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Portfolio Builder: How to create a Portfolio of Portfolios

We've received a couple of request in the last weeks whether it is possible to create a "Portfolio of Portfolios" in our Portfolio Builder. For example, to create a portfolio holding several of our Core Portfolios plus a custom portfolio in a fixed-weight or custom blend. Or to combine a one of the portfolios in the Portfolio Library with a single strategy or ETF. Cases for this include: You like two of our preset portfolios and cannot decide which one to go for You estimate your risk/return preference to be between our Max 10% and Max 15% volatility portfolios You want to use one or several of the preconfigured portfolios but have an additional holding (Short-term bond, Cash, Gold, etc) in your account you want to reflect. Of course this all is possible, it just works a bit different! Here a quick guide using our Portfolio Builder: All our portfolios are fixed weight blends of our strategies, that is, the allocation percentage to the strategies does not change over time. This in contrast to the strategies, where the allocations to the ETF does change over time. That means, you can simply create ONE portfolio with the weighted allocation percentages of the “sub-portfolios”, "strategies" or ETF you want to use. Let's construct a rather complex example just to  cover all possible cases: We want to allocate 25% each to our three Core Portfolios and to a previous saved custom portfolio, which in turn holds allocations to our Universal Investment Strategy and TLT - probably a bit overdone, but let's use it. In Excel the fixed-weight allocations would look like this - note that you can select between "By Stock/ETF" and by Strategy" on the details page of each portfolio or strategy - here how these look for the Conservative portfolio: Now [...]

2019-01-10T11:24:07+00:00By |0 Comments

The Logical-Invest newsletter for January 2019

Must reads: Frank Grossmann’s article “How to Hedge in Times of Market Trouble” (Seeking Alpha, LI Blog) 2019 strategy updates (LI Blog) Protecting your money After almost 10 years of a continuous bull market and 2 years of exceptional growth (2016-2017), 2018 was the first year that the SP500 turned negative. Apart from the dollar index, most asset classes also fell. To make things worse, the S&P500 dropped -20% from the September highs during what is traditionally the best 3 months of the year. Although unfortunate, it does create a rare opportunity to evaluate how our portfolios react to an unexpected real-life correction. Here is a look at the Logical Invest strategies historical performance during these last 3-months compared to holding SPY. Historical performance during 3 last months of 2018* Every single strategy, including our very aggressive ones (3x UIS and MYRS), lost less than the SPY. Our non-leveraged strategies maxed out at a loss of -7.5%, while BRS and UIS averaged -4%. The NASDAQ 100 came out flat, while the World Top 4 (+4.45%) as well as GOLD-USD (+7.23%) came out positive. Even though hedging did help limit losses, we are re-designing the way we protect our strategies in case 2018 proves to be an intro to a bear market. Please read Frank Grossmann’s article “How to Hedge in Times of Market Trouble” (Seeking Alpha, LI Blog), a detailed account of how to design a sophisticated hedging mechanism without sacrificing performance. Some 2018 highlights: The flattening of the curve but more importantly the rise of short-term interest rates on the dollar vs International currencies. This created flows from risky foreign assets into short term U.S. Treasury bills. The resulting rise of the U.S. dollar index translated in many other assets (Gold, Foreign Debt, Foreign Equities) to fall. The [...]

2019-01-01T08:43:36+00:00By |2 Comments

Backtested Data vs Historical Data

Understanding why we use backtested data in our webApp Our new ‘home’ is a place to evaluate current strategies and design new portfolios going forward. The data we use is backtested data based on the latest strategy parameters. The reason we do that is to be able to see how each strategy would have performed at current parameters so that we can then combine them into a portfolio. In essence, our new tools are forward looking tools that help build a portfolio. They are not tracking tools and should not be used to monitor your current strategy or portfolio performance. A side effect of using backtested data is that when strategy parameters are updated, all backtested history (including past month allocations) are updated as well. To look at performances based on actual published past signals you can visit the historical data section. Creating a portfolio from strategies Let’s assume we want to construct a portfolio that includes amongst others, the Universal Investment Strategy (UIS) and the Enhanced Permanent Portfolio (EPP). The first step would be to analyse the performance of UIS vs the performance of the EPP strategy. A little background on UIS & EPP: Our first implementation of the Universal Investment strategy, used only 2 ETFs: SPY and TLT (the SP500 and Treasury ETFs). As market changed UIS evolved. Starting January 2018 UIS was tweaked to allow allocations to GLD (the gold ETF). The EPP strategy is an 'all weather' strategy that can allocate to SPY and TLT (like UIS) but can also include GLD in inflationary environments. Again, 2 sets of performance data to consider: a. The performance data from the 'actual' historical allocations. This would be the data based on what an investor could have traded, on a real account, based on allocations published at the time. This data would not [...]

