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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 |6 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

Logical-Invest monthly update January 2017 – Topic 401k Investments

Special topic this month: 401k Investments Logical Invest Investment Outlook January 2017 Our top 2016 strategies: The Maximum Yield strategy with 29.92% return. The Leveraged Universal strategy with 22.33% return.   The NASDAQ 100 strategy with 21.54% return. SPY, the S&P500 ETF, returned 12.00%. Market comment: To put 2016 in perspective, we must go back to 2015 and remind ourselves how the rising dollar environment affected diversified investors. Most asset classes suffered through 2015. The S&P 500 stayed flat, long term Treasuries lost 2%, gold lost 9%, emerging markets shed 17% and USO, the crude oil ETF was down 44%. To make things worse, in August 2015 there was a sharp correction in equities which caused many "weak hands" to just exit the market. The first half of 2016, by contrast, rewarded anyone holding any of these assets.The second half proved far more challenging as rising yields expectations depressed bond prices, with TLT loosing 16% from July to December. Expecting higher yields in the U.S. can cause an appreciation in the U.S. dollar which in turn causes weakness in dollar denominated assets like gold and foreign equity. All of these assets gave back some of the early 2016 gains. Two major events, the Brexit vote and U.S. elections proved to be much less disruptive than expected. For 2016, The S&P 500 returned 12%, long term Treasuries gave up early gains to stay flat and gold gained 6%. Emerging markets gained a respectable 14%. All our strategies were positive for the year. Our 'non-equity' strategies did well outperforming their respective benchmarks:  Our volatility harvesting strategy (MYRS) returned 29.92%. Our Bond rotation strategy (BRS) returned 13.62%, compared to 1% for TLT and 2.4% for AGG. Our Gold hedged strategy (Gold-USD) returned 15.74% compared to 6% for Gold. For 2017, in preparation for rising yields, we have adapted our strategies to rely less on the 30-year Treasury ETF (TLT). We introduced inflation [...]

2017-03-13T19:00:47+00:00 By |1 Comment

Portfolio Builder Update January 2017

Happy new year –and let´s start it set-up for success with some Markowitz Modern Portfolio Theory! As previously announced, we´re updating our Portfolio Builder Optimization periodically, both in the Online and Offline Version. Updated Portfolio Builder Optimization for 2017 employing Markowitz Modern Portfolio Theory Why that? Recall the Portfolio Builder is using a Markowitz Modern Portfolio Theory approach, that is, we´re using past returns, volatilities and co-variances to determine an optimum fixed-weight allocation among our different strategies under certain rules: Either to Maximize the Sharpe Ratio (Risk/Return), target a volatility level one feels comfortable with, or to limit historical drawdown in the expectation this will also hold true for the future. Using Markowitz Modern Portfolio Theory While full-blood Markowitz aficionados will now probably feel the urgent need to stone us to death, yes, same to some other peers in the industry our approach is dynamic and we do not feel the past is set in .. hmm.. stone! As such, we need to update our Portfolio Builder Optimization periodically based on the most recent returns, volatilities and co-variances of and between our strategies. As the overall optimization is based on data from the past 8 years and we´re only adding the last quarter of data the changes are relatively small as you can see in the following. 2016 results of our 10 Portfolios for everybody But before going into the allocations for 2017, how was the performance of the 10 “pre-configured” Portfolio´s during 2016? Results using our Online Portfolio Builder are as follows: But overall with all Portfolios in the double-digit area, six of ten Portfolios topping 20% in returns and all but the minimum Volatility Portfolio exceeding the 12% return of the S&P 500, the conclusion of a partly bumpy year with many surprises is excellent. It pays out [...]

2017-04-20T01:50:55+00:00 By |6 Comments