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Volatilidad: Como construir una inversión con un rendimiento de más del 50%?

En este artículo quiero explicar cómo funciona nuestra Estrategia de Rotación de Máximo Rendimiento "Maximum Yield Rotation Strategy". Esta estrategia logra muy altos retornos por invertir en fondos de volatilidad inversa. Desde 2011 hasta hoy el rendimiento anual fue de más del 55% por año. Durante el año presente el rendimiento acumulado es del 27%. El ratio de Sharpe (una estimación del retorno por unidad de  riesgo) de 2,1 es un "valor sueño" y dudo que alguien puede mostrar una estrategia con una mayor proporción.La estrategia invierte en 4 ETF diferentes: Mercado de acciones de Estados Unidos Bonos del Tesoro Volatilidad Inversa Equivalente a Efectivo

2017-03-13T18:57:08+00:00 By |0 Comments

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 [...]

2017-02-20T12:45:22+00:00 By |0 Comments

Market DrawDown: TMV ETF hedging and timing

The TMV ETF should stay in place for quite some long time, and it´s a great investment to harvest time decay and avoid drawdown. The big tapering drawdowns of 2013 are past history. You don't need to look daily at the TMV short hedge. Just keep it. The ETF TMV is a loser and if you stay short it will be a long term winner. It should return about 10-15% per year. How to minimize a market drawdown using the TMV ETF Here is a long term chart of the TMV ETF. As you see, it lost 80% of it's value in the last 4 years. So being long TMV is one of the best way to destroy money - and this is why we short it. This to benefit from the time decay, but also to avoid market drawdown in times of market corrections. Here is a 12 month comparison with EDV and TMF. While all treasuries had quite big losses of about -7% in 2013, a short TMV position was flat over the year. EDV -7.2% TMF -18.2% (divide by 2 because TMF=+2x EDV) -9.1% TMV 0.6% (divide by -2 because TMV=-2x EDV) = -0.3% Since 2009 the average return of the ETF TMV short is nearly 20%. With normal ETFs you only profit from Treasury yield (dividends). From this you have to substract mangagement fee and time decay of leveraged ETFs like TMF. With the TMV ETF you profit from Treasury yield (dividends) and because you are short TMV you profit also from mangagement fee and time decay. You can use this technique in several of our strategies. Instead of going long the TMF ETF you just short the same number of shares in TMV. Or instead of TLT just short 1/3 of the shares TMV, [...]

2017-04-26T04:37:09+00:00 By |0 Comments

Inversion en ETF Estrategia de rotación de mercados mundiales: 36.7% anual desde 2003

La siguiente estrategia es una de nuestros favoritos, que muchos de nuestros amigos, clientes y nosotros mismos hemos utilizado ya por algunos años. La Estrategia de Rotación de Mercados Globales (“Global Market Rotation Strategy”, GMR) La Estrategia GMR rota mensualmente entre 6 ETF diferentes. El rendimiento histórico calculado de esta estrategia desde 2003 es bastante impresionante. Rendimiento anual (CAGR) = 36.7% (S&P 500 = 8,4%) Rendimiento total a partir de 2003 = 3924% (S&P 500 = 134%) 69% de las operaciones mensuales tienen una rentabilidad positivaLos mercados globales utilizados y ETF correspondientes son: Estados Unidos Europa Mercados emergentes América Latina Región del Pacífico

2017-02-20T12:45:24+00:00 By |0 Comments

Backtest: New adaptive Global Market Rotation backtester

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 [...]

2017-04-26T04:11:43+00:00 By |8 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 [...]

