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The Morpheus ETF Strategy: Combining the Blue Pill and the Red

A guest post by Tom Gnade. Are you also interested in sharing your thoughts? Contact us! Several years ago, the Logical Invest whitepapers first introduced me to rotation investment strategies. After some research, I subscribed to the MYRS (the "Maximum Yield Rotation Strategy"), with good results. It was the first paid investment subscription I had ever used. I moved on to another service to learn options trading, and did well for two years, until a number of sharp setbacks made me come to terms with my investment goals. After further reflection, here is what really matters to me: Consistency. One must have clear goals and consistent methods for selecting, entering, and exiting positions. Emotions make for very bad decisions. Efficiency. I work two jobs and love spending time with my family. I can’t spend hours each day actively managing investments and assessing risk. Risk management. I need a method that consistently redistributes risk, and that doesn’t rely on my own knowledge or intuition, which are so often flawed. It is too easy to chase gains and too difficult to recoup the inevitable losses. Objectivity. I am not in finance, and I don’t have the knowledge required to manage investments in individual stocks, where risk is difficult to predict at best. Programmatic investing substitutes objective rules for guesswork. Simplicity. I don’t want to manage too many investments at the same time. I like the aesthetic appeal of simplicity, which has the added benefit of limiting transaction costs. Results. I hate drawdowns, especially ones that take a long time to recover. I don’t mind volatility, as long as it slopes up. I love gains. Big gains. Go figure. So, that’s it. I need a fast, precise, powerful, scientific method shown to perform through thick and thin. Only an automated investment strategy can hope to fulfill these [...]

2017-05-05T12:10:56+00:00 By |25 Comments

The Logical-Invest monthly newsletter for May 2017

Logical Invest Investment Outlook May 2017 Our top 2017 investment strategies, year-to-date: The Maximum Yield strategy with 25.75% return. The  NASDAQ 100 strategy with 18.26% return.   The Leveraged Universal strategy with 16.86% return. SPY, the S&P500 ETF, returned 6.97%. News: Our new U.S. Sector Rotation strategy is live (and for a limited time, free!). Unlike what you may have seen before, this strategy consists of 5 sub-strategies tracking sector momentum, mean reversion and relative under-performance to create a variable-beta play on the U.S. market. And yet it is very simple to implement. Give it a try. Thank you for your support of our QUANTtrader forum were you can share and discuss your own custom strategies.   Market comment: As we are heading into early summer, most assets classes are performing well partly due to a weakening U.S. dollar. Domestic equity continues to reach new highs, foreign and emerging equity markets are up while junk bonds and foreign bonds have now recovered from past corrections. Commodity performance is mixed but commodities do present a longer term opportunity for portfolio unclusion, as inflation resistant assets. Treasuries remain flat. The story in the media is that we are entering a more mature business cycle in the U.S. while foreign markets (China, India, Brazil and partly Europe) are also in growth and recovery mode. The sentiment is positive, at least as far as the major management companies go while individual investors are cautious, expecting a possible U.S. equity correction. The year long expectation of higher volatility due to tighter policy still is discussed but we have not seen this in the actual market. Far from it, we are seeing extremely low volatility levels compared to historical norms as well as perceived political risk in the U.S. and Europe. Our strategies performed as expected. Maximum Yield strategy added another 3.42% in April, keeping it in our top spot at +25.75 for the [...]

