Logical Invest Strategy Performance for 2014

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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
Maximum Yield 23.20% 26.25% 30% 20%
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.

2017-10-02T20:00:00+00:00By |7 Comments

About the Author:

Frank studied Microtechnics at the Federal Institute of Technology in Lausanne and Business Administration at the Federal Institute of Technology in Zurich. After the Studies in 1989 he founded Labocontrol AG. Labocontrol developed high speed film scanners used in most of the photo labs for the production of Photo CD's. In 2000 Labocontrol was sold to Digital Now and Frank worked as Chief Scientist and later CTO of this Company. In Mai 2002 Frank founded Colour-Science AG a company specialized in image processing algorithms like face detection or red eye removal. Many of these algorithms could be also used to search for pattern in financial data, so Frank began to develop and back test rule based investment strategies. The main focus was to find strategies, which would allow a positive return also during a financial downturn or major financial crash. Based on this research, logical-invest developed some very successful strategies and due to its solid performance and positive returns, we decided to share our knowledge with you and publish it on a monthly basis through "rent-a-strategy".

7 Comments

  1. Tom 01/06/2015 at 12:53 am

    http://mauldin.realvisiontv.com/3947311990001

    I found this very interesting, thought you might be interested as well.

  2. Alexander Horn 01/06/2015 at 2:11 am

    Tom, indeed very interesting, thanks for sharing. Have read some other articles on the currency war and interest rate impacts at a macro level, but none as easy to understand. Also like the format and concept of realvisiontv, completely new to me. Have you subscribed and can recommend it?

  3. bennfine 01/17/2015 at 7:27 am

    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 as in the table above.

    Thanks

    • Vangelis Maderakis 01/18/2015 at 3:07 am

      Thank you. As you mention, the straight BUG did better @ 12.2%. The Bug was under-calculated due to a CWB dividend of $2.39/share that was paid out in December and caused the un-adjusted price to gap down. So at first the CWB return showed loss without adjusting for dividends.This has been corrected on the Google sheet since then. Will check UIS, too.

    • Frank Grossmann 01/22/2015 at 6:05 am

      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.

  4. Ronald 02/06/2015 at 8:04 pm

    I don’t understand this comment: “It is very probable, that we do not continue with double digit profits in 2015, but rather with normal single digit profits.”

    The figures shown in the “Performance forecast 2015” column are mostly higher than “normal single digit profits”.

    Thanks,
    Ron

    • Alexander Horn 02/06/2015 at 10:13 pm

      Ronald, Frank was referring to S&P500 as ‘market proxie’ not to be in double-digits, agree it is a bit confusing.

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