an overview of [...]

2017-10-02T20:00:00+00:00By |2 Comments

Volatility Premium – Why we invest in ZIV and not in XIV

Several times I have been asked why we invest in ZIV (inverse mid-term volatility) and not in XIV (inverse front month volatility) in our Maximum Yield Rotation Strategy and in the "Global Market Rotation Enhanced Strategy" to harvest the volatility premium. Harvest Volatility Premium smartly After all, front month VIX Future contango is about 2-3x bigger then medium term contango. At the moment XIV profits from nearly 9% monthly VIX Futures contango. ZIV profits from about 3% monthly VIX Futures contango, or volatility premium Normally you would think that XIV should have a far better performance than ZIV, but now look at this chart of the 1 year performance. ZIV has performed very well. With 64% annual performance it performs nearly 4% better than XIV and this with much less volatility - thus allows better to harvest the volatility premium. The main problem is that both of the ETFs are inverse ETFs. This means that underlying they are constructed by shorting VIX futures. These ETFs are rebalanced every day and this results in a quite big time decay. XIV has a very high volatility of about 55% compared to only 25% for ZIV. Higher volatility means also bigger time decay losses. The 25% volatility of ZIV fits very well to the volatilities of our global market ETFs (MDY, FEZ, EEM, EPP, ILF). Rotation strategies work better, if the ETFs have more or less the same volatility. Rotation Strategy backtests - all to benefit from volatility premium If I backtest our Maximum Yield Rotation Strategy with XIV instead of ZIV, then I only get an annual performance of 31% with a volatility of 48% since 2011. With ZIV, I get 70% annual performance with only 27% volatility. This is a huge difference, which shows you, how important it is, that the ETFs [...]

2017-10-02T20:00:00+00:00By |2 Comments

Risk Management using Timed Hedging – Avoid DrawDowns

As you perhaps know I have invested all my money in my own strategies, and I and my family (the best wife of all and 4 nice children) are living from the return of these investments. So, I just cannot afford to lose much money in market corrections. Therefore I always try to improve the strategies to lower the risk of major losses through hedging. Timed Hedging The new "Timed hedging" is a major improvement of the rotation strategies. It increases the Return to Risk ratio of all strategies a lot. Timed hedging allows you to reduce the downside risk or the volatility of your investment by about 1/3rd without affecting the performance of the strategies. An excellent way to reduce the volatility or risk of your investment is hedging with Treasuries. Treasuries are most of the time negatively correlated to the stock market and still have a long term positive return. In my strategy emails, I will from now on always give an indication on how you can hedge the current strategy investment. There is a good possibility that 2014 will be a more choppy market than 2013. The 32% performance of the US stock market is just crying for some corrections, even if the economy outlook is still very positive. In a normal year like 2012 without tapering, the stock market (MDY – orange) and Treasuries (EDV – blue) have nearly perfectly mirrored charts. 2013 was a special year with extremely fast rising treasury yields during the summer period. This had the effect, that long duration ETFs like EDV lost up to 20% for the whole year. Since the beginning of 2014 treasuries show again a normal negative correlation of about -0.5 to the stock market (SPY). Since hedging with Treasuries is an extremely simple and effective [...]

2017-10-02T20:00:00+00:00By |14 Comments

What is a hedge and why does it makes sense to do it?

A hedge is always an investment which is negatively correlated to the main investment. When the main investment goes down, the hedge should go up and if the main investment goes up, then the hedge normally goes down. It is clear, that we like the first, which is to reduce the draw downs with a hedge, but not to reduce the gains. If you have a stock portfolio, then the main hedge possibilities are: A VIX ETF like VXX or a VIX Future. These have nearly a -1 correlation. An inverse ETF on a index like SH which is the inverse of the S&P 500 SPY ETF Precious metals like GLD or SLV Treasuries A lot of people use 1) and 2) to hedge their positions. This may probably make sense if you have a big stock portfolio, and you can not sell everything instantly in case of a market crash. These two must be perfectly timed. I do not think it makes sense to use them as a hedge for longer periods because the VXX ETF has an extremely strong down trend of about 5-10% per month. This is a very effective but also very expensive hedge. Such a hedge will ruin the performance of your portfolio if you keep it longer then one or two weeks. Same with SH. Because the S&P 500 has a long term up trend of about 8%, you will lose about these 8% per year if you use SH as a long term hedge. Precious metals 3) are much better. They are a safe haven investment. They normally have an inverse correlation to the stock market in times of trouble and on the longer term they should go up at least because of inflation. Gold and Silver are today priced about at their [...]