2017-04-29T14:57:16+00:00 By |1 Comment

The Logical Invest long-short US Sector Rotation Strategy

- A US sector rotation meta strategy combining dynamically 5 different sector strategies based on SPDR ETF The following paper will explain how to build a U.S. sector rotation strategy which allocates dynamically between 4 different long US sector rotation strategies and one short US sector rotation strategy. This strategy is therefore different from our Global Sector Rotation strategy, as it only employs US sectors. Due to low correlation of these sector rotations, the combination creates an ETF sector rotation model with considerably higher Sharpe values. The addition of the negatively correlated short sector rotation model significantly reduces volatility and drawdowns during difficult market periods. The chart shows the portfolio performance (black) compared with the S&P500 index (SPY ETF – red). The result is a meta sector ETF rotation strategy which performed well since 2000 in the backtests. The Sector rotation strategy produced an average yearly profit of 12.8% (SPY 5.1%) and a Sharpe ratio of 1.16 (SPY 0.25). Maximum drawdown was only 17% (SPY ETF 55%). So, the sector rotation model performed about 4x better than the S&P500. What makes this sector etf rotation strategy interesting is that it does not rely on either treasuries or bonds to balance out and hedge in times of market stress. It uses the short US ETF sector strategy as a hedge instead. The hedging mechanism is purely “short equity” and unrelated to whether interest rates rise, a common concern when holding bonds in a portfolio. The U.S. Sector ETF’s - here SPDR ETF U.S. sector ETFs, based on the Dow Jones U.S. Industry Indices, have been within the first ETFs on the U.S. market. There are sector ETF available from SPDR, Vanguard, Schwab, iShares. There are also European versions of these sector ETFs as well. These 10 Dow Jones U.S. Industry sectors [...]

2017-04-21T14:29:01+00:00 By |10 Comments

The Logical-Invest monthly newsletter for April 2017

Logical Invest Investment Outlook April 2017 Our top 2017 investment strategies, year-to-date: The Maximum Yield strategy with 21.58% return. The  NASDAQ 100 strategy with 15.00% return.   The Leveraged Universal strategy with 13.02% return. SPY, the S&P500 ETF, returned 5.92%. News: Try our QUANTtrader software with our 30-day free trial. There is no better way to understand how our strategies work. Join our new QUANTtrader forum were users dare adjust the strategies and share new ones! Check our new European section.  Our in-depth 2-hour QUANTtrader webinar, with Frank Grossmann. Get a behind-the-scenes look at our strategies. We updated our web-site home page and menu.   Market comment: For the second time in three months, the Federal Reserve increased its benchmark interest rate a quarter point taking the overnight funds rate to a target range of 0.75 percent to 1 percent. Treasuries had small comeback since then signalling that the market had already priced in the Fed move and was bracing for a much more hawkish tone. Treasuries are once again negatively correlated to the equity market which is a positive for our strategies. The market is expecting two more hikes, in June and December. Volatility continues to be extremely at low levels, sending the ZIV etf (medium term inverse VIX etf) and our Maximum Yield strategy to new highs. Just like last month, what is interesting is the unnaturally low expectation of future volatility, with 8-month out VIX futures being below the 17 price level. Last month's VIX Futures term structure:   VIX term structure February 28th 2017 This month's VIX Futures term structure:   VIX term Structure March 31st 2017 This continuing "flattening" of the curve is unusual. In plain terms, future expected volatility levels seem to be low even though we are looking at upcoming French elections, Brexit negotiations as well as U.S. policy uncertainties. Investors seem fearless as the U.S. market is still at the top of the price chart. Investors may want [...]

