We analyse one of the Fidelity Freedom Target Date Funds (FFFDX) versus a portfolio of ETF rotation strategies - The findings will surprise you! This is a guest post by Richard Manley, first published on Richard´s Corner, the Logical Invest User Community: Defined contribution retirement plan using target date funds There’s no shortage of challenges facing working people in these days. In addition to job outsourcing and the offshoring whole operations, inflation/deflation and zero interest rates on savings, most workers who have a retirement plan have one that’s called a “defined contribution plan”, in the US in many cases it’s also called a 401K. In such a plan, a participant contributes before-tax funds, often matched to some degree by the employer, into an account that is intended to accrue and grow until retirement age when it can be distributed over one’s retirement lifetime. This kind of plan of course puts the responsibility and burden of making wise investment choices on the individual. Most working folks are not trained in finance or security selection or portfolio construction and are thus left to rely on their own uninformed devices or advice from financial gurus in the media or in newsletters or cable TV talking heads, or merely to reactionary emotions that attend to most of us during extreme financial events. The U.S Dept. of Labor’s new “Fiduciary Rule” will take effect in April, but what practical effect this may have on individual’s specific investment actions under defined contribution plans remains to be seen. As a retirement plan investor, I’ve experienced all these pitfalls and more while I’ve tried to save enough to comfortably retire someday. A coherent approach to managing my modest retirement assets was clearly lacking and as a result I found myself thrashing my account to respond to the [...]
Diversification is a cornerstone to successful investing. In simple form, when measurably diverse assets are combined in a portfolio, the investors portfolio risks are reduced without any sacrifice of returns. This is a rare “free lunch”, it is well accepted part of modern financial portfolios, and to stay financially healthy it is important not to skip lunch. When one asset is going down while the other is going up, the portfolios risk is reduced without the normal penalty of risk/return trade-offs. We take advantage of that when our systems dynamically blend things like the S&P 500 and treasury bonds, which often exhibit negative correlation to each other (which is ideal).Applying Portfolio Diversification to Strategies: Our subscribers can take this take a step further. Our investing algorithms take on a blend of the properties of their underlying assets combined with the “alpha” edges from the investing rules. The returns of each investing strategy should be thought of as an asset, which are different and unique from the underlying holdings. So holding a portfolio of strategies functions much like holding a portfolio of assets. To evaluate the risk profile of the strategy, we examine the history of the returns of those strategies, much like when holding a basket of stocks the historical returns of each stock would be evaluated.
I just want to share a screenshot of the new backtest software, we have written in C# to calculate and backtest the new adaptive logical-invest strategies. This software can be used to calculate the variable allocation for the MYRS, GSRS and GMRS. Since 2017, QuantTrader, this backtest software is now also available for retail and institutional investors, see here. Our backtest software QuantTrader now available Below you see a 2 year graph showing the Global Market Rotation strategy backtest. The top chart just shows the 6 ETFs used in this strategy. The middle chart shows the allocation in percent of the ETFs for each month and the bottom chart shows the performance chart with EDV and SPY as benchmarks. It is interesting to see in the backtest, that normal years with strong trends like 2013 have long periods with the same ETFs. 2013 was dominated by MDY and IEV. IEV (Europe) is used as a replacement for FEZ, because it has a 10 year history. In 2014 we had many changes between the markets, but still this type of adaptive algorithm did manage this difficult situation much better than the old algorithm which could only switch 100% into one ETF. The backtest performance for these last 2 years 19.7% per year, with a Sharpe of 1.94. The old algorithm had 15% annual performance because of a good year 2013 but only a Sharpe ratio of 0.9. In general you can say that during years with long consistent trends, both algorithms will do well, but in years like 2014, where the really best allocation is somewhere in between stocks and Treasuries, a 100% rotation algorithm has problems to find the good ETF. Best regards Frank Grossmann Here more about the capabilities of QuantTrader: All you need for steering your investment [...]
Dear Subscribers,We are happy to announce that the full QuantTrader version is now available to individual investors for $150 a month or $1500 per year.We will cross-subsidize a bit with the high interest we´ve received from institutional investors like RIA and hedge-fund managers so far. Fair play requires that subscribers who manage their own or other people's assets above $1m subscribe to the institutional offering.QuantTrader is a fine piece of art mixed with a lot of investment technology. Knowing that all the knobs and options might lead to an initial overload - at least compared to the 60/40% off the shelff solutions out there - we will also continue with our 60 days money back guarantee.You can find a short description of QUANTtrader here. We have prepared extensive Help & FAQ site and a dedicated forum to get you started in an interactive mode. If there is interest we can also organize a webmeeting for a more detailed walk-through during the coming weeks, just let us know in the comments. In anticipation of a vivid discussion, The Logical Invest TeamAnd now some further promotion, just to show-off our pride a bit:All you need for steering your investment process in one place:Powerful Asset Allocation AlgorithmsLightning fast Backtesting & OptimizationHighly flexible data exchange with other programsHedging with different instrumentsInvestment History and Log Get access to all current and future Logical Invest StrategiesNo strings attached – nothing to hide! Adjust and modify all our strategies to your needs:Optimize to your own preferencesReplace assets with those from your 401k or IRA accountAdd hedging through inverse ETF, Bonds, Currencies, Commodities Develop your own custom strategies on the flyWhether you love simplicity or look for sophistication. We got you covered when building your own investment solution!Select your own assets in the custom asset allocationPick from different ranking and optimization algorithmsAdd volatility [...]
