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The Logical-Invest newsletter for January 2019

Must reads: Frank Grossmann’s article “How to Hedge in Times of Market Trouble” (Seeking Alpha, LI Blog) 2019 strategy updates (LI Blog) Protecting your money After almost 10 years of a continuous bull market and 2 years of exceptional growth (2016-2017), 2018 was the first year that the SP500 turned negative. Apart from the dollar index, most asset classes also fell. To make things worse, the S&P500 dropped -20% from the September highs during what is traditionally the best 3 months of the year. Although unfortunate, it does create a rare opportunity to evaluate how our portfolios react to an unexpected real-life correction. Here is a look at the Logical Invest strategies historical performance during these last 3-months compared to holding SPY. Historical performance during 3 last months of 2018* Every single strategy, including our very aggressive ones (3x UIS and MYRS), lost less than the SPY. Our non-leveraged strategies maxed out at a loss of -7.5%, while BRS and UIS averaged -4%. The NASDAQ 100 came out flat, while the World Top 4 (+4.45%) as well as GOLD-USD (+7.23%) came out positive. Even though hedging did help limit losses, we are re-designing the way we protect our strategies in case 2018 proves to be an intro to a bear market. Please read Frank Grossmann’s article “How to Hedge in Times of Market Trouble” (Seeking Alpha, LI Blog), a detailed account of how to design a sophisticated hedging mechanism without sacrificing performance. Some 2018 highlights: The flattening of the curve but more importantly the rise of short-term interest rates on the dollar vs International currencies. This created flows from risky foreign assets into short term U.S. Treasury bills. The resulting rise of the U.S. dollar index translated in many other assets (Gold, Foreign Debt, Foreign Equities) to fall. The [...]

2019-01-01T08:43:36+00:00By |2 Comments

Logical-Invest Investment Strategy changes for 2019

We have made some quite important changes to the Logical Invest strategies for 2019. Please note that the January strategy allocations will be calculated based on these updated strategies. 401 / IRA compliant base strategies The new strategies will not use leveraged or inverse ETFs, making them and the portfolios derived from them, more 401 / IRA friendly. The changes have been backtested and do not reduce the performance of the strategies due to a well redesigned new hedging strategy. New hedging strategy The hedging strategy is a very important part of all strategies. The new hedging strategy switches between a Treasury sub-strategy and a Gold sub-strategy, depending on which sub-strategy is performing better at the moment. The following chart shows how the strategy switches between the yellow Treasury Hedge and the red Gold-USD strategies. With an average performance of 12.5% per year the strategy has been a good performer in itself. More importantly, it has no or even negative correlation to equity strategies. This makes it a good safe-haven hedging strategy for difficult market periods. The strategy does not switch directly between GLD and TLT because this way we can not get more than 6% annual performance for a 10 year backtest. The reason is that there have been long periods where equity was performing really well and both Gold and Treasuries were underperforming. Adding a hedging strategy with a bad performance can be quite a drag to the overall performance of a strategy. We had to find some alternative ETFs we could use instead of GLD or TLT. For TLT we had already developed the Treasury strategy in the past which switches between the TLT (iShares 20+ Year Treasury Bond ETF) and the inflation protected TIP (iShares TIPS Bond ETF). This strategy has been used before in some of [...]

2018-12-27T21:26:15+00:00By |8 Comments

The Logical-Invest monthly newsletter for December 2018

Logical Invest Investment Outlook December 2018   The graph below is from a recent Bloomberg article entitled "A Brutal Global Market in 2018 Has Just One Champion". That one champion, according to the article, was Treasury bills. It goes on to say: "By one simple measure, this is the worst cross-asset performance in more than a century". Below you can see 89% of all assets had negative performances year-to-date (as of Nov. 22). This may be an exaggeration but it goes to show we are in a difficult market. Volatility is twice what it was last year, most assets are negative or flat and the U.S. dollar (cash) is king. A notable exception of NASDAQ 100 which is doing quite well for the year. November proved to be a recovery month. All our strategies, but one, had positive returns. Leading were the NASDAQ 100 with +5.79 %, the U.S.Sector with +2.54%  ,World Top 4 with +1.84%. The negative performance came from our Bond rotation Strategy at -0.52% for the month.   Changes at Logical-Invest Patrick Hill joined Logical Invest as a new partner. He is a technology veteran and a long-time Logical Invest user. A new home for our subscribers: http://logical-invest.com/app. A new personalized monthly email. It will contain your monthly allocations (“signals”) based on the portfolio you set up as “My Portfolio”. New CORE ‘1-click’ portfolios that are easy to setup. New pricing. If you are an existing LI subscriber, please set up “My portfolio”. This will ensure you will get consolidated signals emailed to you based on your portfolio. Don’t worry, you can always change it at any time. All of the new allocations will also be available on the web site the morning after the end of the rebalance period.   Our new Web-app – Understanding why we use [...]

