Why don’t the 2x leveraged strategies have similar asset class allocations?

Home Forums Logical Invest Forum Why don’t the 2x leveraged strategies have similar asset class allocations?

Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • #81028
    pregablin
    Participant

    Why are the allocations for Universal Investment Strategy X 2 so much different than those of the US Market Strategy x2? 2/3 of the assets are the same (UGL, UBT) and SSO has a similar Sharpe Ratio to QLD in any given period, with an identical Sharpe Ratio in the last 3 months. Moreover, the Sharpe Ratio for UBT over the past 3 or even 6 months is low. Shouldn’t the UISx2 algorithm allocate away from long term treasuries right now? And shouldn’t the algorithms between these two strategies end up with pretty similar allocations to stocks, bonds, and gold? Any help would be great, thank you.

    #81031

    The biggest difference is that the UIS strategies look at the 3 assets (equity, gold and treasuries) as independent assets and can scale every asset to up to 60%. So, it is possible that it totally excludes one asset. The US market strategy follows a slightly different approach by pairing gold and treasuries into a hedge which in total can only go to 60%. This strategy has always a minimum of 40% in equity and is therefore slightly riskier if there is a big market correction. I personally prefer this more modern approach.
    I agree that excluding treasuries would have been good for the last months, but backtests show that it is better to keep such an asset even if it is a drag because it reduces volatility or risk. So called “switching strategies” which invest only in the best asset and exclude the other work normally well for some time, until there is a sudden market correction, and then you will be at risk because you are without any hedge.
    Backtested over the last 30 years permanently hedged strategies always performed better than switching strategies.

Viewing 2 posts - 1 through 2 (of 2 total)
  • You must be logged in to reply to this topic.