2018-12-29T02:24:32+00:00By |0 Comments

How to create a hedge strategy in times of market troubles

In this article I would like to explain how to create a hedge strategy for an equity position, so that draw-downs, like the current one (December 2018), are minimized. During this 10-year bull market, many investors have forgotten that investing only in equities can be quite risky. It has been simple to buy the SPY S&P 500 ETF and profit from rising valuations. This year-end 20% correction makes many investors reconsider safe haven assets like gold and Treasuries. At all of our core investment strategies are hedged. We experienced first hand the 50% drop in equities of 2008 and we like to protect our money from such large corrections. Applying a Hedge Strategy to Reduce Drawdown With this paper I want to show to construct a hedge strategy. We will use the Logical-Invest US Market Strategy as an example. The US Market Strategy is composed of a US Market sub-strategy and a Hedge sub-strategy. The allocation between the two is updated monthly based on a lookback algorithm. A normal allocation would be 50% equities and 50% hedge. The maximum allocation to either the Hedge or US Market sub-strategy is 80%. The US Market Sub-strategy Instead of investing only in the SPY (S&P 500) or a similar ETF we designed a simple US Market sub-strategy. The sub-strategy switches between SPY (S&P500), QQQ (Nasdaq 100), DIA (Dow 30) and SPLV (S&P 500 low volatility) ETFs depending on market conditions. All of these ETFs are liquid and have very small bid/ask spreads so switching between them is easy and cost efficient. In our backtests, the sub-strategy performed substantially better than a simple SPY investment. The average annual performance for the last 10 years was 18.4% compared to 12.7% for the SPY ETF. Switching to the defensive SPLV in times of increased market volatility has worked very well in the [...]

2018-12-28T09:04:21+00:00By |0 Comments

Logical-Invest Investment Strategy changes for 2019

We have made some quite important changes to the Logical Invest strategies for 2019. Please note that the January strategy allocations will be calculated based on these updated strategies. 401 / IRA compliant base strategies The new strategies will not use leveraged or inverse ETFs, making them and the portfolios derived from them, more 401 / IRA friendly. The changes have been backtested and do not reduce the performance of the strategies due to a well redesigned new hedging strategy. New hedging strategy The hedging strategy is a very important part of all strategies. The new hedging strategy switches between a Treasury sub-strategy and a Gold sub-strategy, depending on which sub-strategy is performing better at the moment. The following chart shows how the strategy switches between the yellow Treasury Hedge and the red Gold-USD strategies. With an average performance of 12.5% per year the strategy has been a good performer in itself. More importantly, it has no or even negative correlation to equity strategies. This makes it a good safe-haven hedging strategy for difficult market periods. The strategy does not switch directly between GLD and TLT because this way we can not get more than 6% annual performance for a 10 year backtest. The reason is that there have been long periods where equity was performing really well and both Gold and Treasuries were underperforming. Adding a hedging strategy with a bad performance can be quite a drag to the overall performance of a strategy. We had to find some alternative ETFs we could use instead of GLD or TLT. For TLT we had already developed the Treasury strategy in the past which switches between the TLT (iShares 20+ Year Treasury Bond ETF) and the inflation protected TIP (iShares TIPS Bond ETF). This strategy has been used before in some of [...]

