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 [...]
From the next strategy email on, the Bond Rotation Strategy will also use adaptive ETF allocation, to make is more suitable as IRA or 401k Investment Strategy. This new technique allows a 30% higher Sharpe (return to risk) ratio. Together with this change we have also changed the ETF selection from the old: AGG - iShares Core Total US Bond (4-5yr) BOND - PIMCO Total Return ETF CWB - SPDR Barclays Convertible Bond HYLD - AdvisorShs Peritus High-Yield Bond (3-4yr) SHY - Barclays Low Duration Treasury (2-yr) TLH - iShares Barclays 401k 10-Year Treasury (9-11yr) Ro the new ETF selection: CWB - SPDR Barclays Convertible Bond JNK: SPDR Barcap High-Yield Junk Bond (4-7yr) PCY: PowerShares Emerging Mkts Bond (7-9yr) TLT: iShares Barclays 401k Long-Term Trsry (15-18yr) The new BRS strategy does not need the total US market bonds AGG and BOND anymore. In fact for the old strategy, these bonds have been used to simulate an intermediate mix between treasuries and corporate bonds. The new BRS strategy can now invest in any mix of these bonds due to the adaptive allocation. Also the SHY (cash) ETF is not necessary anymore, because the allocations will be automatically reduced to zero if this would be necessary. Excellent features as an IRA or 401k Investment Strategy We also go back to the passively managed JNK high yield junk bond after the actively managed HYLD junk bond was showing an extremely bad performance these last months. So better don't have any fund manager interfering with the strategies in the future. New is the emerging market sovereign debt bond PCY which gives the strategy some international diversification. TLH has been replaced by the more liquid TLT treasury ETF. All together, the strategy becomes simpler, with less ETFs, but with a significantly better performance. We recently were approached by a subscriber [...]
An analysis of Harry Browne´s Permanent Portfolio and further enhancements towards: A Permanent Portfolio ETF Rotation Strategy employing Momentum, Mean Reversion, and Volatility Targeting. It’s not just cars. It’s investment strategies like the permanent portfolio, too. Vintage "all-weather" investment strategies are often simple, easy to execute and give amble 'out-of-sample' data. In other words one can see how they performed in life years after they have been proposed. And like the VW bug, they are "safe" choices. Tried and true. Can you imagine a 1965 VW running in the Autobahn? Although the essence counts for a lot, for the car to survive at today's highway speeds the tech needs to be up to date. So let’s take my favourite oldie and bring it up to speed: Harry Browne’s Permanent Portfolio. The Permanent Portfolio by Harry Browne From Investopedia: … Browne believed that the four asset classes would thrive in one of the four possible macroeconomic scenarios that exist. Stocks would thrive during periods of economic prosperity. Bonds would do well in deflation and acceptably well during periods of prosperity. Gold during periods of high inflation would rapidly increase in value as the only true defence against a deteriorating currency. Cash would act as a buffer against losses during a routine recession or tight-money episode, and would act well in deflationary times. So let’s see how the original permanent portfolio Harry Browne first published has performed. The original rules of the All Weather Portfolio: 25% in a stock market Index ( S&P 500) 25% in Treasuries 25% in Gold. 25% in Cash or similar Not bad. Annual return is 7.1% and maximum draw-down comes in at 17.84% since 1992. For a far more detailed analysis of the so-called fail-save investment or permanent portfolio or "PP" you can see Gestaltu's excellent "PP Shakedown" [...]
In a previous post we introduced our new investment strategy, the BUG. There has been a lot of interest but also some concerns when it comes to using leverage. We are introducing a version of the BUG for non-leveraged accounts.In this version we allocate amongst 6 ETFs: SPY, TLT, GLS, CWB, TIP and PCY. Again as in the original strategy we use these heuristics: Timing (using a simple average rule), Volatility Targeting (we reduce exposure to more volatile ETFs), Momentum (we reduce the size of the worst performer and add to the rest). We don’t employ short term mean reversion and we only trade up to 4 assets.
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 [...]
Logical Invest Investment Outlook April 2016 ETF strategies
Logical Invest Investment Outlook April 2016 ETF strategies
The markets have been choppy, investment performance generally also. It is rough out there . . . currency wars and central bank interventions continue, while global growth is questioned. Investment Performance We are proud to work hard to help investors win the battle. Our strategies continue to outperform with lower risk. YTD through Jan 22, an equal weight blend of all of our strategies performance is up +3.6%. Thanks for your support! Here our Investment Performance Read more about what our best performing strategy, the Bond Rotation Strategy does: 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. 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. 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 even with a solid gain of 10% compared to a loss of -36.8% for a S&P500 investment. The reward to risk ratio (Sharpe Ratio) of this Strategy is 1.58 compared to 0.27 for a S&P500 investment. Since 2008 you made 3x more money with this strategy compared to an average S&P500 investment and this with much less risk.
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: https://logical-invest.com/strategy/bond-rotation-sleep-well/), 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 (http://seekingalpha.com/article/2714185-the-spy-tlt-universal-investment-strategy). 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 [...]