2017-04-20T11:02:20+00:00 By |0 Comments

The Logical-Invest monthly newsletter for March 2017

Logical Invest Investment Outlook March 2017 Our top 2017 strategies, year-to-date: The Maximum Yield strategy with 14.90% return.  The Leveraged Universal strategy with 13.97% return. The  NASDAQ 100 strategy with 11.28% return.  SPY, the S&P500 ETF, returned 5.79%. News:  Our in-depth  2-hour QUANTtrader webinar, with Frank Grossmann. Get a behind-the-scenes look at our strategies. We are testing a new U.S. Sector-based strategy that should be available in the coming months.   Market comment: The S&P 500 is reaching new all time highs, currently at +10% from it's previous support in the summer of 2016. It is following a straight line with no major corrections since the U.S. elections. This type of movement makes investors nervous about a coming correction. Interestingly, looking at the VIX term-structure we see the following picture: VIX term structure February 28th 2017 This is highly unusual. Having near-month VIX contracts at very low prices is normal as the SP500 is breaking upwards. What is interesting is that far-out contracts are at extremely low levels as well, making the curve somewhat flatter than normal. This implies that market participants expect low levels of volatility in the future, even 9 months out. We will see how this plays out in the coming months. Our top 3 strategies are all U.S. market based and have achieved returns above 10% in just 2 months. Our Maximum Yield strategy, has returned an additional 4.1% in February, bringing year-to-date returns to 15%. Our 3x UIS strategy added 9% due to equity performance as well as a small upward reaction from oversold Treasuries. Our Nasdaq 100 added just 1.2% for the month. Of note is that the Nasdaq strategy has the lowest 60-day correlation to SPY, just 0.36, second only to our Gold-USD strategy's 0.18. Apart from our high flying strategies, it is worth mentioning and tracking our more defensive ones. Our Universal Investment Strategy [...]

2017-03-21T01:22:43+00:00 By |0 Comments

Top Performing ETFs Strategies – Portfolio Idea

In the follow up to our webinar about how to compose top performing ETFs strategies among the QuantTrader community last weekend, we received many interesting questions and ideas to follow up. One question in particular I´d like to share in a post, as it involves all our “All Strategies” subscribers.John L. asks: “Using a simple meta strategy by choosing the top two strategies from the previous month (from the monthly newsletter), and investing in them the next month (repeating that each month). I wonder if that can be backtested and compared to past 3 months or a static meta strategy. Perhaps comparing the top 2 each month strategy to the choosing the top 2 from the last 3 months. And comparing the top 2 each month or 3 months to a static strategy of the top 2 - 4 over the full backtest period or past 5 or 10 years.”So in other words, what´s the best way to pick from the Top Performing ETFs Strategies of the last months, and allocate equal amount of money among them? We publish the performance of all our strategies monthly in a handy ranking table, so it´s easy to pick each month the best performers of the last months, and repeat this throughout the year.The idea is appealing, as it is an enhancement from our Portfolio Builder Approach, where we apply modern portfolio theory to assemble a fixed weighting portfolio based on the historical performance and co-variance between the strategies. By modifying this to a momentum style “strategy picking” of top performing ETFs strategies we react to changes in the market and therefore overcome one of the critiques MPT receives frequently.Top Performing ETFs Strategies in one PortfolioI modelled this quickly in QuantTrader, following the “Strategy of Strategies” approach we introduced in QuantTrader in the last [...]

2017-04-21T11:39:04+00:00 By |3 Comments

Interactive webinar Quanttrader: Building high-performing Strategies

On Saturday February 11, 2017 the QuantTrader Community of Logical Invest hosted their first interactive Webinar to explore the functionalities of the software and exchange on tips for building and backtesting high-performing ETF rotation momentum strategies for retirement and savings accounts. Background of QUANTtrader QUANTtrader is a swiss-made software tool used to develop, backtest and implement rules-based ETF Rotation investment strategies. Since it is built by a trader and long-time investor rather than by a developer, QuantTrader’s main strength is in building medium to long term investment portfolios that are diverse, adaptive and can control risk. All this without writing a single line of code. The software comes per-populated with all strategies currently run by Logical Invest. These are strategies that have been successfully running “live” for 1-3 years as of  February 2017, so you can actually track past performance. You can customize, tweak existing or build your own strategies. Live Recording of the Session - 2 hours in-depth review on ETF Rotation Momentum Strategies Agenda: How to get started? File Management & Main functionalities Benefit of QuantTrader Dynamic Allocation vs. Online Portfolio Builder Markowitz Modern Portfolio Theory Ranking Algorithms and Strategy Parameters Optimization routine and how to avoid over optimization Extending backtests with synthetic tickers Consideration for combining strategies into MetaStrategies Showing off – Some of the best strategies and portfolios so far Free 30 days trial – Try it out now! Interested in giving it a try? Build your own high performing Portfolio for savings or retirement account, most IRA and 401k plans are supported. No credit card or PayPal needed, register now. To learn more about building your ETF Rotation Momentum strategy with QuantTrader see here. A good fit for Advisors and money managers using ETF Rotation Momentum Strategies In many ways, QT is a good fit for [...]

