Dear investors, In general 2014 was quite a difficult year for investors, so we want to summarize and comment our strategy performance. Apart of the US market, all global markets finished the year with negative performances.
SPY 13.46% (S&P 500 US market)
FEZ -9.75% (Euro Stoxx 50)
EEM -3.89% (MSCI Emerging Markets)
EPP -1.92% (MSCI Pacific ex-Japan)
ILF -12,29% (S&P Latin America)
AGG 5.99% (Core Total US Bond (5-6yr))
Our Strategy Performance
See here for a most recent Strategy Performance overview.
However, most of the negative performance of these foreign market ETFs is due to the strong US$. The Euro lost 12% on the US$ and the US$ index UUP is 10% higher. In fact, the USD/EUR hedged DBEU (MSCI Europe) ETF had a +4% performance, which is nearly 15% better than the USD denominated FEZ. It is very difficult to forecast the influence of exchange rates on our strategies. All this is driven by the Yellen and Draghi, but longer term, a strong US$ will make European and Asian markets more competitive. So, we will probably see a rotation away from the US market to some foreign markets at some point.
In spite of the global weakness and currency dislocations, the rotation strategy performance came through flat to up nicely for the year, and all had a strong year with hedging. We had 5 intermediate short market corrections, which typically had a 2 week pullback of up to 10% and then a very fast recovery. This sort of whipsaw market is not ideal for our rotation strategies. At least for the old style of rotation strategies which always switched 100% between stock market ETFs and treasuries. 2014 was also a very strong year for treasuries, which again proved all analyst forecasts wrong.
The 20% treasury hedge which I promoted since February 2014 had a very positive result on the strategies. With TMF surging 38.4% during this period, the 20% hedge contributed between 3% to 8% to the strategy return (see return table).
I have also added a performance forecast of the strategies. I think all strategies should produce positive returns even if we would have a major market correction in 2015. The new adaptive allocation should also significantly reduce the volatility of the strategies, however the golden times where we still profited from the 2008 crash recovery seems to be over. The markets more or less recovered these previous losses and some even are at all time heights. It is very probable, that we do not continue with double digit profits in 2015, but rather with normal single digit profits.
Be aware that such forecasts are nearly impossible to do. So, they can easily differ by +/- 10%.
Logical Invest 2014 strategy performance and 2015 strategy forecast
|Strategy||Performance||Performance with hedge 1)||Performance forecast 2015||Volatility forecast 2015|
|Global Market Rotation||-0.60%||7.21%||14%||10%|
|Global Market Rotation Enhanced||10.55%||16.13%||21%||13%|
|Bond Rotation||10.02%||no hedge needed||11%||6%|
|Global Sector Rotation (low volatility)||8.50%||14.49%||14%||7%|
|Global Sector Rotation (aggressive)||0.54%||8.12%||18%||10%|
|Universal Investment Strategy 2)||21.78%||no hedge needed||13%||7%|
|BUG Straight 3)||10.69%||no hedge needed||9%||6%|
|BUG Leveraged 3)||13.35%||no hedge needed||11%||7%|
1) from Jan 31. until Oct. 31 the strategy emails recommended to invest 20% of the capital in a TMF/TMV treasury hedge and only 80% in the strategies in order to reduce volatility. TMF or TMV, which are 3x leveraged 20 year treasury bonds made a 38.45% profit during this period. Since November this sort of treasury hedge is included automatically in the adaptive allocation. No separate treasury hedge is needed anymore.
2) live trading since November 2014. Jan.-Oct. is backtested
3) live trading since December 2014. Jan.-Nov. is backtested
To get inspired for your 2015 portfolio, have a look at our Custom Portfolio Builder.