2018-12-27T21:26:15+00:00By |8 Comments

The Logical-Invest monthly newsletter for December 2018

Logical Invest Investment Outlook December 2018   The graph below is from a recent Bloomberg article entitled "A Brutal Global Market in 2018 Has Just One Champion". That one champion, according to the article, was Treasury bills. It goes on to say: "By one simple measure, this is the worst cross-asset performance in more than a century". Below you can see 89% of all assets had negative performances year-to-date (as of Nov. 22). This may be an exaggeration but it goes to show we are in a difficult market. Volatility is twice what it was last year, most assets are negative or flat and the U.S. dollar (cash) is king. A notable exception of NASDAQ 100 which is doing quite well for the year. November proved to be a recovery month. All our strategies, but one, had positive returns. Leading were the NASDAQ 100 with +5.79 %, the U.S.Sector with +2.54%  ,World Top 4 with +1.84%. The negative performance came from our Bond rotation Strategy at -0.52% for the month.   Changes at Logical-Invest Patrick Hill joined Logical Invest as a new partner. He is a technology veteran and a long-time Logical Invest user. A new home for our subscribers: A new personalized monthly email. It will contain your monthly allocations (“signals”) based on the portfolio you set up as “My Portfolio”. New CORE ‘1-click’ portfolios that are easy to setup. New pricing. If you are an existing LI subscriber, please set up “My portfolio”. This will ensure you will get consolidated signals emailed to you based on your portfolio. Don’t worry, you can always change it at any time. All of the new allocations will also be available on the web site the morning after the end of the rebalance period.   Our new Web-app – Understanding why we use [...]

2018-12-01T06:34:45+00:00By |0 Comments

Logical Invest 2.0: Strategy & Launch of new application

  Dear Subscribers and followers, It all started on the beautiful Greek island of Hydra where Frank, Vangelis and Alex met for the Logical Invest partner meeting in May 2018. Our objective was to define Logical Invest's strategic priorities along with the concrete steps to accomplish them. Here is what we came up with: Priority 1: Become the “partner of choice” for both retail and institutional investors Make QuantTrader the engine that drives our online offerings as well as our strategy design and operations Launch our next generation web application that merges the capabilities of our various tools into an integrated application built on a sustainable and scaleable platform Build community collaboration features so users can build, share and improve QuantTrader investment strategies and portfolios with the help of fellow investors Priority 2: Broaden our retail customer base Provide "point and click" investment options for investors looking for simple solutions Provide easy to use tools for advanced investors to create custom portfolios that meet their unique investment goals Provide better documentation and educational support to our users Priority 3: Expand our offerings for institutional investors and money managers Strive for GIPS certification of our strategies Partner with US based registered investment advisers to offer money management products Explore non-US based money management offerings including managed accounts and open investment funds “Wow, not bad for a week” we thought, but also quickly realized that to accomplish our goals we needed to expand our team with a technology veteran, while keeping the spirit of who we are.  We did just that with the addition of Patrick Hill, who joined the partnership in August 2018. Pat has held software engineering and management positions at companies such as IBM, Dell and HP as well as several start-up companies. He is a graduate of the [...]

2018-11-10T21:25:48+00:00By |3 Comments

The Logical-Invest monthly newsletter for November 2018

Logical Invest Investment Outlook November 2018 Our top 2018 investment strategies, year-to-date : The NASDAQ 100  strategy with +9.95% return.   The Gold-USD  strategy with -0.81% return.  The BUG strategy with -2.02% return SPY, the S&P500 ETF, returned +2.74%. Market comment: October was not a good month as the S&P 500 had a mini-crash and an 'official' correction touching the -10% mark from the September highs. Other markets followed the drop leaving many foreign markets in the red for the year. Our strategies were affected as well.  Let's take a look at how they reacted to this correction.   The Logical Invest strategies use hedges to dampen the effect of corrections. Although the amount of hedging can vary, having even a small hedge is a drag on performance when equities do extremely well. This is what has happened this year as the SP500 has outperformed every other major asset, including most of our strategies. On the other hand the hedge should help lower draw-downs, which in turn helps achieve higher long-term returns. Creating a 'hedge' is not that simple, though. What used to be an excellent hedge, namely Treasuries, is now in question as a long term bear market on government paper is a possible scenario. Our hedging mechanism has evolved as markets have changed. We started with Treasuries. Then we added Gold to compensate for rising yields which could signal inflation. And finally we included a 'short' component, namely shorting U.S. sectors. The last sub-strategy uses 3x Inverse ETFs to 'go short' the weakest U.S. sectors. Unlike Treasuries and Gold, the Short USSECT is a 'pure' hedge and will almost always move opposite to the SP500. The downside is that historically going 'short'  the market is a losing strategy and can only be used for short periods of time. Each month the HEDGE sub-strategy will pick one [...]

