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The Logical-Invest monthly newsletter for October 2017

Logical Invest Investment Outlook October 2017 Our top 2017 investment strategies, year-to-date: The Maximum Yield strategy with 43.96% return. The Leveraged Universal strategy with 28.36% return.   The NASDAQ 100 strategy with 19.97% return. SPY, the S&P500 ETF, returned 13.99%. Market comment: The S&P 500 has reached new heights, gaining +2% for the month, influenced by a more optimistic tax reform outlook. On the other hand, president Trump's proposed tax cuts and the possibility of a growing U.S. deficit caused U.S. Treasuries to sell off, pushing the benchmark 10-year yield to 2.26% and the TLT price down by -2.32%. Most of our strategies had a pullback partly due to our strategies using the TLT etf (or TMF) as a hedge. Strategy losses ranged from -3.76% for the Nasdaq 100 to -0.11% for the non-leveraged BUG strategy. Winner for the month was the U.S. Sector strategy (+1.28%).  The Bond rotation strategy managed to stay positive at +0.21% despite the widespread bond sell-off. Our Gold-USD strategy lost -0.12% managing to hedge the gold correction (GLD: -3.37%) for the month. Seasonally, October is a volatile month but often leads to a favorable pre-Christmas equity environment. We wish you a healthy and prosperous 2017. Logical Invest, October 1, 2017 Strategy performance overview: Logical Invest Performance October 2017 Visit our site for daily updated performance tables. 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 GSRLV - Global Sector Rotation low volatility NASDAQ100 - Nasdaq 100 strategy 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) Follow my blog with Bloglovin

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The Logical-Invest monthly newsletter for September 2017

Logical Invest Investment Outlook September 2017 Our top 2017 investment strategies, year-to-date: The Maximum Yield strategy with 47.47% return. The Leveraged Universal strategy with 31.15% return.   The NASDAQ 100 strategy with 24.65% return. SPY, the S&P500 ETF, returned 11.74%. Market comment: After more than three months of extremely low levels of volatility, VIX spiked on August 10th peaking at the 16.04 level. The index has now dropped around the 10 - 11 level awaiting further possible market disruptions. The move has triggered an upward reaction to traditional safe heavens assets with TLT  (Treasury ETF) returning 3.41% and GLD (Gold ETF) 4.2%, for the month. This has benefited our strategies since a majority of them use these assets as a hedge. For September, the upcoming U.S. Congress needs to agree on a budget for fiscal year 2018 and raise, once again, the so-called debt ceiling, The Federal Reserve may start a large winding down of its crisis-era balance sheet while the European Central Bank is considering scaling back its asset purchases. Tensions between N. Korea and the U.S. may escalate. All these factors could cause VIX to spike. As mentioned in the previous newsletters, the dollar index continues to show weakness, benefiting foreign (non-U.S.) equity and emerging market bonds. The Euro continues to show some strength. Gold has been showing strength in 2017 after reaching a low on December 2016. Our best strategy performers for August are: The Nasdaq 100 strategy, recovered from last month's correction adding +4.56 %. The Bug Leveraged strategy added +3.54% to reach a very respectable 11.10% year-to-date. Our 3x Universal Investment strategy returned 3.17% for the month. The Gold-USD strategy made a 2.32% profit and finally turned positive for 2017. The performance of the Bug Leveraged strategy was due to holding full (leveraged) positions in 'safer' assets: GLD (+4.2%),  TLT (+3.4%) and PCY (2.18%). Our flagship [...]

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The Logical-Invest monthly newsletter for August 2017

