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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

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

Video Tutorial: QuantTrader – A complete walk-through for new users

Continuing our effort to provide training and education for new users of our QuantTrader Software, here a new series of video tutorials. A complete walk-through of the main functionalities for building a Meta-Strategy Here the framework of the Hedged Dow Jones Meta-Strategy created during the process, and the detailed agenda of the 9 video clips: QuantTrader "under the hood" - Explained with practical examples In section 3.4 Setting up Strategy Algorithms and Parameters we explain the calculation of the "modified Sharpe Ratio", how to properly select the volatility attenuator and show the differences between the six ranking and allocation algorithms: Tutorial videos in detail: The videos are available as a YouTube Playlist, so you can follow the overall process or chose topics of your interest. The tutorial is targeted to first-time and beginning QuantTrader users, with detailed explanation on each single step so you can replicate the process while watching. Further tutorials for our more advanced QuantTrader users are in preparation. Tutorial Intro: Objective, Framework and Agenda 1. Starting QuantTrader & loading data 2. Setting up symbols and stock-lists 3.1 & 3.2 Using Portfolio Manager to create and configure the "Dow Jones" strategy 3.3 Interpreting the Strategy Backtest Window 3.4 Setting up Strategy Algorithms and Parameters 3.5 Optimizing Strategy Parameters 4. Using Portfolio Manager to create and configure the "Hedge" strategy 5. Creating the final "Dow Hedged" Meta-Strategy Please post follow-up questions or doubts either in the comment section of this post, or in the comment section of the YouTube videos. I plan to prepare another video answering the main questions. If you have not yet subscribed to QuantTrader, you can do so from here, read more about its powerful features, or give it a try with our free, no-strings-attached 30 days trial. [...]

2018-03-05T13:03:44+00:00By |3 Comments

Tutorials: Consolidated Signals & Interactive Brokers Portfolio Rebalance Tool

As promised, please find below some short video tutorials on how to create consolidated signals for your portfolio in the Online Portfolio Builder and QuantTrader, and how to efficiently execute the trades using the Portfolio Rebalance Tool from Interactive Brokers. One of the biggest concern raised after we announced QuantTrader Light for all our "All Strategies" subscribers was the abitility to create, backtest and save custom fixed-weight portfolios. Frank just published QuantTrader Version 510, which comes with just that functionality, in the tutorial I still announce this as pre-release, but you can now use this functionality live in January rebalancing. If you are not yet a Logical Invest subscriber, you can use our 30 days free no strings attached QuantTrader trial. You can open a free trial demo account at Interactive Brokers to test the portfolio rebalance functionality. If you already have an IB account you can create a paper account for testing and enhancing your execution skills. And to repeat, we´re in no way afiliated with them, but do appreciate the cost structure and functionalities for trading our own accounts. We will be adding more tutorials about individual features of QuantTrader and how to  build and execute your portfolio. For the time being please let us know which features you´re most interested in, and if there are questions in regard of these first tutorials. Consolidated Signals in Portfolio Builder See here: Consolidated Signals in QuantTrader See here: Configuring the Interactive Brokers Portfolio Rebalance Tool See here: Executing Monthly Rebalance with the Interactive Brokers Portfolio Rebalance Tool See here: As always in anticipation of a vivid discussion in the comments or the QuantTrader Forum. All the best, Alexander

2018-01-30T14:21:48+00:00By |2 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

