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Portfolio Builder Update January 2017

Happy new year –and let´s start it set-up for success with some Markowitz Modern Portfolio Theory! As previously announced, we´re updating our Portfolio Builder Optimization periodically, both in the Online and Offline Version. Updated Portfolio Builder Optimization for 2017 employing Markowitz Modern Portfolio Theory Why that? Recall the Portfolio Builder is using a Markowitz Modern Portfolio Theory approach, that is, we´re using past returns, volatilities and co-variances to determine an optimum fixed-weight allocation among our different strategies under certain rules: Either to Maximize the Sharpe Ratio (Risk/Return), target a volatility level one feels comfortable with, or to limit historical drawdown in the expectation this will also hold true for the future. Using Markowitz Modern Portfolio Theory While full-blood Markowitz aficionados will now probably feel the urgent need to stone us to death, yes, same to some other peers in the industry our approach is dynamic and we do not feel the past is set in .. hmm.. stone! As such, we need to update our Portfolio Builder Optimization periodically based on the most recent returns, volatilities and co-variances of and between our strategies. As the overall optimization is based on data from the past 8 years and we´re only adding the last quarter of data the changes are relatively small as you can see in the following. 2016 results of our 10 Portfolios for everybody But before going into the allocations for 2017, how was the performance of the 10 “pre-configured” Portfolio´s during 2016? Results using our Online Portfolio Builder are as follows: But overall with all Portfolios in the double-digit area, six of ten Portfolios topping 20% in returns and all but the minimum Volatility Portfolio exceeding the 12% return of the S&P 500, the conclusion of a partly bumpy year with many surprises is excellent. It pays out [...]

2017-10-02T20:00:00+00:00 By |6 Comments

One Approach to Rational Retirement Plan Investment Allocations

We analyse one of the Fidelity Freedom Target Date Funds (FFFDX) versus a portfolio of ETF rotation strategies - The findings will surprise you! This is a guest post by Richard Manley, first published on Richard´s Corner, the Logical Invest User Community: Defined contribution retirement plan using target date funds There’s no shortage of challenges facing working people in these days. In addition to job outsourcing and the offshoring whole operations, inflation/deflation and zero interest rates on savings, most workers who have a retirement plan have one that’s called a “defined contribution plan”, in the US in many cases it’s also called a 401K. In such a plan, a participant contributes before-tax funds, often matched to some degree by the employer, into an account that is intended to accrue and grow until retirement age when it can be distributed over one’s retirement lifetime. This kind of plan of course puts the responsibility and burden of making wise investment choices on the individual. Most working folks are not trained in finance or security selection or portfolio construction and are thus left to rely on their own uninformed devices or advice from financial gurus in the media or in newsletters or cable TV talking heads, or merely to reactionary emotions that attend to most of us during extreme financial events. The U.S Dept. of Labor’s new “Fiduciary Rule” will take effect in April, but what practical effect this may have on individual’s specific investment actions under defined contribution plans remains to be seen. As a retirement plan investor, I’ve experienced all these pitfalls and more while I’ve tried to save enough to comfortably retire someday. A coherent approach to managing my modest retirement assets was clearly lacking and as a result I found myself thrashing my account to respond to the [...]

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

The new reviewed Bond Rotation Strategy

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 [...]

2017-10-02T20:00:00+00:00 By |5 Comments

Top Performing ETFs Strategies – Portfolio Idea

In the follow up to our webinar about how to compose top performing ETFs strategies among the QuantTrader community last weekend, we received many interesting questions and ideas to follow up. One question in particular I´d like to share in a post, as it involves all our “All Strategies” subscribers.John L. asks: “Using a simple meta strategy by choosing the top two strategies from the previous month (from the monthly newsletter), and investing in them the next month (repeating that each month). I wonder if that can be backtested and compared to past 3 months or a static meta strategy. Perhaps comparing the top 2 each month strategy to the choosing the top 2 from the last 3 months. And comparing the top 2 each month or 3 months to a static strategy of the top 2 - 4 over the full backtest period or past 5 or 10 years.”So in other words, what´s the best way to pick from the Top Performing ETFs Strategies of the last months, and allocate equal amount of money among them? We publish the performance of all our strategies monthly in a handy ranking table, so it´s easy to pick each month the best performers of the last months, and repeat this throughout the year.The idea is appealing, as it is an enhancement from our Portfolio Builder Approach, where we apply modern portfolio theory to assemble a fixed weighting portfolio based on the historical performance and co-variance between the strategies. By modifying this to a momentum style “strategy picking” of top performing ETFs strategies we react to changes in the market and therefore overcome one of the critiques MPT receives frequently.Top Performing ETFs Strategies in one PortfolioI modelled this quickly in QuantTrader, following the “Strategy of Strategies” approach we introduced in QuantTrader in the last [...]

