Changes to the Hedging Strategies

Home Forums Logical Invest Forum Changes to the Hedging Strategies

Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
  • #53055
    Richard Thomas

    I am an existing member of LI and have recently started the trial of QT and have downloaded 513S.

    From reviewing QT I have noticed some changes to the hedging strategies – adding short US Sectors – that have been in place for several months, that I was unaware of.

    Prior to trialing QT my understanding of the hedging strategies was based on Frank’s paper “Logical Invest strategy for an inflation environment”.  This was a detailed, well thought out paper that showed the results of the back testing and justified the changes being proposed.  I felt confident going forward with LI using these changes.

    As a non QT member I was unaware of the addition of the  inverse US sectors and the removal of the currency ETFs from the hedge.

    1. Were these changes included in the signals for non QT members?
    2. If so, why was this not communicated to them directly via email (if this was done, I apologise for missing it), and in another paper that could easily be found in the Academy section of the website? I had to spend a lot of time searching the blogs before I got a hint of the change in a response that Frank wrote on Feb 23, 2018.
    3. In that blog post Frank wrote that he would publish a strategy update later that day – was that ever done and how would anyone find it?
    4. Where is the justification for the change, together with results of backtesting, similar to that produced in Frank’s “Logical Invest strategy for an inflation environment” paper?
    5. Were other inverse options considered such as inverse SPY – SH, SDS(-2x) or SPXU(-3x)?
    6. Whilst the change may be well thought through, it appears more like a knee jerk reaction to members concerns about all assets going down in February.  One of the things that attracted me to LI was it’s stability and the fact that it wasn’t continually changing.  The test of the hedging will become apparent during the next crash which will occur over many months and not the minor correction that took place in February and March.

    I have similar concerns about changes to the hedging for NASDAQ100, MYRS and UIS3.

    1. Were these changes included in the signals for non QT members?
    2. If so, why was this not communicated to them directly via email,  and in another paper that could easily be found in the Academy section of the website?
    3. Where is the justification for the change, together with results of backtesting? #Hedge3X in QT510S  from Feb 29 2012 to Jan 4 2018 (QT generated start date based on selecting 10yrs) had a CAGR of -7.3% and a DD of -61.6% which is worse than TMF alone over the same period of CAGR of 2.3% and DD of -53.3%!
    4. Also in 510S looking at #Nasdaq100Hedged for 10 yrs (Aug 31 2012 to Jun 4 2018) has a CAGR of 44% and DD of -18.6% versus #Nasdaq100 with CAGR of 53.7% and DD of -19.2%, which some may argue is no improvement at all!

    In summary can you publish papers justifying these changes to the two hedging strategies?

    Can you communicate these and all future major changes via email and also include the papers in easy to find locations on the website – maybe in the News/Announcement sections of both the strategy and QT forums with most recent entries first?

    There  are many things I admire about LI and from what I have seen of QT so far it is an incredible piece of software that I believe will help me immensely going forward, so keep up the good work and just improve the communications side.


    Dear Richard,

    Thank you for the constructive criticism. The changes to the strategies you mentioned were announced in the March newsletter ( that was sent out to all subscribers. This of course is far from optimal as many people will not read it and I, myself had trouble finding where we did document these changes 3 months later! We will look for a more visible place where to publish these “strategy updates”.
    I will let Frank discuss the justifications for the strategy changes.

    Frank Grossmann

    Hello Richard. Here some more answers:
    1) Yes all changes we do on QT will also be in the subscription signals.
    2) I think it was communicated also in the email signals. Reason was that we did not want to depend on Treasuries only for a longer period of raising rates.
    3) Yes, I published an update. QT software updates are published here.
    and in the download zip folder there is also a history of the strategy updates because many times software and strategies are updated.
    4) If shorting inverse stock to replace a long position, then this makes only sense with 3x leveraged ETFs as these have the biggest rebalancing losses. SPXU or SPXS are basically the same. You should short the one with the lower borrow rate.
    5) We are always learning and working on the strategies and on the software. We will always optimize strategies so that they would have delivered the best possible results during all recent market corrections. If something new appears then we will include it in our optimization. With the new hedge we included the possibility that Treasuries could stop to be a safe haven asset. Problems could be raising rates or also China dumping Treasuries on the market. Gold and inverse sectors are two additional safe haven assets for the worst case. We think that this way we have the highest chance to survive a future market correction. Markets change and strategies have to adapt to these changes.

    2nd part
    1) Yes
    2) The changes have been communicated in the emails and in the QT version history but you are right we need to make it easier to find these things on the web site.
    3) I published an article for the February updates:
    It can be that one strategy was slightly better with only Treasuries because Treasuries performed really well before 2018. Looking back this is clear because Gold did not perform well. In general is dangerous to rely on one single ETF as a hedge. I prefer a strategy with more hedging possibilities. Year to date the Hedge strategy did quite well compared to Treasuries. A diversified strategy is always better than a strategy limited to a few well performing stocks. The more broad is your investment universe the smaller is the chance that you only did good results by pre-selecting ETFs from which you know they did well in the past.
    On the equity side we have always been well diversified. The problem was the hedging side of the strategies.

    I will discuss with my partners how to publish strategy changes better, so that you can see a sort of strategy version history with each strategy.

Viewing 3 posts - 1 through 3 (of 3 total)
  • You must be logged in to reply to this topic.