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If there’s a blog about this somewhere, I haven’t found it. My reservation about sector rotation has always been the main one: sector rotation is far less about predictive ability and far more about backtested curve fitting. I have yet to feel comfortably proven wrong. Case in point in this Covid crash is your core conservative Strategy which lost 32% if I’m reading right. The fact that it bounced back some is, I’m sure, comforting to holders of this strategy, yet the reality is that this Strategy is positioned as: “This is a good strategy if you are looking for a safe long-term investment with low risk.” Short-term bonds are a good strategy if you’re looking for a safe long-term investment with low risk. A strategy that drops 32% does not belong in the same sentence as low risk.
So what happened and why shouldn’t we expect it to happen again to one or more other strategies when the next completely unexpected market event occurs that hasn’t happened in the past 30 years on which strategies are modeled?
Thanks and not looking to criticize, just an open and honest discussion.
The Bond Rotation and the BUG strategy are the last strategies of our old type which could freely select ETFs. They performed well in the past years, so we did not change them thinking that it is best to „never change a winning horse“.
All other strategies are split in a equity and in a hedge strategy with negative correlation and you normally always have at least a 40% hedge installed.
With BRS we have been in the situation that it was invested 100% in equity like ETFs and the crash came just to fast before rebalancing could change this situation.
We will update both strategies by end of the month so that they are always hedged. The change will take place for the next May 1. rebalancing.
Regards FrankTreasuries (TLT) are being used as the hedge for MAY. They were also available in prior months in the portfolio but were not used during the “black swam” event for this strategy. I find this to be a very strange occurrence, as the Bond strategy should be a somewhat “safe haven” low risk strategy for the long term. I got hit pretty hard during the past period. Since it has followed an “old” method without adequate hedging this should have been acknowledged to subscribers who are depending on this as a low risk bond strategy. I do like logical invest and I do like their approach, but this is a bad one.
Since this strategy has been changed to accommodate monthly hedging, I believe the historical backtesting should be done with this hedging so that we can see what the returns have been in a historical manner to judge possible future retuns and variation.
Treasuries have been available also in the old type of strategy however the change between bull market to crash has been too fast, so that the rebalancing could not switch in time to these hedge ETFs.
I will post comparative charts of the old and new strategies today.
Regards Frank
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