2017-03-14T22:11:11+00:00 By |14 Comments

New Maximum Yield Rotation Strategy backtest charts

Here are two backtests charts of the new MYRS strategy with adaptive allocation, now also suitable for your retirement account. The annual return of the old and the new strategy is more or less the same. During low volatility markets, the return of the new strategy is probably slightly lower, however during difficult volatile years like 2014, the return of the new strategy is significantly higher and the drawdowns and the risk is reduced nearly by a factor of 2x. The slightly lower return is due to the fact that some time a part of your capital is invested in the Treasury hedge to reduce risk. An option for your retirement account? The overall risk/return (Sharpe) ratio is about 2x higher than the one of the old strategy, so there is no question, that the new strategy is significantly better and maight be a suitable option for your retirement account. See the updated performance charts also here.   If you are new to our site, here a summary of our strategy: "The Maximum Yield Rotation Strategy is our top performing investment strategie. The Strategy invests on a semi-monthly basis in two US asset classes or cash. These US asset classes are: U.S. Treasury Bonds – (EDV Vanguard Extended Duration Tsy 25+yr) Volatility – (ZIV VelocityShares Inverse VIX Medium-Term) cash – (SHY Barclays Low Duration Treasury) Treasury bonds and inverse Volatility ETFs have significant negative correlation to each other. This means, that whatever the market sentiment is, there is always one assets performing well. The strategy is a good way to profit from VIX contango without risking heavy losses during a volatility spike. The incredibily high return of this strategy does not mean that this strategy is very risky.  The strategy minimizes the risk of losses during financial crisis by switching early into Treasurys or even switching [...]

2017-03-14T22:11:11+00:00 By |10 Comments

A new enhanced Global Market Rotation Strategy with adaptive ETF investment allocation

Update: See the current performance of this ETF investment strategy here. A new enhanced Global Market Rotation Strategy with adaptive ETF investment allocation The GMR strategy performed well during the last 10 years. Especially during years with a strong trend in one of the 5 world markets, this strategy was able to switch early to the best ETF and stay invested until another market ETF took the lead. A known problem for such monthly rotation strategies have been years like 2014 with no clear trend in the markets. During 2014, conflicts like Syria or Ukraine or the fear that the US market may have culminated and is ready for a correction, made investors switch several times in “risk off” mode which favors safe haven assets like our long term EDV or TLT Treasury. The bad thing was, that shortly after they switched back to “risk on” mode favoring our stock market ETFs. Such a whipsaw market is bad for “switching” rotation strategies and as a result, our GMRS strategy shows a negative return for 2014. The strategy had two big monthly losses, both with foreign market ETF investment and both times because of a soaring dollar after a FED statement. In fact most of the times a full switch from a stock market ETF investment to a treasury ETF is not the best strategy. Better is to keep both stock market and Treasury ETF investment and change the allocation gradually. In January I proposed to invest 20% in a short TMV Treasury hedge which is about equal to a nearly 50% TLT hedge. This was a first approach to tell you that in such years it is better to invest in both, stock market and Treasury ETF investment. This hedge has performed extremely well in 2014. TMV is 46% up and [...]

2017-03-14T22:11:11+00:00 By |0 Comments

Shorting Volatility: Comparison of ZIV replacements in MYRS

Here is a comparison of different ZIV replacement ETFs in the MYRS strategy, shorting volatility. Going long ZIV is the most simple way to execute the strategy. ZIV is in fact an inverse ETF, so even if ZIV does not have leverage, ZIV needs to be rebalanced daily. Rebalanced ETFs in general have losses. These losses become bigger with higher volatility.  Shorting Volatility the smart way On the chart below you can see the quite poor ZIV performance during the last 197 days. The effect is not so bad in the strategy, because during high volatile periods like now, you are only partly invested. So, the total rebalancing loss you will suffer during one year is probably only about 3% on the whole strategy. But nevertheless if you can short VXZ, then you should do it. The effect of a short position is the same. The difference of 3% between ZIV and VXZ shortingvolatility may not seem big at the first view, but such small differences can sum up and at the end of the year, this may be worth quite a nice christmas present. However if all this sounds much too complicated for you, then just go with the default strategy using ZIV. A way to use TVIZ would be, to always invest about the same amount in TVIZ and only change the EDV hedge, so that the final allocation is respected. A profit of 19% (after borrowing cost) only with rebalancing losses in less than a year is not bad at all. By the way, the poor performance of ZIV is due to a 65% higher volatility (VIX level) during these 197 days. So in fact ZIV did even a good job to achieve a zero performance. Once volatility goes back to normal levels, ZIV will profit a lot - the reason why [...]

2017-02-19T21:21:09+00:00 By |14 Comments

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 [...]

2017-04-28T16:13:00+00:00 By |2 Comments