Logical Invest Investment Outlook August 2017 Our top 2017 investment strategies, year-to-date: The Maximum Yield strategy with 46.05% return. The Leveraged Universal strategy with 27.11% return.   The NASDAQ 100 strategy with 19.29% return. SPY, the S&P500 ETF, returned 11.42%. News: Our professional portfolio software QuantTrader has reached version 5.0 with improvements including being able to load your custom set of strategies and a new consolidated signals screen. You can now allocate your funds in multiple strategies and have QuantTrader calculate the number of shares of each stock/ETF you need to buy.   QuantTrader Consolidated Signals   Market comment: Just as we mentioned in our last June newsletter, we continue to observe low volatility and a weakening dollar. The VIX index hit a record low on July 26th, falling temporarily to 8.84, a level last seen back in 1993. Moreover the index stayed under the 10 level for 10 consecutive days showing persistence.  The U.S. dollar fell to a 13-month low against a basket of currencies. The Euro has broken to the upside, reaching 1.18 against the dollar, a level last seen before December 2014. The Euro is 11% up year-to-date. Certain commodities that have had terrible returns for the past years are this month's top performers: Sugar, Gasoline, U.S. diesel Heating oil, Nickel, Coffee and U.S. oil (USO) ETFs all gave more than 10% returns for the month. Of course if you look at a graph you will see this is just a tiny reaction to multi-year bear markets. Taking advantage of the extended low volatility environment, out top strategy, the Maximum Yield strategy, added another +5.93% to reach +46.79% return for the year.  The Universal Investment 3x strategy added 2.54% for a +27.11% YTD return. All our other strategies were positive in July. The exception was the Nasdaq 100 strategy that corrected -3.1% causing this month's allocations to change significantly. As [...]

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The Logical-Invest monthly newsletter for July 2017

Logical Invest Investment Outlook July 2017 Our top 2017 investment strategies, year-to-date: The Maximum Yield strategy with 38.54% return. The Leveraged Universal strategy with 23.91% return.   The NASDAQ 100 strategy with 23.07% return. SPY, the S&P500 ETF, returned 9.17%. News: Our professional portfolio software QuantTrader continues to evolve and can now download data from 3 different providers: Tiingo, Yahoo and Google. Tiingo is an inexpensive solution for DYI investors that need good quality dividend-adjusted end of day data. Market comment: The U.S. Federal Reserve raised its benchmark federal-funds rate on June 15th by a quarter percentage point and hinted to further hikes. Individual investors remain skeptical of the bull market as the AAII survey shows 43.4% being neutral (historical average is at 38%). Mainstream market analysts keep a positive outlook quoting decreased risks and equity strength in Europe, global strength in developed and emerging markets, low unemployment in the U.S. and a sense that the Fed's tightening is predictable. We continue to see a low volatility environment and a weakness in U.S. dollar for 2017 which benefits non-U.S. stocks, bonds as well as gold. The European market returned 17% YTD while India and China achieved 20%+ returns for the year. UUP ETF (U.S. Dollar Index)   Out top strategy, the Maximum Yield strategy, added another +6.85% to reach +38.5% return for the year.  The Universal Investment 3x strategy had a correction in the last few days of July but came out positive adding +1.66% for a +23.9% YTD return. Both the Nasdaq 100 and the U.S. Sector strategies had corrections: -1.98% and -2.47% to achieve +23% and +5% YTD  respectively. All other strategies remained flat with gains/losses below 1%. A final note: We do keep a watchful eye on recent developments in the crypto-currency markets as Bitcoin and Ethereum are attempting to make their way into the mainstream. It may be [...]

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A Global Market Rotation Strategy with an annual performance of 41.4% since 2003

The following ETF strategy is one of my favorite rotation strategies, which many of my friends, customers and I use now for some years. The Global Market ETF Rotation Strategy (GMR) The GMR Strategy switches between 6 different ETF on a monthly basis. The back tested return of this strategy since 2003 is quite impressive. Annual performance (CAGR) = 41.4% (S&P500=8.4%) Total performance since 2003 = 3740% (S&P500=134%) 69% of trades have positive return versus 31% with negative return You find the most recent performance table here. ETF These global markets and ETF are: US Market (MDY - S&P MidCap 400 SPDRs) Europe (IEV - iShares S&P Europe 350 Index Fund) Emerging Markets (EEM - iShares MSCI Emerging Markets) Latin America (ILF - iShares S&P Latin America) Pacific region (EPP - iShares MSCI Pacific ex-Japan) During market corrections I invest in: US Treasury Bonds (EDV - Vanguard Extended Duration Treasuries (25+yr)) Cash or SHY (SHY - Barclays Low Duration US Treasury) Selection of the strategy ETF For the design of a well performing rotation strategy, it is important that the selected ETF are not too volatile, show longer term visible trends and have a good market volume, so that they cannot be manipulated. They all should have more or less the same volatility. The 5 global markets ETF fulfill this condition. They all are capitalized enough, so that they cannot be manipulated in the short term. Why rotating? The 5 ETFs follow slightly different economic cycles and there are long periods where one market outperforms the other until it becomes so overpriced and investors begin to remove their money from that market in order to invest in other cheaper valued markets. Looking back 12 month, we see that the US market was the clear winner and the [...]