2017-04-20T01:27:47+00:00 By |0 Comments

The Logical-Invest monthly newsletter for February 2017 – Topic 401k Strategies

Our special topic this month are 401k Strategies Logical Invest Investment Outlook February 2017 Our top 2017 strategies: The Maximum Yield strategy with 10.29% return. The  NASDAQ 100 strategy with 9.88% return.   The Leveraged Universal strategy with 3.96% return. SPY, the S&P500 ETF, returned 1.79%. Market comment: 2017 started up as a different type of year. Not just in politics. Despite the unprecedented political uncertainty, volatility in the SP500 dived this month causing our volatility harvesting strategy, Maximum Yield, to return more than 10% in just one month. Our Nasdaq 100 strategy returned 9.88%.  All other strategies were positive for January but with smaller gains of 1-3%. The only negative strategy for the month was the Gold-USD strategy at -2.06%. We would like to take this opportunity to thank two of our longer-term subscribers for their feedback, comments and support: Deshan, comment posted January 29, 2017: "Looking back at these comments from many months ago gave me a chuckle. Looked like the world was gonna end and the LI strategies were going down too. I feel badly for those that gave up. I stayed the course and am very happy customer." Read more.... Richard, author at Richard's Corner. "The universe of options for a conservative retiree who would like both some performance as well as low risk in a simple, stand-alone investment has proven difficult to find...". Read more...   We wish you a healthy and prosperous 2017 and good performance in your 401k Strategies Investment.  Logical Invest, February 1, 2017   Strategy performance overview: Logical Invest Performance January 2017 Visit our site for daily updated performance tables. Special topic 401k Strategies Do you know that our Backtest Software QuantTrader allows you to build your custom 401k Strategy in only a couple of minutes? Mix your plan sponsor assets into custom Strategies, see our recent High Performance Strategies webinar. Contact us to learn more. [...]

2017-03-13T19:03:21+00:00 By |1 Comment

One Approach to Rational Retirement Plan Investment Allocations

We analyse one of the Fidelity Freedom Target Date Funds (FFFDX) versus a portfolio of ETF rotation strategies - The findings will surprise you! This is a guest post by Richard Manley, first published on Richard´s Corner, the Logical Invest User Community: Defined contribution retirement plan using target date funds There’s no shortage of challenges facing working people in these days. In addition to job outsourcing and the offshoring whole operations, inflation/deflation and zero interest rates on savings, most workers who have a retirement plan have one that’s called a “defined contribution plan”, in the US in many cases it’s also called a 401K. In such a plan, a participant contributes before-tax funds, often matched to some degree by the employer, into an account that is intended to accrue and grow until retirement age when it can be distributed over one’s retirement lifetime. This kind of plan of course puts the responsibility and burden of making wise investment choices on the individual. Most working folks are not trained in finance or security selection or portfolio construction and are thus left to rely on their own uninformed devices or advice from financial gurus in the media or in newsletters or cable TV talking heads, or merely to reactionary emotions that attend to most of us during extreme financial events. The U.S Dept. of Labor’s new “Fiduciary Rule” will take effect in April, but what practical effect this may have on individual’s specific investment actions under defined contribution plans remains to be seen. As a retirement plan investor, I’ve experienced all these pitfalls and more while I’ve tried to save enough to comfortably retire someday. A coherent approach to managing my modest retirement assets was clearly lacking and as a result I found myself thrashing my account to respond to the [...]

2017-03-18T23:47:49+00:00 By |4 Comments