Portfolio Builder Allocations 2018 – Set yourself up for success

First of January 2018 after a fabulous year in the markets and hopefully also your account. What better time than to spend some hours on revisiting our portfolio allocation to be ready for whatever the new year will bring? As stated previously we update and re-optimize our fixed-weight portfolios in the Portfolio Builder about twice a year. To recap, why do we re-optimize portfolios periodically? Modern Portfolio Theory by Harry Markowitz uses past returns and covariances to construct portfolios which optimize the expected return and variance. While fundamental MPT aficionados would advise to stick to your allocation for several years, at Logical Invest we advocate for a more flexible approach with regular reviews which in our view ensure your portfolio allocation considers also recent market developments. 2017 has been marked by steadily increasing equities while subdued volatility is taking historical levels. SPY, our proxy for the S&P 500 has returned 21.7% while TLT, proxy for the 20+ year bond market has returned 9.2% . The “fear index” VIX, representing S&P 500 volatility, has seen readings in the lower tens most of the year, a historical low of 8.84 and only four spikes above 15, which is the 10 years average. How have our individual strategies performed so far? The strong run in equities coupled with low volatility has provided clear medium-term trends and therefore runs to our high-performing strategies. For example, the Maximum Yield strategy returned close to 65%, this thanks to being in average two thirds invested into ZIV, which alone represents around 48.0% of this return. How has this translated into our Markowitz optimized Portfolios? 2017 has been a mixed picture for the pre-configured portfolios. As some strategies like the Maximum Yield and 3x Universal Investment performed well at or above the historical levels, others performed below [...]

2018-01-01T22:38:48+00:00By |12 Comments

Wishing you a prosperous 2018: QuantTrader for All-Strategies subscribers

Well, we had this on our list for 2017 (evidence here thanks to Marcin!), so even if now only a couple of hours remain for our European followers, and we definitely failed our readers for Asia, we’re to our standards perfectly on time for our subscribers from North and South America: QuantTrader with most functionalities will now be available for our “All-Strategies” subscribers at no additional cost! Thanks to your continuous input and feedback we’ve built a special edition of QuantTrader to enable you to: Generate signals on your preferred day so you’re not bound to the firm monthly cycle and do not have to wait for our signal emails. We still advocate to keep a monthly cycle, e.g. trading at or around the month-end, but with QuantTrader you can now find your own rhythm and cycle to trade either before, on or after the month-end, or even change your trading day when you are for example on business travel or holidays. Cut signals intraday before close to trade at close. This probably is one of the main critique points during 2017: Why do signal subscribers have to delay trading into next opening, while performance of our strategies is calculated at the month-end close. Well, we still believe this is not a killing argument based on our research, but we do understand the psychological importance of trading at close of the month-end, especially when it’s about going relaxed into the weekend. Get the consolidated signals for your preferred portfolio, that is, a blend of different strategies. This is very much as in our Online Portfolio Builder and Consolidated signals, but now you can also save your preferred portfolio allocation, something we were not able to deliver so far in the online version. More on this functionality with practical steps [...]

2018-02-18T03:04:54+00:00By |9 Comments

Permanent Portfolio – Will We Ever Kill The Bug?

An analysis of Harry Browne´s Permanent Portfolio and further enhancements towards:  A Permanent Portfolio ETF Rotation Strategy employing Momentum, Mean Reversion, and Volatility Targeting. It’s not just cars. It’s investment strategies like the permanent portfolio, too. Vintage "all-weather" investment strategies are often simple, easy to execute and give amble 'out-of-sample' data. In other words one can see how they performed in life years after they have been proposed. And like the VW bug, they are "safe" choices. Tried and true. Can you imagine a 1965 VW running in the Autobahn? Although the essence counts for a lot, for the car to survive at today's highway speeds the tech needs to be up to date. So let’s take my favourite oldie and bring it up to speed: Harry Browne’s Permanent Portfolio. The Permanent Portfolio by Harry Browne From Investopedia: … Browne believed that the four asset classes would thrive in one of the four possible macroeconomic scenarios that exist. Stocks would thrive during periods of economic prosperity. Bonds would do well in deflation and acceptably well during periods of prosperity. Gold during periods of high inflation would rapidly increase in value as the only true defence against a deteriorating currency. Cash would act as a buffer against losses during a routine recession or tight-money episode, and would act well in deflationary times. So let’s see how the original permanent portfolio Harry Browne first published has performed. The original rules of the All Weather Portfolio: 25% in a stock market Index ( S&P 500) 25% in Treasuries 25% in Gold. 25% in Cash or similar Not bad. Annual return is 7.1% and maximum draw-down comes in at 17.84% since 1992. For a far more detailed analysis of the so-called fail-save investment or permanent portfolio or "PP" you can see Gestaltu's excellent "PP Shakedown" [...]

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