2018-08-31T11:25:37+00:00By |7 Comments

Market DrawDown: TMV ETF hedging and timing

The TMV ETF should stay in place for quite some long time, and it´s a great investment to harvest time decay and avoid drawdown. The big tapering drawdowns of 2013 are past history. You don't need to look daily at the TMV short hedge. Just keep it. The ETF TMV is a loser and if you stay short it will be a long term winner. It should return about 10-15% per year. How to minimize a market drawdown using the TMV ETF Here is a long term chart of the TMV ETF. As you see, it lost 80% of it's value in the last 4 years. So being long TMV is one of the best way to destroy money - and this is why we short it. This to benefit from the time decay, but also to avoid market drawdown in times of market corrections. Here is a 12 month comparison with EDV and TMF. While all treasuries had quite big losses of about -7% in 2013, a short TMV position was flat over the year. EDV -7.2% TMF -18.2% (divide by 2 because TMF=+2x EDV) -9.1% TMV 0.6% (divide by -2 because TMV=-2x EDV) = -0.3% Since 2009 the average return of the ETF TMV short is nearly 20%. With normal ETFs you only profit from Treasury yield (dividends). From this you have to substract mangagement fee and time decay of leveraged ETFs like TMF. With the TMV ETF you profit from Treasury yield (dividends) and because you are short TMV you profit also from mangagement fee and time decay. You can use this technique in several of our strategies. Instead of going long the TMF ETF you just short the same number of shares in TMV. Or instead of TLT just short 1/3 of the shares TMV, [...]

2017-10-02T20:00:00+00:00By |0 Comments

Hedging Portfolio: Comparison of TMV, TMF or EDV

TMF is by far not so good as TMV short for hedging portfolio. Here is the 12 month comparison. While all treasuries had quite big losses of about -7%, a shortTMV position was flat over the year. I think for IRA accounts the better and saver way of hedging would be a part of the investment in the Bond rotation. This one should make 10-15% per year and is also good for hedging portfolio. Hedging Portfolio with different instruments in comparison Below chart: EDV -7.2% TMF -18.2% (divide by 2 because TMF=2xEDV) -9.1% TMV 0.6% /2 = 0.3% = -0.3% because you are short TMV Conclusion: If you can short, then use TMV for hedging. If not, then better do not hedge or use the Bond Rotation Strategy for hedging portfolio. You can employ this hedging portfolio with our Sleep Well Bond Rotation Strategy, here a summary or look at the recent performance: Our high yield Bond Rotation Strategy is one of our core investment strategies. The strategy invests on a monthly basis in two of four different bonds as hedging portfolio. This is the perfect strategy if you are looking for a safe long term investment and if you want to sleep well even during turbulent financial markets and be covered by hedging. The extremely low volatility (risk) of this strategy is only 7.9% which is about 3-4x less than the S&P500 volatility. The 4 Bonds are: CWB – SPDR Barclays Convertible Bond JNK: SPDR Barcap High-Yield Junk Bond (4-7yr) PCY: PowerShares Emerging Mkts Bond (7-9yr) TLT: iShares Barclays Long-Term Trsry (15-18yr) The strategy is a very conservative approach to maximize your portfolio return and on the same time minimize the risk of losses. During the 2008 financial crisis the S&P500 lost more than 50%. This strategy ended the year 2008 [...]

2017-10-02T20:00:00+00:00By |0 Comments