Backtest

Home » Blog » Backtest

‘Hell on Fire’: The 3x leveraged Universal Investment Strategy

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.

2017-10-02T20:00:00+00:00 By |27 Comments

The NASDAQ 100 Meta-Strategy – Stock Selection and Compact Meta-Strategy

Intelligent Algorithms run two prallel sub-strategies. Meta- layer chooses between the two sub-strategies based on current market conditions. Variable allocation to Treasuries provides protection from large drawdowns.This strategy is a good fit for investors that want to invest intelligently in the U.S. equity market as well as for stock-pickers looking for a rules-based growth strategy. The strategy can also complement our existing strategies and can work well with our more conservative strategies like BRS (bond rotation), the BUG or with non-U.S. equity strategies like World Top 4.

2017-10-02T20:00:00+00:00 By |14 Comments

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 [...]

2017-10-02T20:00:00+00:00 By |2 Comments

QuantTrader portfolio trading software – Backtest and run trading strategies right on your desktop

Logical Invest's QuantTrader Software A QuantTrader subscription is our state-of-the-art solution for professional investors. You can run our QuantTrader software right on your PC. Logical Invest QuantTrader QuantTrader is C++ based proprietary software used to calculate and backtest the Logical Invest investment strategies. All Logical-Invest strategies are included. The user has the ability to tweak the parameters of the strategies to their needs. They can perform full backtests of a strategy for as far back as data is available. They can instantly generate updated trading signals (rebalancing instructions) on any day of the month. Logical Invest QuantTrader detail 1 For  larger multi-strategy accounts, a professional trader can use QT to create dynamic "META-strategies" that pick and allocate across existing Logical-Invest strategies. These 'META-strategies' can be tweaked to desired risk levels. They can be backtested as well as run in 'real-time' to create  both strategy level and ETF level re-balancing instructions.  Logical Invest QuantTrader Meta Strategy Access to QuantTrader gives professional investors several advantages over the monthly Logical Invest strategy emails: QuantTrader Highlights: Daily automatic download of the ETF/Stock closing prices Daily updated strategy performance visible. The software shows performance charts and detailed statistical information Performance logs and ranking logs can be exported in excel format. Like this it can be included easily in reports. Every day the optimum allocation is indicated. This allows strategy rebalancing whenever you want. This way, you can for example rebalance before the official end of month rebalancing. It is very simple to change strategy parameters. This way an investor can fine-tune its risk return profile. It is for example simple to limit volatility of a strategy to a certain level (for example 5%) All Logical-Invest strategies and many more strategies are included in the license. New strategies can be easily built and tested. You [...]

2017-10-02T20:00:00+00:00 By |1 Comment

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 [...]

2017-10-02T20:00:00+00:00 By |2 Comments

The Logical-Invest monthly newsletter for September 2016

Special topic this month: Passive Investments Logical Invest Investment Outlook September 2016 Our top year-to-date strategies: The Leveraged Universal strategy with 39.09% return. The Maximum Yield strategy with 34.04% return.  The World Top 4 with 20.51% return. SPY, the S&P500 ETF, returned 7.73%, year-to-date. New tools: The Online Custom Portfolio Builder The Consolidated Signals tool. Market comment: The summer market showed strength compared to its seasonal bias. The old saying "Sell in May and go away" did not hold up this year as SPY rose 5% and emerging markets jumped 8% during the summer. We are now moving into the fall season with the SPY near all time highs and the VIX index at very low levels. September and October have, historically, been good entry points for equity investors that led them to bullish end-of-year returns. This coupled with the election cycle are all market positive factors. Whether a correction materializes in the next two months is anyone's guess. Our strategies are partially hedged with treasuries and should be able to handle such a correction better than buy and hold. In regards to strategy performance, not much changed during August. Our top two strategies remained flat, holding on to their exceptional YTD returns of 34% for MYRS and 39% for 3x UIS. Our average return of all our strategies is at 16.7%. August's winner was the Bond Rotation strategy, adding 2%, reaching a very respectable 12% for the year. Interestingly TLT lost 1%, another example on how our BRS bond strategy is not always correlated to the long term Treasury ETF. Last month's BRS positions in emerging market credit (PCY) and U.S. high-yield (JNK) did pay off.  The worst performer was our Global Sector Rotation, loosing 3% for the month. For September we favour our BUG strategy, the World Top 4, the Gold-USD and our stable Universal Investment Strategy. All=Strategy subscribers can read about our new tools can help allocate across strategies. We wish you a healthy and profitable September. Logical Invest, August 31, 2016 Strategy [...]

2017-10-02T20:00:00+00:00 By |11 Comments

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 [...]