2017-10-02T20:00:00+00:00 By |3 Comments

Logical Invest Strategy Performance for 2014

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 [...]

2017-10-02T20:00:00+00:00 By |7 Comments

The power of diversification: Portfolio Diversification with Logical Invest Strategies

Diversification is a cornerstone to successful investing. In simple form, when measurably diverse assets are combined in a portfolio, the investors portfolio risks are reduced without any sacrifice of returns. This is a rare “free lunch”, it is well accepted part of modern financial portfolios, and to stay financially healthy it is important not to skip lunch. When one asset is going down while the other is going up, the portfolios risk is reduced without the normal penalty of risk/return trade-offs. We take advantage of that when our systems dynamically blend things like the S&P 500 and treasury bonds, which often exhibit negative correlation to each other (which is ideal).Applying Portfolio Diversification to Strategies: Our subscribers can take this take a step further. Our investing algorithms take on a blend of the properties of their underlying assets combined with the “alpha” edges from the investing rules. The returns of each investing strategy should be thought of as an asset, which are different and unique from the underlying holdings. So holding a portfolio of strategies functions much like holding a portfolio of assets. To evaluate the risk profile of the strategy, we examine the history of the returns of those strategies, much like when holding a basket of stocks the historical returns of each stock would be evaluated.

2017-10-02T20:00:00+00:00 By |18 Comments

Logical Invest meets AAII Silicon Valley Chapter

We‘re happy to have been invited to host a presentation at the Silicon Valley Chapter of the American Association of Individual Investors (AAII) on April 11, 2015. We obviously extend this invitation to whomever is around, join us for this first opportunity to meet in person. The presentation to AAII will especially focus on how to construct your self-managed portfolio using ETF and Mutual Fund Rotation Strategies, how to build in a well-balanced crash protection mechanism into your IRA and 401k account, and how to use inverse volatility to harvest the 'fear premium'. At AAII we will also provide a first glimpse at the new 'Portfolio Builder' for constructing fixed weight portfolios using our strategies, and how to break the Markowitz Efficient Frontier using our revolutionary dynamic weight meta-strategies. Drop me a line at alex@logical-invest.com or as comment to set up some additional time. I’ll be around Friday till Monday and would love to collaborate and share more insights with AAII or people around Best Regards, Alexander Horn Invitation and online registration for AAII event: PDF file Saturday, April 11, 2015  INTELLIGENT, RULE-BASED ETF INVESTMENT STRATEGIES  With hundreds of ETFs available, how can the individual investor successfully manage a portfolio? Logical Invest has developed algorithms that create alpha and reduce market exposure with simple, well-researched monthly ETF rotation strategies. These strategies protect your account with crash protection via U.S. Treasuries and harvest a “fear premium” from inverse volatility. These rotation strategies can be brought together with adaptive allocation in a custom-made portfolio right for each investor. You Will Learn: The key elements - and most common traps - of constructing your self-managed portfolio How to build in a well-balanced crash protection mechanism into your strategies How you can benefit from harvesting the “fear premium” by investing in inverse volatility Discussed by: Alexander Horn  [...]

