What is a sideways market and why does it make sense to combine Treasuries and stock ETFs in such a market

What is a sideways market and why does it make sense to combine Treasuries and stock ETFs in such a market2017-03-03T15:27:34+00:00
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  • Frank Grossmann
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    Post count: 161

    We have two asset classes. One is stocks and one is Treasuries the “safe haven asset”. If both are giving slightly positive returns for the 3 month look-back period, then the strategies consider it to be a sideways going market. Investors can not decide between stocks and Treasuries. It is an up and down between them which can result in too much switching between Treasuries and stock ETFs in the rotation strategies.
    If stocks perform much better than Treasuries it is a normal bull market. If Treasuries perform better than stocks it is a bear market.

    In such sideways markets the combination of Treasuries and Stocks like EDV+MDY always performs better than any of the single ETFs.

    In the chart below you see that Sharpe ratio is 4 for the combination of EDV+MDY compared to 1 for MDY and 2.8 for EDV alone.

    Blog16

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