Strategy: Universal Investment Strategy

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This topic contains 57 replies, has 26 voices, and was last updated by  sunil kaniyur 1 year, 9 months ago.

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    Michael Parzen

    Some questions…..

    When I click on “see sample signal” above, it shows me a sample signal for the “The Global Market Rotation Enhanced Strategy”-can I see a sample signal for this system?

    Also, looking at the historical trade record, margin is used occasionally as there are weightings such as 70/40; is that correct?



    Alexander Horn

    Bennfine, thanks for pointing this out. Have updated the “Sample Signal” and also the typo in the investment table in Dec 2013.


    Michael Parzen

    Thanks! Can you also verify the 2014 return?
    I wrote the following on another page here:

    How are the performance figures above calculated? According to your returns spreadsheet (for 2014)

    system beg value end value ret
    SPY 245.58 278.65 13.46
    universal 382.23 453.34 18.58
    bugs 195.42 219.30 12.2

    Except for SPY, these aren’t the same reported.




    Hello…If you are using the Global Market strategy and the Universal strategy can you use the MDY or SPY for both. I know over time the MDY has outperformed the can I use the MDY instead of SPY for the Universal startegy?





    Overtime the results will often be somewhat similar between SPY and MDY, however for extended times they will deviate by measurable amounts. Over the last year, SPY has been measurable stronger, but that will changes. I would be surprised to see them move in opposite directions for days in a row.

    Net…you might be mostly OK, but results will differ somewhat.


    Frank Grossmann

    The UIS table is now corrected. Since the live trading date, the performance was correct, but before we changed slightly the strategy parameters and did not update the backtest table. BUG should also be fixed.


    Regis Huf

    Your HOME PAGE shows MaxDD of 6.4% for the UIS strategy.
    On the strategy page itself it says (under statistics) however Drawdown of -20.9% since inception.
    Can you please explain this difference?


    Alexander Horn

    The 6.4% MaxDD (and further indicators) on the homepage refer to the last 5 years timeframe as originally published. We’ve since then extended the period to full 2003-2014, but not yet updated the homepage statistics. You can see below that the 20.9% DrawDown in 2009 followed a peak of the same magnitude, overall the UIS proved superior to the benchmark in the crisis years.

    UIS 2008 - 2009



    Hello Frank,

    Excellent article. You stated that using futures would be a better way to implement the SPY-TLT strategy by using ES and UB contracts. My question to you is this, how would I know how many contracts to buy of each in order to utilize the adaptive allocation strategy percentages?

    Thank you!



    Hi caputoe,

    Futures involves substantial leverage and other aspects (rolling the positions, etc), so one needs to be sure to get 100% comfortable with all aspects of futures before you consider executing a real dollar position. Also, a good practice is to paper trade a while first. Once one gets to that comfort level, the contract shows you how to translate the cash value of the futures to the “exposure value” of the contract. The idea would be to keep the exposure value ratio of the S&P contract to the Treasuries contract at the same ratio as the ETF signal that you are aligning with. Never think of futures in terms the cash margin requirement, work from the underlying exposure you are taking on, otherwise you can quickly blow up your account with a margin call at the worst possible point.



    Hello LI: Regarding UIS, I’ve tried other bond strategies and have seen that Cliff Smith’s bond hedging strategy actually works better than just TMF alone particularly in periods of rising rates (declining bond prices) and declining equity prices (ie mid 2013). The link for Cliff’s strategy on SA:

    My limitation with this substitution backtest via ETF reply is I couldn’t vary the equity:bond ratio to maximize the sharpe ratio or for minimum volatility. Could you test this TMF substitution using your software and let us know the results.

    Greg Polites


    Frank Grossmann

    Hello Greg. I am always reading Cliffs SA articles and he also gives me sometimes good ideas, but I think that using TBF as a hedge is fundamentally wrong. TBF is the same as shorting TLT. The biggest no go of using this as a hedge is that it is no hedge anymore because TBF has a positive correlation with the stock market. If there would have been any bigger crisis during cliffs backtest period, then stocks and TBF would both have gone down. Also using TBF is betting against the trend. Longer term, treasuries will always go up. So, keeping an inverse treasury is just very risky. Then you could as well hedge with SH which is the inverse SPY.
    In fact these are long/short strategies, and I did hundereds of backtests with such strategies, but because of the short part of the strategies these always lagged strategies which only invest long with the trend.
    One idea was for example to construct a market neutral strategy by going long the top x ETFs and going short the bottom X ETFs. But this does not work, because even if you short always the worst ETFs, it is very difficult to have have a positive performance because even if these ETFs are bad, they still have a positive trend due to inflation and other things. Shorting good ETFs like TLT or SPY is even worse because you have a strong uptrend against you. Worst of all for a hedge is a volatility ETF. There you have several percents of downtrend per month against you.


    William Keys


    I invest in four strategies across six accounts. To simplify my trading, I convert all signals involving TLT and EDV to lesser $ amounts of TMF plus cash. I believe I am maintaining the proper hedge and leverage ratios while at the same time freeing up cash for dry powder and/or additional investment activity. It seems like a win-win situation. Am I missing something and is there a downside to this technique?

    Thank you.



    Thank you Frank for the reply. I have two comments. Being from a scientific background I’d very much like to see the numbers of backtest I suggested since I don’t have access to your UIS sharpe optimized software. It would be very interesting to see how the two bond alternatives performed for UIS during 2013 especially.
    Regarding your ETF selection for shorting I have to agree the momentum strategies I’ve also tested do very poorly with backward looking momentum picks. As you’re aware I’ve developed a forward looking, momentum based signaling system that generates both long and short signals. I’ve been using it to compliment the SPX part of the UIS strategy and for the last few months has improved the performance of that part of strategy. Details can be found on my blog of this system at: Thank you for your reply and in advance for running the backtests. Cheers, Greg




    Coincidentally, I happen to follow you on Twitter before I joined L-I. How do you use your STORMM indicators system to choose and allocate to L-I strategies?

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