UWM or IWM

[youneverknow]

It would seem adding a Russell 2000 ETF option to the US Markets strategies would be an excellent option. The leveraged version has tripled since the March lows! I would run this myself in QuantTrader but don’t have a Windows computer. I would appreciate any insight.

[Richard Thomas]

I have tried this in the past as I also thought it would improve the returns, but I did not get the results I was hoping for.

I took the US Markets unhedged strategy and added IWM to it. I kept the Quantrader parameters exactly the same as the original with SR/1/100/0/-200(mean rev weight)/30 (Mean rev %) and ran the optimization over 5 years and settled on a stable lookback of 22 days and 0.5 volatility Attenuator.

I also reoptimized the original to see if its lookback and vol att had changed and they were the same at 20/1.0 – so very similar to the new model.

The results are as follows;
Original: CAGR = 28.199, SR = 1.504, Vol = 18.75, MaxDD = -28.56
New: CAGR = 23.660, SR = 1.222, Vol = 19.36, MaxDD = -28.56

So the new version has worse CAGR, Sharpe Ratio and Volatilty than the original! Not what I was expecting.

I also tried optimizing the new version by selecting two of the ETFs using a 50/50 split and also variable splits with different min and max settings and none of them could improve on the single ETF version.

I have not tried this exercise using the x2 ETFs, but based on the results above I do not expect to see an improvement here either.

[youneverknow]

Thanks Richard, good info. Perhaps it’s the volatility of the Russell that results in worse results (hard to realize a trend before it turns). If this current market is truly a rotation into small caps again, it might still be a good option but going off recent years obviously doesn’t support it. Thanks again.

[Richard Thomas]

Looking at the last 12 months the results from the two systems are almost identical, however, over the last 6 months the version that includes IWM does have a better CAGR for the same MaxDD. But this is entirely due the new strategy being in IWM for November instead of DIA. So there is very recent benefit of using IWM, but how long will that last. Also you may be pushing for short term improvements over long term gains when using the IWM aversion.

[youneverknow]

Thanks Richard. Agreed, that’s exactly what seems like is happening. It would seem that IWM would be an excellent alternative but perhaps it’s more reactionary to the main indexes anyway so has limited “leadership” and limited ability to be a front-runner.

[youneverknow]

Richard, through LI’s portfolio optimization feature, I’ve come up with a strategy(10yr opt) that has a CAGR of 19%, MaxDD of -16%, Sharpe of 1.43, and Volatility of 12%. Using Quant Trader, have you developed something significantly better than that? I’m just curious and trying to figure out if pursuing the QT software is worthwhile. I appreciate any info you may have. Thanks.

[Richard Thomas]

Hi youneverknow,
I thought I had replied to this but for some reason it didn’t post. The best strategy I have come up with is the Modified Permanent Portfolio that you can read about in the blog.
I think QT is well worth getting as it more than pays for itself and it allows you to do detailed tests like we have discussed above where it would seem clear that adding IWM would have improved the performance, but in fact it did not.
Richard

[youneverknow]

Richard, I’m doing a trial of QT and some very interesting scenarios one can come up with. I’m just learning how to operate the software but at least I’m fairly fluent in the parameters. Seems like you really tweaked this one successfully. The ini file you made available is still the current system you are using? I’m going to try to play with it but seems like you have an excellent risk/reward/predictable ratio going. Nice work.

[Richard Thomas]

Thanks.
I have done some further work on the Precious Metals. When I reviewed the optimization window I noticed that my selected parameters (SR/1/100/0/-200/35/40/1.5) were not that stable. By that I mean that some of the values in the 8 surrounding squares had much bigger drawdowns. I looked at various lookback/Vol att combinations and took an average of the CAGR and MaxDD of each block of 9 squares (target square plus the surrounding 8) and found that the following parameters (SR/1/100/0/-250/30/62/2.0) were much more stable and actually had similar CAGR for a smaller MaxDD of -15.74.
I also did more work trying to incorporate copper, platinum and uranium in various combinations, but could not get any improvement over the GLD/SLV/PALL strategy. If you find a way to add these in for comparable or better returns please let me know.
Richard

[youneverknow]

Thanks again Richard. I tried all sorts of variations but usually it ended up being inferior to what you’ve already have accomplished. I did notice that PALL contributed significantly to the overall return but even taking that out the return was very impressive and the DD didn’t change. Amazing how many parameters there are to consider and how much time it takes to remove the misleading returns and find something that’s plausible. Great perseverance on your part!

[CoryCasanave]

I’m new to this but have also been experimenting along these lines.

I added ijs, ijt, iwm, iwp, iws
This showed improvement in U.S. market strategy for most periods.
I know there is a lot of correlation, but when I tried to take it out it got worse. Not sure why.
I also traded some CAGR for a lower draw down by using the “top 3”. I’m putting in new $ and would really like to avoid the draw-down that may come soon.

Any suggestions are welcome!

[Mark Vincent]

I would also look at 0 LI Strategies of Strategies. When you have a strategy that you would like to evaluate add it to this strategy. There is lot’s of good information. Last year I added my own strategies to this strategy and it did well but now the strategy is rotating into GSRS and GMRS. It keeps me honest. My strategies are no longer in favor. It does not mean they are dead but they are not as favorable. I am seeing the trend to hard assets. Metals, and real estate are doing well. Will be interesting to see how this year unfolds. One of my best strategies was a FAANG strategy. It has not done well lately but it will take a couple of years to see if I give up on it.

The whole process is portfolio construction and it’s not easy. LI helps but if you want an edge you have to adjust and take a bit of risk.

Cheers,
MV

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