Strategy: 3x leveraged Universal Investment Strategy

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    Alexander Horn

    Support thread for this strategy

    Ben Andersen

    Thank you. I am trying to figure out what the acceptable costs would be if wanted to do this strategy by shorting the inverse 3x ETFs like TMV and SPXS.
    With my current (US) broker there is a “hard to borrow” fee of 2%/year – and it looks like the margin interest rate is then on top. Any guide lines as to when the cost outweights the benefits shorting inverse 3x ETFs?


    I’d be interested to know about this too, if someone there could fill us in.


    Alexander Horn

    We’ll dive more into borrowing costs in Part II, when we look at shorting the -3x ETF. For the time being, also have a look at the cost at IB:

    Guess you have seen the discussion at seekingalpha, also there quite some comments on that topic:



    I invested in the UIS-3x strategy for the first time this morning (May 1).

    I bought SPXL (80% allocation) and TMF (20% allocation) at the market open. Here are my trades (sorry for the bad formatting):

    Symbol Date Open Close Bought At
    SPXL 1-May $92.03 $93.57 $92.05
    SPXL 30-Apr $92.69 $90.76 N/A
    TMF 1-May $83.12 $81.75 $83.12
    TMF 30-Apr $83.22 $85.18 N/A

    When the market closed today (May 1), I ended up with a gain in SPXL of 1.65% and a loss in TMF of -1.65%. Overall, due to the Allocations below, I gained 1%. Pretty good.

    Now looking at the snapshot of the Return Tables below, I certainly did not experience the percentages in the “Symbol Ret” column.

    Entry Exit Symbol Allocation Symbol Ret Strategy Ret
    4/30/15 5/1/15 SPXL 80 3.1 1.67
    4/30/15 5/1/15 TMF 20 -4.03 1.67

    Of course, had I invested in UIS-3x prior to May 1, I would have received the “Symbol Ret” percentages. But I believe we are told to invest in strategies on either the first trading day we receive the signal or on the second trading day, and to invest at the market open (or market close or with a limit order throughout the day). But in the case above, it is very misleading since I was not invested prior to May 1, yet the “Symbol Ret” column assumes that I was.

    Can I please get your feedback on this topic?

    Thank you,

    Frank Grossmann

    At the beginning of a strategy investment it is clear that it makes a difference when you invest. However these are long term strategies, and after a few month it makes not much a difference anymore. Sure one month you probably have a less good trade than our end of month rebalancing, but there are about the same amount of month where you get a better trade. After a number of trades the difference is about zero. The difference of trades for such a short period is more random noise. If it would not be random, then we would instantly made a nice strategy out of it.
    The only real difference which will reduce your performance slightly compared to our published performance is that we do not calculate spreads and commissions. These are different from broker to broker, but the spread for SPY/TLT and even SPXL/TMF is very small, and commissions are also small seen that most of the time you rebalance only 10% of your portfolio. All together spread and commissions are less than 1% for the whole year with a good discount broker.


    I am a new subscriber and I had the exact same question as Ronald. Hopefully this was a particularly bad month for the rotation because the allocation changed by such a large percent (50/50 to 80/20 in UIS unleveraged) coincidentally with a large move in the ETFs between the signal and execution. Frank, regarding your answer, I wonder why you don’t just use the opening price for the first day of the month on the website? If it doesn’t affect the results much overall, it would certainly make the percentages line up more closely to actual execution prices month to month. I’m sure as you say, long term it makes little difference but it would help me to see my percentages more closely match those on the signals pages month to month. Just out of curiosity, do you personally execute your trades at the close on the last day of the month or after the open on the 1st day? Thanks.

    Frank Grossmann

    There are several reasons not to use opening prices. The most important is that for the ETFs we only get adjusted closing prices from the data provider. So all our calculations are based on closing prices and our subscribers can backtest and verify the results. The second reason is that using adjusted closing prices is a sort of industry standard. Websites like which let you backtest simple rotation strategies use the same approach. The third reason is that using the end of day closing price, I can calculate the new allocation just after the last trading day of the month, and this way you know the allocation before the market opens the next day. Also I do not recommend to trade at open, because this would probably result in quite a big slippage if all subscribers would do so. It is better to have the trades distributed over the first 2 days. So, anyway every investor will get slightly different prices.


    Frank, on your website (Strategies –> How to invest in our strategies), it says:

    “Once you subscribe to our strategies, we will send you monthly (or more often depending on the strategy) a newsletter with the buy and sell signals of the strategies you subscribed to. We recommend you to execute these orders at your broker the next morning; this should be doable online within 15-20 minutes. Submitting your order some 2-3 days later is also OK for the strategies we use, you might only see the “turn of the month effect” to be reduced and “out-of-sync” with our reports.”

    I also searched the forums for references regarding when trades should be executed. One post said trade at the open, one said trade during the first two days, one said trade at the open on the 2nd day, etc. The text above from the website says to trade at the market open after receiving the signals.

    What is the final recommendation? If the recommendation is to trade anytime during the first two days (after receiving the signals), but always at the same time every month, then ok.

    Does your trading recommendation apply to every single strategy?



    Could I please get a reply to the questions above?



    Dear Ron,

    There is no edge in picking a day other than being close to reported results. My recommendation for the BUG strategies has been to trade on the second day of the month @ the open if you have IB account or manually during the day, preferably below VWAP, if not. If you are dealing with less liquid ETFs, trade towards the close of the day.
    Keep in mind, these are monthly strategies. If you pick a random day in the month, sometimes you will do better sometimes worst than the reported strategy. If there was an “edge” then that would be a strategy in itself. End-of-month trading used to have an edge, not anymore.


    When do you plan to provide performance and/or signals for 3x inverse ETFs (TMV and SPXU)?

    Alexander Horn


    this will take some more weeks, we´re releasing another strategy in between.

    Also I´m still struggling to get reliable historical borrowing costs and availability data.


    Hi guys,

    This is a general question about the UIS, leveraged or none, it goes off on the notion of bonds and equities having a negative correlation, what if in the future this correlation breaks down, wouldn’t this break the whole strategy?

    How does a strategy where you go short equities through either a regular short of the long SPY fund, or through a bear ETF perform? This would remove the uncertainty that if these 2 instruments lose their negative correlation, the strategy can still work.


    Chee Wee

    Hi, is there any reason why SPXL was used instead of UPRO (which has a higher volume)?

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