Replacing Treasury ETFs by other Treasury ETFs

Replacing Treasury ETFs by other Treasury ETFs2017-03-03T15:27:28+00:00
  • Author
  • Frank Grossmann
    Post count: 161

    It is quite easy to replace Treasury ETFs with other Treasury ETFs. The duration of the Treasury ETF acts like a leverage. If you look at the chart and check the 3 month return table, then you can see approximately the leverage ratio between these different ETFs. TMF or much better a short position of TMV has the highest leverage returning about 18% in 3 month.
    EDV returns about 9% which means that TMV (or TMF) has 2x the leverage of EDV.

    So, if the strategy tells you to invest in 50% EDV and 50% EPP, then it no problem to replace EDV by a short position of TMV. Because TMV has 2x leverage compared to EDV, the investment would be 35% TMV short and 65% EPP

    You can do the same for other strategies. Bond rotation is for example invested 50% TLH and 50% HYLD.
    You could also invest about:
    30% EDV and 70% HYLD or
    15% TMV short and 85% HYLD

    If you have limited capital, then you should try to invest in longer duration or leveraged ETFs. The best one is a short TMV position. Second best is EDV.
    TMF is also not bad, but contrary to a short position of TMV time decay and management fee lower your profit.


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