Strategy: Global Market Rotation Strategy Enhanced

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This topic contains 12 replies, has 8 voices, and was last updated by  Alexander Horn 1 year, 1 month ago.

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  • #12114

    Alexander Horn
    Keymaster

    Support and discussion thread for the strategy.

    #17732

    Tom Gnade
    Participant

    Have you considered using currency hedged ETFs in the rotation when FX markets are moving? The cost of the hedge will reduce some gains for sure, but it might help neutralize the effect of a strong trend in FX markets affecting the intention of the rotation strategy to capture relative momentum. Thoughts?

    #17785

    Frank Grossmann
    Participant

    Yes, we considered to use currency hedged ETFs for example in the GMRS. We also did backtest to see if we would have better results, but this was not the case. In fact the currency hedge is like an additional forex trade and forex trades are probably the most difficult trades ever. The result is pure hasard and so hedging did not make the strategies any better. In fact these up and down cycles of foreign currencies against the dollar are an important part of the market momentum’s and it would be wrong to correct this influence. The valuation of a foreign market in US$ always seems to be more correct than the valuation in Euros.

    #17807

    Tom Gnade
    Participant

    Interesting, I thought you felt the exchange rates were unpredictable and worked against the strategy, but apparently not. Thanks for your response.

    #28383

    Icehawk
    Participant

    Im wondering how a 3x leveraged version of this strategy perform?
    Roughly:
    ie, MDY to UPRO
    FEZ to EURL
    EEM to EDC
    ILF to BRZU/LBJ
    EPP to YINN
    EDV to TMF

    Returns but also volatility would be sharply higher. Any thoughts on a leveraged call/ backtest like that?
    Otherwise fantastic work, very impressed.

    #28384

    Vangelis
    Keymaster

    You would see must stronger CAGR, gretter volatility and drawdowns. While directionally similar to using a lot of margin, there will be a drag as a 3x ETF tends to underperform what the should achieve due to the way they rebalance and other technical factors (lots of information written about that). For me, I would not use them for that reason, as I avoid inefficiencies.

    I hope that helps.

    #47937

    Patrick
    Keymaster

    After a nice run for 6 years, this strategy has been basically flat for the last 4 years. Any insights as too why? Do you think it is still viable?

    #48046

    Alexander Horn
    Keymaster

    Hi Patrick, some months ago I also wondered and did some quick tests, sadly do not have the analysis and charts anymore, will try to redo later. My findings then were basically two, here just as notes w/o data support:

    – The increasing coordination among central banks to steer monetary easing and (intended) tightening has caused a lot of “macro-events”, which make it hard to find long-lasting trends in broad global equities as employed by the GMRS. See especially 2015 where the strategy basically hopped from one ETF into another, as trends were “broken”. Same happened to a lot of other momentum based strategies out there.

    – Correlation between broad global equities is further increasing, this has already been a fact in down-turns (GFC, EU, China, etc), but I observed it´s also more and more increasing in calm times. Again, this is hitting most GMRS due to the involved broad ETF, while in more specific industry or country ETF there are still trends and low correlations.

    What to do? Honestly think we still need to wait. 2017 so far has been too strong in broad indices (everything going up) as to be able to draw conclusions from the good performance. Once we see a bit more volatility in markets we should see how trends and correlations behave. For the time being GMRS is still a very solid diversifier in a broad portfolio, you can see how it complements other strategies in the Portfolio Builder.

    #48891

    HGC
    Participant

    I’m curious why there is no Japan ETF in the mix.

    Thank you, and keep up the great work!

    #48947

    Alexander Horn
    Keymaster

    Wit the inclusion of ACWV (iShares Edge MSCI Min Vol Global) we try to cover all regions which do not have a specific ETF. But you can try by yourself using the QuantTrader free month trial here: https://logical-invest.com/rent-a-strategy/backtesting-software-quanttrader-free-trial/

    #51645

    trr
    Participant

    Your page (https://logical-invest.com/portfolio-items/global-market-rotation-strategy/) presenting this strategy appears out-of-date — the asset classes, the hedging mechanism etc. By the way, why did you replace MDY with SPY?

    #52257

    trr
    Participant

    I like the changes to GMRS described in the January update. They strike a good balance between keeping things simple, keeping a lid on volatility, and being prepared for all economic environments. But can I suggest changing to a small cap version of EFA such as SCZ. It has better CAGR, better sharpe, and lower correlation to SPY. Also, I’d like to see MDY used instead of SPY (as it was in some earlier version of GMRS). As well as better CAGR, it would give a little diversification from other LI strategies which use SPY.

    #52314

    Alexander Horn
    Keymaster

    Thanks for the recommendation. Let us look into using SCZ and MDY, we´ll post the results here next days. We can also built you a custom strategy with these two to use in QuantTrader, just email me at alex@logical-invest.com if interested.

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