Converting TLT to EDV

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Converting TLT to EDV 2017-03-03T15:29:59+00:00
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  • wigmoney
    Participant
    Post count: 7

    I know you show the correct allocation if you want to use TLT vs. EDV. But, what if you want to covert TLT to EDV..is that somehting you can do if using the Global and Sector strategies? Is that even something to look at or does that not work with your strategies…

    Thanks

    Scott

  • Alexander Horn
    Keymaster
    Post count: 383

    Scott, sorry for the late reply, we do not get notified when a new thread is opened, still need to fix this.

    As outlined before, TLT has the advantage of higher liquidity, thus lower spreads. EDV has the advantage of being more reactive to market changes, thus you need less capital for the same ‘crash protection’. So in theory you can exchange TLT to EDV also, use the Excel sheet I had posted before and just invert the formulae in both cases.

    Hope this answers your question.

  • Alina
    Participant
    Post count: 1

    Alex,

    Was TLT/EDV substitution for any of your strategies ever backtested? If yes where can I see the results?

    EDV may be good in theory but in practice I think it would be subject to very high slippage and would be very hard to execute, especially in large accounts. If you look at a 1-minute chart of it the average bar volume is around 200 with higher spikes near the open and close. So if you have a $100,000 account (which is rather small if you trade in an IRA) and you need to invest 70% of it in EDV you would need to buy around 540 shares. With average bar volume of 200 executing 540 shares will be hard.

    That said if would be nice if you added a GMR-like strategy using TLT instead of EDV to your arsenal. I know you have a Universal strategy that’s using TLT and SPY but it’s different from GMR which is using more funds and has better diversification.

  • Alexander Horn
    Keymaster
    Post count: 383

    Alina, you are right, normally the discussion is about the contrary, e.g. replacing EDV by TLT.

    Arguments in pro are the higher liquidity, thus lower spreads of TLT, or even availability of EDV for larger accounts as you say. Counter-argument for smaller investors are that TLT is less reactive, thus requires an about 1.5x factor (margin account, or de-leverage), and that slippage and availability is less of an issue with the rather gradual % allocation changes in the adaptive strategies.

    We still prefer EDV and will stick to it in the strategies, but want to support when somebody substitutes by TLT.

    Here more on the topic EDV –> TLT (and a lot more spread around different posts): https://logical-invest.com/forums/topic/how-to-replace-edv-by-tlt-example/

  • Alexander Horn
    Keymaster
    Post count: 383

    And because you explicitely asked for it, here quick comparison of the GMRS backtests using EDV vs TLT. Note I show only last 4 years so you better observe the monthly allocations. In this quick test could not prevent that the equity signal changed in some months also.

    Main observation is the performance drop in the TLT version, which comes from the higher % allocations needed in comparison to EDV (the ‘leverage’ I mentioned above, even this is not the right expression technically speaking). If you scale up the TLT allocation either by using margin leverage or leveraged ETF (TMV) then you are about back to the EDV version.

    GMRS EDV:

    GMRS EDV

    GMRS TLT:

    GMRS TLT

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