In our recent post we´ve shared some powerful options to design a well-balanced portfolio of several Logical Invest strategies to achieve a preset portfolio objective using Modern portfolio theory (MPT) techniques developed by Nobel Prize laureate Harry Markowitz. Here, we review the steps to achieving an optimized portfolio with our tools and summarize some portfolio options to illustrate use of our updated tool set:(picture for mobile use)These options might serve as a starting point to design your own portfolio according to your return and risk preferences, fundamental beliefs or asset class preferences.How do I start easily designing my portfolio?You can design a portfolio to meet your objectives in three simple steps that will not take you more than 30 minutes initially, and about 15 minutes monthly for rebalancing: Design and Execute your Custom Portfolio Starting with our Online Custom Portfolio Builder, you can simply select a preset portfolio objective. The tool will report back the allocation across our strategies that achieves that objective based on our quantitative models, and on portfolio optimization procedures that analyze the last 2105 trading days. Additionally, the user can select the “Custom Portfolio” tab, enter any strategy allocation weights he wishes and similarly calculate the performance of his custom allocation. Combined with our “Consolidated Signals” tool which we will introduce in a minute, the results from Portfolio Builder will point the user to the allocation across ETFs and/or stocks that have the best prospect to meet his objective.A Practical Example:Here is a practical example: Let´s assume I think a historical portfolio volatility of around 15% in the period 2008-2016 is acceptable to me I would simply choose the “Max15% Volatility” (and Max CAGR) portfolio from the preconfigured portfolio list. Strategy allocation weights are immediately shown in the performance table and the portfolio risk/return performance is graphed in comparison to that [...]
It has been now 18 months since our post on “The power of diversification: Portfolios of Logical Invest Strategies”. Back then our main argument for diversification using a robust portfolio of several of our strategies was that “diversification is ‘a rare free lunch’, it is well accepted part of modern financial portfolios, and to stay financially healthy it is important not to skip lunch”.Several new strategies have been published since then, among them the “NASDAQ 100” strategy, the “Gold-Currency” strategy and our “Hell on Fire”, the 3x leveraged Universal Investment strategy. At the same time, we went through the bumpy start into 2016 and most recently the waves created by the BREXIT referendum.Does our stated hypothesis of formerly presented portfolios still hold true? How have the individual components performed, and most importantly, have they added value through low correlation? Have new optimum portfolios emerged since then?
Frank Grossmann and Alexander Horn will be attending the 2015 American Association of Individual Investors conference (AAII conference) in Las Vegas and they would love to meet you there. Our workshop is on Monday, November 9 and will have the following topics: With hundreds of ETFs available, how can the individual investor successfully manage a portfolio? Logical Invest has developed algorithms that create alpha and reduce market exposure with simple, well-researched monthly ETF rotation strategies. These strategies protect your account with crash protection via U.S.Treasuries and harvest a “fear premium” from inverse volatility. These rotation strategies can be brought together with adaptive allocation in a custom-made portfolio right for each investor. You Will Learn: - The key elements—and most common traps—of constructing your self-managed portfolio - How to build in a well-balanced crash protection mechanism into your strategies Learn more about the American Association of Individual Investors conference: With over 25 speakers and 30 investor workshops, the AAII Investor Conference provides the ideas, tools and information necessary to succeed in today’s investment marketplace! ATTENDEES WILL LEARN HOW TO: Pick Winning Stocks... Develop Successful Asset Allocation Strategies... Gain Income Investing Ideas... Become an Educated Computerized Investor... Learn Portfolio Protection... Select Mutual Funds... And much more... TO WHET YOUR APPETITE, HERE IS AN EXAMPLE OF THE TOPICS WE WILL BE COVERING AT THE CONFERENCE: New income investing approaches for a low-yield environment Winning stock selection methods Ways to make your retirement nest egg last longer How to build an asset allocation designed to meet your needs Valuable insights into the economy and coming economic cycles Plus insightful ways to select and invest in today’s best mutual funds and ETFs Financial planning, portfolio management, small-cap opportunities and much more… LIVELY AND INTERACTIVE EXHIBIT [...]
Summary: -Aggressive leveraged version of our previously published Universal Investment Strategy -Variable SPY-TLT allocations dynamically adapted to the market conditions. -45% annual return with a Sharpe Ratio of 1.3 since 2002.Due to its simplicity and low correlation to the S&P 500, there is a continued interest in the UIS version that uses 3x leveraged ETFs: ETF SPXL (Direxion Daily S&P 500 Bull 3X Shares ETF) and TMF (Direxion Daily 30-Year Treasury Bull 3x Shares ETF). Following the suggested nomenclature by Al from AAII SV - and to honor their interest, we call this version “Hell on fire”, which alludes to the high risk/return profile of the strategy. We will show ways to blend this strategy in a well-balanced and risk-optimized portfolio as to overcome the generally negative perception of private investors towards leveraged ETF.