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 [...]
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 [...]
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 investors, In general 2014 was quite a difficult year for investors, so we want to summarize and comment our strategy performance. Apart of the US market, all global markets finished the year with negative performances. SPY 13.46% (S&P 500 US market) FEZ -9.75% (Euro Stoxx 50) EEM -3.89% (MSCI Emerging Markets) EPP -1.92% (MSCI Pacific ex-Japan) ILF -12,29% (S&P Latin America) AGG 5.99% (Core Total US Bond (5-6yr)) Our Strategy Performance See here for a most recent Strategy Performance overview. However, most of the negative performance of these foreign market ETFs is due to the strong US$. The Euro lost 12% on the US$ and the US$ index UUP is 10% higher. In fact, the USD/EUR hedged DBEU (MSCI Europe) ETF had a +4% performance, which is nearly 15% better than the USD denominated FEZ. It is very difficult to forecast the influence of exchange rates on our strategies. All this is driven by the Yellen and Draghi, but longer term, a strong US$ will make European and Asian markets more competitive. So, we will probably see a rotation away from the US market to some foreign markets at some point. In spite of the global weakness and currency dislocations, the rotation strategy performance came through flat to up nicely for the year, and all had a strong year with hedging. We had 5 intermediate short market corrections, which typically had a 2 week pullback of up to 10% and then a very fast recovery. This sort of whipsaw market is not ideal for our rotation strategies. At least for the old style of rotation strategies which always switched 100% between stock market ETFs and treasuries. 2014 was also a very strong year for treasuries, which again proved all analyst forecasts wrong. The 20% treasury hedge which I promoted since February 2014 had a very positive [...]
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.
Logical Invest Investment Outlook March 2016 Market comment: February was another high volatility month, however it now looks like the world markets are slowly recovering. Here is a Year-to-Date chart of the world markets together with the defensive TLT (long duration Treasury) and GLD (Gold) ETFs. Last year, the normal inverse correlation of both TLT and GLD to equities failed to materialize for quite a long time. We had several months where Equities, Treasuries and Gold went down simultaneously. This was a very unusual and difficult situation for our strategies. This uncommon situation, where correlations between safe heaven assets (Treasuries and Gold) and Equity did not work as expected was due to the rare occurence when the FED tries to change to a regime of rising rates after years of falling rates. By now, it seems that this transition may not materialize in the near future, at least not as originally planned. This is very good for both Treasuries and Gold. Looking at the market from this correlations-based point of view it seems that so far this year everything is back to normal again. The stock market went down and the defensive treasuries and Gold went up. This is all we want. It allows our strategies to profit and outperform even during market corrections. Year-to-Date, most Logical Invest strategies are doing quite well. Only the most aggressive equity momentum strategies are still slightly negative, but this can change very fast if the market recovers. The new Gold strategy did very well this year and we think that such a strategy provides excellent diversification because it profits from the worldwide trend of central banks to fight deflation by printing more and more money. Every country tries to weaken their currency more than the others, and the winner of this will be precious metals, because these cannot be artificially duplicated. So, all together we [...]
For the first time in 2016 every single strategy we offer shows positive results.The average return of our strategies is 8.5%, compared to 2.7% for the SPY.Ten of eleven them are outperforming the S&P500 etf (SPY). Returns range from from a low 1.9% for GMR to a high 23% for our leveraged Universal Strategy. Some interesting observations:The Nasdaq 100 strategy has performed exceptionally well since it's introduction. In the chart you can compare back-tested results to 'live trading' results from the time the strategy was offered to subscribers.The Bug Leveraged strategy is running at almost 200% leverage and is recovering fast, returning 7% for the year and almost ready to break into new highs after a difficult 2015.The Universal Investment Strategy has proven to be a stable core portfolio choice by cutting down risk and returning a solid performance as the equity line reaches a new multi-year high for 2016. The NASDAQ 100 Strategy Universal Investment Strategy The Bug Leveraged Strategy Here are the detailed performances as of 6/16/2016:symbolyear to date % ▴3 month %1 month %1 day %60 day volatility60 day correlation3 month Sharpe12 month Sharpe36 month SharpeLastModified: 6/16/2016UIS-SPXL-TMF23.4713.365.400.3714.230.4220.127.116.11MYRS19.427.072.951.0116.870.512.840.491.42TLT13.756.534.550.3810.25-0.504.331.911.03WORLD-TOP410.407.924.411.4915.070.183.530.012.33GOLD-USD9.23-0.442.13-0.028.60-0.31-0.301.311.55UIS7.824.661.780.134.920.415.920.692.24BUGLEV7.266.043.930.367.630.065.260.621.57NASDAQ 1007.128.13-0.75-0.5212.200.644.531.822.89GSRLV6.974.082.360.196.770.113.780.581.51BRS6.461.96-0.24-0.135.330.362.241.041.95AGG4.542.318.104.22.168-0.285.742.461.44BUGST3.243.662.490.165.85-0.143.98-0.151.36SPY2.432.70-1.00-0.149.651.001.770.081.19GMRS1.911.692.250.389.580.471.06-1.110.26
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 [...]