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Harvesting Contango: How To Build An ETF Rotation Strategy With More Than 50% Annualized Returns

In this paper I want to explain the readers how the Maximum Yield Rotation Strategy of www.logical-invest.com is built. This strategy harvests the so called Contango. Harvesting Contango by investing in inverse volatility This Strategy harvests contango and achieves very high returns investing in inverse volatility. From 2011 to today the annual performance was more than 70% per year. Year to date the performance is 40.9%. The Sharpe Ratio (Return/Risk) of 2.12 is a "DREAM VALUE" and I doubt that someone can show me a strategy with a higher ratio. The strategy invests in 4 different ETFs and harvests the contango: US Market (MDY - S&P MidCap 400 SPDRs) U.S. Treasury Bonds - (EDV Vanguard Extended Duration Treasury 25+yr) Volatility - (ZIV VelocityShares Inverse VIX Medium-Term) cash - (SHY Barclays Low Duration Treasury) only if Treasury correlation to SPY > -0.25 The Maximum Yield Strategy switches semi-monthly between these 4 ETFs. For the switching I use a ranking system like the one I explained in my SeekingAlpha article of the Global Market Rotation Strategy. The ranking system is also using 3 month historical performance and 20 day volatility. Using also volatility is quite important for harvesting contango, because it reduces the ranking of high volatile ETFs like ZIV. However, if you want to play such a rotation strategy by yourself, then you can also just look at the 3 month historical performance to benefit from contango. In this strategy the ZIV ETF is the most important performance driver. ZIV can only be backtested since 2011, so that I cannot present a longer backtest for the whole strategy, but the way the strategy is built, you can backtest parts of it for more than 10 years. Benefit from Contango The Maximum Yield Rotation Strategy is composed by several smaller sub-rotation strategies. Here is an overview of [...]

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Volatility Premium – Why we invest in ZIV and not in XIV

Several times I have been asked why we invest in ZIV (inverse mid-term volatility) and not in XIV (inverse front month volatility) in our Maximum Yield Rotation Strategy and in the "Global Market Rotation Enhanced Strategy" to harvest the volatility premium. Harvest Volatility Premium smartly After all, front month VIX Future contango is about 2-3x bigger then medium term contango. At the moment XIV profits from nearly 9% monthly VIX Futures contango. ZIV profits from about 3% monthly VIX Futures contango, or volatility premium Normally you would think that XIV should have a far better performance than ZIV, but now look at this chart of the 1 year performance. ZIV has performed very well. With 64% annual performance it performs nearly 4% better than XIV and this with much less volatility - thus allows better to harvest the volatility premium. The main problem is that both of the ETFs are inverse ETFs. This means that underlying they are constructed by shorting VIX futures. These ETFs are rebalanced every day and this results in a quite big time decay. XIV has a very high volatility of about 55% compared to only 25% for ZIV. Higher volatility means also bigger time decay losses. The 25% volatility of ZIV fits very well to the volatilities of our global market ETFs (MDY, FEZ, EEM, EPP, ILF). Rotation strategies work better, if the ETFs have more or less the same volatility. Rotation Strategy backtests - all to benefit from volatility premium If I backtest our Maximum Yield Rotation Strategy with XIV instead of ZIV, then I only get an annual performance of 31% with a volatility of 48% since 2011. With ZIV, I get 70% annual performance with only 27% volatility. This is a huge difference, which shows you, how important it is, that the ETFs [...]