2017-10-02T20:00:00+00:00 By |14 Comments

The Logical-Invest monthly newsletter for October 2016

Special topic: Passive Investment Logical Invest Investment Outlook October 2016 Our top year-to-date strategies: The Leveraged Universal strategy with 36.47% return. The Maximum Yield strategy with 36.37% return.  The World Top 4 with 19.82% return. SPY, the S&P500 ETF, returned 7.74%, year-to-date. News: Introducing Richard´s Corner, a new Logical Invest User Community, moderated by Richard Manley. Richard is  a long time user and critical commenter of our services. Subjects range from making the best of your 401K , using Fidelity or Vanguard funds to using our various tools, including our new QUANTtrader software. Coming soon in QUANTtrader: Reduced pricing for non-professionals as well as AUM based pricing for smaller RIA's and managers. Market comment: Following a quiet summer, volatility has increased this past month. It was first introduced in the bond market as participants became concerned about an upcoming rate hike as well as the effectiveness of central bank policy. This was reflected in a sudden 4% drop in the 20-year Treasury ETF (TLT ) during the first few days of September. The SP500 (SPY) also had it's first 3% sharp correction since July. Both these ETFs have since recovered but uncertainty has remained due to upcoming U.S. elections, world politics as well as the deterioration of Europe's most prestigious bank. Most of our strategies remained flat for the month although some experienced a correction during the first week. The Nasdaq100 was the best performer with a 3.39% return followed by GMRS at 2.52%. Our worst performer was the aggressive 3x UIS losing 1.88% for the month. We wish you a healthy and profitable October in your Passive Investment. Logical Invest, October 1, 2016 Strategy performance overview (Visit our site for daily updated performance tables.) [/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container] Logical Invest performance October 2016 Passive Investment Special topic Passive Investment Read how to apply our development backtest software QuantTrader as a DIY investor or passive investment advisor to create your own Passive Investment in just a couple of minutes. Contact [...]

2017-10-02T20:00:00+00:00 By |9 Comments

Strategies For Trading Inverse Volatility

Update: You can see the most recent performance our our inverse volatility strategy here. Consult vixcentral for the daily VIC term curve. In this paper, I present five different strategies you can use to trade inverse volatility. Why trade inverse volatility you ask? Because since 2011, trading inverse volatility was probably the most rewarding investment an investor could make in the markets. Annual returns of between 40% - 100% have been possible which crushes any other strategy I know. Smartly Trading inverse volatility In modern markets, the best way to protect capital would be to rotate out of falling assets, like we do in our rotation strategies. This is relatively easy, if you are invested only in a few ETFs, but it is much more difficult, if you are invested in a lot of different shares. In such a situation an easy way to protect capital is to hedge it, going long VIX Futures, VIX call options or VIX ETFs VXX. If you trade inverse volatility, which means going short VIX, you play the role of an insurer who sells worried investors an insurance policy to protect them from falling stock markets. To hedge a portfolio by 100% an investor needs to buy VXX ETFs for about 20% of the portfolio value. The VXX ETF loses up to 10% of it's value per month, because of the VIX Futures contango, so this means that scared investors are willing to pay 1.5-2% of the portfolio value per month or around 25% per year for this insurance. Investing in inverse volatility means nothing more, than taking over the risk and collecting this insurance premium from worried investors and you can capitalize on this with a few simple strategies, which I will show you below. Something seems afoot. Why do investors pay 25% per year [...]

2017-10-02T20:00:00+00:00 By |50 Comments

The Logical-Invest monthly newsletter for November 2016

Special Topic: IRA Investments using QuantTrader, our Backtest Software Logical Invest Investment Outlook November 2016 Our top year-to-date strategies: The Maximum Yield strategy with 32.61% return. The Leveraged Universal strategy with 21.42% return.   The World Top 4 with 17.66% return. SPY, the S&P500 ETF, returned 5.87%, year-to-date. Market comment: Recent surveys show that fund managers have increased cash positions1 while outflows from equity funds are at historically high levels2. From a contrarian point of view this could be considered market positive. There are two bullish seasonal biases kicking in: The presidential year is nearing an end and we are walking into the traditional strongest months of the year. The beginning of the month may be volatile as markets react to elction results. It remains to be seen how and if these results will affect the rest of the year. All our strategies corrected during October. Our hedged Gold strategy was almost flat at +0.17% while our aggressive 3x UIS suffered a -11.02% correction. The World Top 4 lost -1.80% while most other strategies lost anywhere from -2 to -4%. This was partly due to a sudden correction in Treasuries, causing  TLT to lose almost 5% for the month.  SPY was down -1.73% and GLD -2.74%. This type of rise in cross-asset correlation was seen in 2015. In the graph below you can see how TLT an GLD correlations to SPY turned positive in October. Correlations of TLT and GLD become positive end of October. We have found this type fo behaviour to correlate to a strengthening dollar. UUP the ETF that tracks the dollar index is up 3% for the month, a fairly large move, causing the index to approach towards it's 2015 highs. We are taking this into consideration even though the environment is quite different this year. While commodities and foreign markets were crashed by the 2015 dollar move, selected markets are showing tremendous strength, namely coal (KOL:+69% [...]

2017-10-02T20:00:00+00:00 By |4 Comments