2017-10-02T20:00:00+00:00 By |5 Comments

Portfolio optimization: The all new Portfolio Builder

  From individual Strategies to Portfolio Optimization Based on the interest of our followers and our own investment philosophy, we have gradually evolved from offering single quantitative strategies towards blends or portfolios of strategies. The way we visualize our own development cycle might be best summarized in a chart: Where are we on this path and where are we heading? We believe we have now a stable set of 'core-strategies', which cover a broad spectrum of both risk/performance but also trading and hedging instruments. We will continue our research on new strategies, and will also in future come up with smart ideas in that area. However, we are currently increasing our effort in blending these strategies into portfolio solutions. The "Portfolio Builder" with fixed-weight allocations is here only the first step. Developing a dynamic Strategies of Strategies (or Meta-Strategies) which smartly allocate with changing weights among a set of our strategies is one of the projects we initiated since the four of us met in mid 2014. Our thought: Quickly reacting to or even anticipating changes in the market environment by changing horses on the fly, better dealing with changing correlations of markets and constantly challenging whether one of our strategies has lost ‘steam power’ should be even better than simply allocating funds with fixed weights or even worse discretionary among strategies. To continue the enhancement of our tools towards this vision, we’ve given our fixed-weight Portfolio Builder a major overhaul and implemented many of the requested features. Key features for portfolio optimization Some of the new key features for portfolio optimization are: Equity lines according to most recent strategy review Our subscribers know that we review our strategies periodically, either because we find improvements for the execution (change of IEV to FEZ in the Global Market Rotation), or introduce newly developed [...]

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

New Beta Tool: Easy Consolidated Signals for your “All Strategies” Custom Portfolio Now Available

UPDATE: The tool is now available following this link     “What? Another post about tools and infrastructure? Thought Logical Invest is going to show me the next 21st Century ETF Investment Strategy!”     Yes, I know there have been plenty of posts regarding new features on our site, new portfolio options, new charting capabilities, and new portfolio builder features. Plus plenty of teasers of what is coming up in regard of strategies and meta-strategies. Is the Logical Invest team now only busy on this nice-to-have-but-not-money-making stuff? No, we’re not, our purpose and motivation has not changed! We’re determined to be your first choice for your smart investments! But based on your feedback, and seeing that more and more of you migrate from employing single-strategies towards blends and full-fletched portfolios of strategies, we know we need to develop our infrastructure to keep up with our pledge: “A few simple switches a month, which can be done in 15 minutes” We’ve given an insight into our long-term vision in our last (yes, silent) video, which is: Single Strategies for complementing your existing portfolio, or Full fixed-weight blends or portfolios of our strategies (Portfolio Builder), or  Dynamic and smart meta-strategies which adapt to changes in market environment and strategy performance – Breaking through the traditional (more or less) efficient frontiers, or Top-notch custom portfolio solutions made to spec for larger accounts and institutional money managers. Now, while this means a time-warp evolution in performance and robustness, it undoubtable also means an increase in the complexity. Means, we need to provide you with tools to keep the execution process easy, and allow you to enjoy your free-time with your most beloved instead of doing advanced Excel Acrobatics on weekends.   “Ok, got you. But where does this lead us?”       [...]

2017-10-02T20:00:00+00:00 By |26 Comments

Update Portfolio Builder: Now including Universal Investment Strategy with 3x leverage

By request of several followers, we have now included the version with 3x leverage of the Universal Investment Strategy using synthetic SPXL and TMF data from 2002. Portfolio Builder now with leverage We're about to publish a full article on this exciting option for this weekend, but want to pre-alert you about this upcoming adition. While this is a very aggressive strategy with leverage, it blends very nicely with a 10%-20% allocation into a portfolio targeting Maximum annual return with a 10% or 20% volatility constraint. We have therefore also updated the optimized portfolios, and by another request included the MaxCAGR with volatility constraint of 20% and 25% volatility. Here a preview of the full backtest since 2002 of the version with leverage A visualization of the new portfolio options with blends of this strategy with leverage: And the timeseries of the synthetically constructed SPXL and TMF /3x leverage) since 2002 (both ETF have an inception date in 2009). We will explain the methodology of this more in detail in the upcoming post. Stay tuned for our next post, but review the portfolio options in our Portfolio Builder before, which now includes the version with leverage. A team of followers and us is working on an advanced offline Portfolio Builder, which offers additional features to optimize and customize your portfolios, as well as full daily return and equity data. This is still in development, but feel free to preview and join the team if interested. If you are new to our site, here an overview of our Universal Investment strategy: "The SPY-TLT Universal Investment Strategy (UIS) is one of our new core investment strategies. Probably the most basic of all rotation strategies, is the switching strategy between the S&P 500 US stock market (SPY) and long duration Treasuries (TLT). The [...]

2017-10-02T20:00:00+00:00 By |3 Comments