This is the monthly monthly Logical-Invest newsletter for September 2015.
Strategy performance overview:
| symbol | close | year to date % ▴ | 3 month % | 1 month % | 1 day % | 60 day volatility | 60 day correlation | 3 month Sharpe | 12 month Sharpe | 36 month Sharpe |
|---|---|---|---|---|---|---|---|---|---|---|
| WORLD-TOP4 | 273.40 | 2.59 | -7.21 | -5.04 | -0.55 | 12.18 | 0.71 | -2.86 | 1.68 | 2.74 |
| AGG | 108.92 | 0.18 | 0.11 | -0.34 | -0.07 | 3.80 | -0.39 | 0.17 | 0.57 | 0.69 |
| GSRLV | 473.69 | -0.77 | -4.83 | -4.80 | -1.03 | 11.23 | 0.86 | -2.12 | 0.60 | 1.88 |
| BRS | 245.37 | -1.11 | -3.60 | -1.22 | 0.06 | 6.20 | 0.76 | -2.98 | -0.02 | 2.27 |
| UIS | 450.97 | -1.69 | -5.28 | -5.59 | -0.84 | 14.68 | 1.00 | -1.75 | 0.51 | 1.94 |
| TLT | 121.42 | -2.15 | 2.10 | -0.69 | -0.77 | 16.25 | -0.40 | 0.78 | 0.46 | 0.18 |
| SPY | 197.54 | -2.99 | -6.08 | -6.13 | -0.85 | 17.10 | 1.00 | -1.71 | 0.04 | 1.74 |
| BUGST | 209.79 | -3.90 | -3.92 | -2.42 | -0.46 | 6.76 | 0.88 | -2.99 | -0.52 | 1.62 |
| BUGLEV | 270.02 | -4.49 | -4.82 | -3.08 | -0.56 | 8.79 | 0.89 | -2.79 | -0.70 | 1.36 |
| MYRS | 546.81 | -6.63 | -11.79 | -16.60 | -2.36 | 24.56 | 0.68 | -2.03 | -0.06 | 2.63 |
| GMRS | 3874.50 | -7.17 | -12.02 | -5.18 | -0.72 | 15.93 | 0.82 | -3.14 | -1.51 | 1.22 |
| UIS-SPXL-TMF | 5061.58 | -8.34 | -17.30 | -17.26 | -2.39 | 43.40 | 0.99 | -1.48 | 0.24 | 1.88 |
| GSRAG | 448.56 | -13.36 | -12.61 | -7.47 | -0.99 | 21.21 | 0.88 | -2.54 | -1.18 | 1.41 |
| GMRSE | 5091.70 | -16.64 | -15.40 | -19.82 | -2.28 | 28.24 | 0.76 | -2.12 | -1.49 | 1.74 |
Symbols:
BRS – Bond Rotation Strategy
BUGST – A conservative Permanent Portfolio Strategy
BUGLEV – A leveraged Permanent Portfolio Strategy
GMRS – Global Market Rotation Strategy
GMRSE – Global Market Rotation Strategy Enhanced
WORLD-TOP4 – The Top 4 World Country Strategy
UIS – Universal Investment Strategy
UIS-SPXL-TMF – 3x leveraged Universal Investment Strategy
AGG – iShares Core Total US Bond (4-5yr)
SPY – SPDR S&P 500 Index
TLT – iShares Barclays Long-Term Trsry (15-18yr)
Market comment:
During the last two weeks of August world stock markets crashed down by 10% and more. The speed of this “flash crash” was so high, that volatility levels of over 50 have been reached Monday morning August 24, when “at open” market orders of Asian investors have been executed. Many Equities spiked down 10% or more at open and this shows that such “at market/at open” panic selling is very bad.
This volatility spike was the steepest VIX spike ever. Volatility went up much faster than in 2008.
Unfortunately, traditional save haven assets like Treasuries and Gold showed only muted positive reactions. Normally, these assets should have spiked up nearly the same amount as the stock market went down. This time investors preferred to buy volatility ETFs like VXX to protect their investments. This explains also the huge VIX spike, which was nearly as high as the 2008 spike even if the worldwide economic situation seems to be much better today. In 2008 investors preferred Treasuries to protect their portfolios.
For the Logical-Invest strategies, this was certainly a bad month. There was no escape from this crash because Equities, Treasuries and Gold all went down.
This time, the strategies with a big percentage of bonds like BUG and BRS did reasonably well, and have been more or less flat for the month.
The best equity Strategy during this month was the World-Top 4 strategy and the Global Sector Rotation (low volatility) strategy with draw-downs of about -4% to -5%%.
This is one of the first times, that all 40 countries of the World-Top 4 strategy have very negative performances. We had the luck to be invested in Ireland and Israel which have been the two countries with the less negative results. They had draw-downs of only about 3.5%, when all the large stock market indexes dived 10%.
Most strategies have now negative performances year to date and the question comes up, which is the best way to recover until end of the year.
One way to recover is to invest in volatility strategies. Volatility is really high and ZIV now has quite some recovery potential if volatility comes down. This strategy normally works very well and personally I like to do this during most of the volatility spikes, because there is one sure thing and this is that sooner or later volatility comes down again to normal levels.
The danger however this time is, that this is not a simple political crisis, but it has the touch of a growing economic crisis, with China’s deteriorating economy involved. It could probably also develop to a 2008 style crisis.
If this is really the case, then we should just go to cash for some months and certainly not invest in volatility ETFs like ZIV.
Most analysts however, don’t think this is a prelude to another 2008-style cataclysm. Leading indicators are still positive and lower oil prices and interest rates should help stabilize growth. For investors, one key takeaway is, that the selling has restored value in some areas of the market, particularly in Europe. Additionally, the strategies hold assets that are generating good earnings and/or dividends and will tend to go up over time as things settle down. As the markets recover, we will outperform by shifting to the strongest assets.
As always, the bad thing is, that we still cannot tell you the future, but only what happened in the past, but for most of the investors it is probably a the best, to go to cash for some days until the storm is over, even if the strategies are still invested.
Logical Invest
September 2015