2018-11-03T13:26:44+00:00By |0 Comments

The Logical-Invest monthly newsletter for October 2018

Logical Invest Investment Outlook October 2018 Our top 2018 investment strategies, year-to-date : The NASDAQ 100  strategy with +14.50% return.   The 3x Universal Investment strategy with +7.85% return.  The Universal Investment strategy with +2.32% return SPY, the S&P500 ETF, returned +10.37%. Market comment: We are continuing to experience the symptoms of the end of Quantitative Easing: Higher interest rates and slightly higher inflation. The FED is normalizing policy and it seems that moderate growth and low inflation have helped make this into a controlled, gradual process. This is all good news, but it brings a side effect: As foreign investors move money into higher yielding Treasuries, the dollar rises. Much like 2015, any dollar-denominated asset has benefited while everything else, including emerging markets and gold, have lost value. Tactical Allocation strategies (TAA's) tend to suffer in this environment as their main promise is diversification across assets and geographical locations. TAA's are risk controlling entities and although they will outperform in the long run, they do poorly in a straight dollar run. We are now moving along the longest bull run in the history of the U.S. market. We are also close to an inverted yield curve, which to many is a red flag. It feels like an immenent correction may come and destroy what we have built these past years. And yet we are at a favorable point seasonally. Not only are November and December good months to invest but we are at the end of a mid-term elections year which in the past had brought additional returns. The point is we don’t really know what will happen. After 10 years of 0% policy, 'easy money' and straight gains we are entering a new era. Borrowing is no longer free. One could argue that this will lead to a re-pricing of assets, worldwide. Which in turn is [...]

2018-09-29T14:30:46+00:00By |0 Comments

The Logical-Invest monthly newsletter for September 2018

Logical Invest Investment Outlook September 2018 Our top 2018 investment strategies, year-to-date : The NASDAQ 100  strategy with +14.54% return.   The 3x Universal Investment strategy with +12.06% return.  The BUG Leveraged strategy with +2.62% return SPY, the S&P500 ETF, returned +9.71%. Market comment: Despite tariffs, a flattening yield curve, Turkey’s currency collapse and the fear of contagion across emerging markets, the S&P 500 is yet again making new highs. The U.S. equity market has outperformed most other markets and asset classes. Part of this performance is due to real economic strength and solid corporate earnings but another part is due to U.S. dollar strength. As we have mentioned in the past, rising short term interest rates create fund flows from negative yielding currencies (Euro, Swiss franc) into U.S. assets.  Taking a world view, most developed (SPDW: -0.37%) and emerging equity markets (EEM: -7.78%), international bonds (PCY: -5.03%, IBND: -3.62%) and even Gold (GLD: -8.2%) are either flat or negative for the year. In contrast the dollar index is up (UUP: +4.82%). ETF Symbol SPY TLT EPP GLD EFA EEM FEZ ILF UUP YTD Return 9.71% -3.15% -1.96% -8.20% -2.30% -7.78% -3.65% -10.14% 4.82% Major ETF returns Year-to-date The yield curve has continued to flatten with the 2-year Treasury yield at 2.67%. Adding 28 years to maturity will only squeeze out an additional 0.35% yield, at 3.02%. Many analysts see this as a sign of a coming recession but as we have discussed in the past even after having an inverted yield curve it may take years for a recession to materialize. Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr 08/29/18 1.97 2.13 2.28 2.48 2.67 2.75 2.78 2.85 2.89 2.96 3.02 Daily Treasury Yield Curve Rates, U.S. Department of the Treasury In [...]

2018-09-01T08:00:23+00:00By |0 Comments