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The Logical-Invest monthly newsletter for June 2015

This is the monthly monthly Logical-Invest newsletter for June 2015. From now on this newsletter will replace the individual comments for the single strategies. The newsletter includes a strategy performance overview which can help you to switch between strategies. The same table is available if you login to your logical invest account at "My Account" and select the strategy performance menu. The table on the website is a dynamic table and will be updated every day. This way you can easily compare the performance of the different strategies. There are times when a subset of strategies may lag, like this is the case at the moment for all strategies which invest in bonds. Using the dynamic table you can click on the column headers and sort the table by any of the columns. If you sort for example by 3 month Sharpe, then you see which strategy performs best in the current rising rates sideways market environment. If you sort by 12 or 36 month Sharpe, then you see which strategy performs best over a period which includes also some market corrections. The table also includes the most important benchmarks SPY, TLT and AGG. Here is now a static copy of the table sorted by year to date performance.  Strategy performance overview: symbol close year to date % ▴ 3 month % 1 month % 1 day % 60 day volatility 60 day correlation 3 month Sharpe 12 month Sharpe 36 month Sharpe LastModified: 5/29/2015 UIS-SPXL-TMF 6151.80 11.42 -2.39 1.15 -1.50 26.65 0.79 -0.48 3.40 3.22 MYRS 626.86 7.04 2.37 3.55 -0.03 16.39 0.62 0.91 2.21 3.04 WORLD-TOP4 283.91 6.53 -1.07 -1.40 -0.83 13.76 0.67 -0.44 3.13 3.21 GMRS 4408.85 5.63 -0.26 1.13 -0.58 10.24 0.75 -0.15 0.47 1.59 GSRLV 499.13 4.56 -1.38 0.10 -0.54 9.78 0.64 -0.77 2.35 2.33 UIS 476.65 3.90 -0.30 [...]

2017-03-14T22:06:05+00:00 By |0 Comments

The new enhanced Bond Rotation Strategy with adaptive allocation

On November 2013 I published the first SA article on the Bond Rotation Strategy (BRS) as excelent diversifier for a 401k Investment Portfolio. Now, 15 months later, I am presenting an important update for this strategy with adaptive allocation. Even though the old strategy has done well (see charts here:, I think it is very important to constantly validate and improve any investment strategy. Markets change, ETFs change even we ourselves grow and learn. Especially as I´ve been approached by US Investors asking whether this was a suitable strategy for 401k Investment Portfolio. I am also glad to say that I am still improving my knowledge and striving to pass that knowledge as to grow the returns and limit the risk of my own investments. Approach of Universal Investment Strategy, better suited as 401k Investment Portfolio In November 2014 I presented the Universal Investment Strategy which was based on a variable allocation of the SPY-TLT ETFs ( This new concept of an ETF rotation with variable allocation is very versatile and can be used on all types of strategies. For the BRS strategy, this new way to calculate allocations results in a considerably improved Sharpe (Return/Risk) ratio of the strategy. Here is the ETF selection for the BRS  Old ETF selection New ETF selection CWB - SPDR Barclays Convertible Bond CWB - SPDR Barclays Convertible Bond JNK - SPDR High-Yield Junk Bond (4-7yr) JNK - SPDR High-Yield Junk Bond (4-7yr) TLH - iShares 10-Year Treasury (9-11yr) TLT - iShares Long-Term Trsry (15-18yr) PCY - PowerShares Emerging Mkts Bond (7-9yr) AGG - iShares Core Total US Bond (4-5yr) not necessary anymore BOND - PIMCO Total Return ETF not necessary anymore SHY - Barclays Low Duration Treasury (2-yr) not necessary anymore. The total allocation can go automatically below 100% An advantage of [...]

2017-04-28T16:21:44+00:00 By |5 Comments

The SPY-TLT Universal Investment Strategy (UIS)

Introduction to the SPY-TLT Universal Investment Strategy (UIS) This paper discusses the simple but effective method of using adaptive allocations between stock market ETFs and Treasuries to assemble a simple yet smart Investment Strategy. This method has been developed to replace the 100% switching used in normal rotation strategies like the Maximum Yield Rotation and the Global Market Rotation strategies. The real world is just not a 100% “risk on” or “risk off” world. Most of the time, the best allocation is somewhere in between. The new method employed in this investment strategy can be adapted for nearly all types of rotation strategies and is significantly increasing the return to risk (Sharpe) ratio of such strategies. The SPY-TLT Universal Investment Strategy is very simple but also very effective. I am sure, such a simple investment strategy will nearly always perform better than any manual asset picking. The Universal Investment Strategy Probably the most basic rotation investment strategy, is the switching strategy between the S&P 500 US stock market (SPY) and long duration Treasuries (TLT). The SPY-TLT ETF pair is a very interesting investment strategy, because most of the time these two ETFs profit from an inverse correlation. If there is a real stock market correction, then Treasuries like TLT have always been the assets where money flows in, rewarding holders with nice profits. Now there are two possibilities to profit from this inverse correlation. The first is a switching strategy, which always switches to the ETF which had the best performance during the previous 3 months. This really simple switching strategy between TLT and SPY gave you a 14.8% return during the last 10 years, with twice the Sharpe ratio (return to risk) ratio of a simple SPY investment. Another strategy would be to invest 50% of your money in SPY [...]

2017-05-01T04:20:58+00:00 By |36 Comments

401k investment: Sleep Well Bond Rotation Strategy – Annual performance of 15%

You can employ this strategy perfectly in your 401k investment, because it outperforms the stock market by more than double and this with one third of the volatility or risk. This means that since 2008, the return to risk ratio is about six times higher than an investment in the SPY ETF which tracks the S&P 500. Even this year, when many investors are selling bonds due to increasing yields through FED tapering, the bond rotation strategy has delivered positive double digit returns. The Bond Rotation Strategy (BRS) - an ideal 401k investment The BRS Strategy invests in the top one or top two ETFs out of a selection of five bond ETFs which is then rebalanced on a monthly basis. The backtested returns of the strategy since 2008 is very impressive compared to a traditional "buy and hold" strategy, thus making it ideal for any 401k investment. The data below refers to the returns for holding the top two ETFs in the strategy. The figures in brackets show the returns for holding the top ETF only. The top two ETF strategy has a slightly better return to risk ratio than the top one ETF strategy. So, for larger amounts of 401 investment money (> 100'000$), I would advise investing in the top two ETFs rather than simply holding one. Annual performance (CAGR) = 15.7% (19%) compared to S&P500=5.4% Total performance since 2008 = 133% (175%) compared to S&P500=33.1% Volatility (annualized) = 6.75% (9.45%) compared to S&P500=24.7% Return to Risk Ratio (Sharpe Ratio) = 1.79 or 1.68 compared to S&P500=0.25 Alpha compared to AGG = 62% Strategy performance 2008-2013 Black - Top one Bond Rotation Strategy Blue - Top two Bond Rotation Strategy Green - AGG iShares Core Total US Bond (4-5yr) Red - SPY SPDR S&P 500 The Bond strategy ETFs [...]

2017-04-28T16:16:05+00:00 By |7 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 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 [...]

2017-04-28T16:11:29+00:00 By |2 Comments

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 [...]

2017-04-28T16:09:53+00:00 By |7 Comments