For our „All Strategies“ Subscriber who use the Portfolio Builder to build own ETF portfolios by blending their own mix of Logical Invest Strategies, here some updates and a short mid-year review:

  • We have now included the “World Top 4 Strategy” into both the online and offline Excel tool. To keep the charts readable, we opted for replacing the Aggressive Version of our “Global Sector Rotation”.
  • The preconfigured and optimized Markowitz Portfolios have been updated, only slight changes in the allocations occurred – all are <5%, so in most cases these can be neglected due to account size.

Overview of Strategies and Markowitz Optimized ETF Portfolios:

The Markowitz Risk/Return plot displays the major changes:

  • The newly introduced World Top4 Strategies is located between our moderately aggressive Strategies, namely Global Sector and Global Market Rotation.
  • The 3xUIS has in the recent months fallen short of expectations, therefore moving the whole upper end of the efficient frontier down from the picture as of beginning 2015.
  • The BUGs, Bond Rotation and Universal Investment Strategies remain calmly as main diversifier, and with extremely low correlations to S&P500.

etf portfolios Markowitz1


While the current sideward and very choppy market it not an ideal environment for Rotation Strategies like ours, below table shows that all strategies continue to deliver to their promise of delivering higher return and lower volatility, thus superior Sharpe Ratios, than their benchmarks.

Individual Strategies

What about the Markowitz optimized fixed weight ETF Portfolios? Below a selection of the most requested solutions with updated performance measures and allocations to the individual strategies. Highlighted in yellow the respective optimization constraints for easier reference.

Note that these are “raw” ETF portfolios with exact allocations from the optimization, depending on the account size, allocations of less than 5% might be dropped to reduce complexity and transaction costs. As example, a “Maximum Sharpe” portfolio with allocations of 60%, 20% and 20% to Bond Rotation, BUG, and Maximum Yield, respectively, has delivered a CAGR of 22%, Volatility of 10%, thus a Sharpe Ratio of 2.2 – very similar to below optimization.

etf portfolios Portfolios

And finally a look at the underlying correlations in ETF Portfolios: The average 60 day Correlation of our Strategies to the S&P500 since Apr 2008 continues below 0.3, thus offering good protection versus market risk. Cross-correlations of Bond Rotation and BUG to all other strategies remain lowest, making them good candidates for a diversified portfolio – which explains why they appear in all before mentioned portfolio solutions.

etf portfolios Correlation

Reviewing the correlation of selected strategies versus S&P 500 on the timescale, you can observe the effect of the “risk-hike-mania” earlier this year, when suddenly treasuries dropped from all-time highs, thus our strategies moving back into risky assets with a time lag, causing a momentary drop in correlations to the S&P500, and a later increase to still moderate levels between 0.2-0.5 recently.

etf portfolios 60dCorrelation

To emphasize on above, long term treasuries continue with clearly negative 60 days correlation throughout 2015, thus remain our crash-protection of choice for our strategies and derived portfolios. We continue to expect them to absorb a significant part of the money flow in case of a correction in risky assets – independent from the ongoing discussion whether they rightly priced and anticipating any eventual rate-hike.

etf portfolios TLTCorrelation

In anticipation of a vivid discussion,
all the best, this time from Germany,

Alexander Horn