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Risk Management using Timed Hedging – Avoid DrawDowns

As you perhaps know I have invested all my money in my own strategies, and I and my family (the best wife of all and 4 nice children) are living from the return of these investments. So, I just cannot afford to lose much money in market corrections. Therefore I always try to improve the strategies to lower the risk of major losses through hedging. Timed Hedging The new "Timed hedging" is a major improvement of the rotation strategies. It increases the Return to Risk ratio of all strategies a lot. Timed hedging allows you to reduce the downside risk or the volatility of your investment by about 1/3rd without affecting the performance of the strategies. An excellent way to reduce the volatility or risk of your investment is hedging with Treasuries. Treasuries are most of the time negatively correlated to the stock market and still have a long term positive return. In my strategy emails, I will from now on always give an indication on how you can hedge the current strategy investment. There is a good possibility that 2014 will be a more choppy market than 2013. The 32% performance of the US stock market is just crying for some corrections, even if the economy outlook is still very positive. In a normal year like 2012 without tapering, the stock market (MDY – orange) and Treasuries (EDV – blue) have nearly perfectly mirrored charts. 2013 was a special year with extremely fast rising treasury yields during the summer period. This had the effect, that long duration ETFs like EDV lost up to 20% for the whole year. Since the beginning of 2014 treasuries show again a normal negative correlation of about -0.5 to the stock market (SPY). Since hedging with Treasuries is an extremely simple and effective [...]

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What is a hedge and why does it makes sense to do it?

A hedge is always an investment which is negatively correlated to the main investment. When the main investment goes down, the hedge should go up and if the main investment goes up, then the hedge normally goes down. It is clear, that we like the first, which is to reduce the draw downs with a hedge, but not to reduce the gains. If you have a stock portfolio, then the main hedge possibilities are: A VIX ETF like VXX or a VIX Future. These have nearly a -1 correlation. An inverse ETF on a index like SH which is the inverse of the S&P 500 SPY ETF Precious metals like GLD or SLV Treasuries A lot of people use 1) and 2) to hedge their positions. This may probably make sense if you have a big stock portfolio, and you can not sell everything instantly in case of a market crash. These two must be perfectly timed. I do not think it makes sense to use them as a hedge for longer periods because the VXX ETF has an extremely strong down trend of about 5-10% per month. This is a very effective but also very expensive hedge. Such a hedge will ruin the performance of your portfolio if you keep it longer then one or two weeks. Same with SH. Because the S&P 500 has a long term up trend of about 8%, you will lose about these 8% per year if you use SH as a long term hedge. Precious metals 3) are much better. They are a safe haven investment. They normally have an inverse correlation to the stock market in times of trouble and on the longer term they should go up at least because of inflation. Gold and Silver are today priced about at their [...]

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Hedging Portfolio: Comparison of TMV, TMF or EDV

TMF is by far not so good as TMV short for hedging portfolio. Here is the 12 month comparison. While all treasuries had quite big losses of about -7%, a shortTMV position was flat over the year. I think for IRA accounts the better and saver way of hedging would be a part of the investment in the Bond rotation. This one should make 10-15% per year and is also good for hedging portfolio. Hedging Portfolio with different instruments in comparison Below chart: EDV -7.2% TMF -18.2% (divide by 2 because TMF=2xEDV) -9.1% TMV 0.6% /2 = 0.3% = -0.3% because you are short TMV Conclusion: If you can short, then use TMV for hedging. If not, then better do not hedge or use the Bond Rotation Strategy for hedging portfolio. You can employ this hedging portfolio with our Sleep Well Bond Rotation Strategy, here a summary or look at the recent performance: Our high yield Bond Rotation Strategy is one of our core investment strategies. The strategy invests on a monthly basis in two of four different bonds as hedging portfolio. This is the perfect strategy if you are looking for a safe long term investment and if you want to sleep well even during turbulent financial markets and be covered by hedging. The extremely low volatility (risk) of this strategy is only 7.9% which is about 3-4x less than the S&P500 volatility. The 4 Bonds are: CWB – SPDR Barclays Convertible Bond JNK: SPDR Barcap High-Yield Junk Bond (4-7yr) PCY: PowerShares Emerging Mkts Bond (7-9yr) TLT: iShares Barclays Long-Term Trsry (15-18yr) The strategy is a very conservative approach to maximize your portfolio return and on the same time minimize the risk of losses. During the 2008 financial crisis the S&P500 lost more than 50%. This strategy ended the year 2008 [...]

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