2018-12-01T06:34:45+00:00By |0 Comments

The Logical-Invest monthly newsletter for November 2018

Logical Invest Investment Outlook November 2018 Our top 2018 investment strategies, year-to-date : The NASDAQ 100  strategy with +9.95% return.   The Gold-USD  strategy with -0.81% return.  The BUG strategy with -2.02% return SPY, the S&P500 ETF, returned +2.74%. Market comment: October was not a good month as the S&P 500 had a mini-crash and an 'official' correction touching the -10% mark from the September highs. Other markets followed the drop leaving many foreign markets in the red for the year. Our strategies were affected as well.  Let's take a look at how they reacted to this correction.   The Logical Invest strategies use hedges to dampen the effect of corrections. Although the amount of hedging can vary, having even a small hedge is a drag on performance when equities do extremely well. This is what has happened this year as the SP500 has outperformed every other major asset, including most of our strategies. On the other hand the hedge should help lower draw-downs, which in turn helps achieve higher long-term returns. Creating a 'hedge' is not that simple, though. What used to be an excellent hedge, namely Treasuries, is now in question as a long term bear market on government paper is a possible scenario. Our hedging mechanism has evolved as markets have changed. We started with Treasuries. Then we added Gold to compensate for rising yields which could signal inflation. And finally we included a 'short' component, namely shorting U.S. sectors. The last sub-strategy uses 3x Inverse ETFs to 'go short' the weakest U.S. sectors. Unlike Treasuries and Gold, the Short USSECT is a 'pure' hedge and will almost always move opposite to the SP500. The downside is that historically going 'short'  the market is a losing strategy and can only be used for short periods of time. Each month the HEDGE sub-strategy will pick one [...]

2018-11-03T13:26:44+00:00By |0 Comments

The Logical-Invest monthly newsletter for October 2018

Logical Invest Investment Outlook October 2018 Our top 2018 investment strategies, year-to-date : The NASDAQ 100  strategy with +14.50% return.   The 3x Universal Investment strategy with +7.85% return.  The Universal Investment strategy with +2.32% return SPY, the S&P500 ETF, returned +10.37%. Market comment: We are continuing to experience the symptoms of the end of Quantitative Easing: Higher interest rates and slightly higher inflation. The FED is normalizing policy and it seems that moderate growth and low inflation have helped make this into a controlled, gradual process. This is all good news, but it brings a side effect: As foreign investors move money into higher yielding Treasuries, the dollar rises. Much like 2015, any dollar-denominated asset has benefited while everything else, including emerging markets and gold, have lost value. Tactical Allocation strategies (TAA's) tend to suffer in this environment as their main promise is diversification across assets and geographical locations. TAA's are risk controlling entities and although they will outperform in the long run, they do poorly in a straight dollar run. We are now moving along the longest bull run in the history of the U.S. market. We are also close to an inverted yield curve, which to many is a red flag. It feels like an immenent correction may come and destroy what we have built these past years. And yet we are at a favorable point seasonally. Not only are November and December good months to invest but we are at the end of a mid-term elections year which in the past had brought additional returns. The point is we don’t really know what will happen. After 10 years of 0% policy, 'easy money' and straight gains we are entering a new era. Borrowing is no longer free. One could argue that this will lead to a re-pricing of assets, worldwide. Which in turn is [...]

2018-09-29T14:30:46+00:00By |0 Comments

The Logical-Invest monthly newsletter for September 2018

Logical Invest Investment Outlook September 2018 Our top 2018 investment strategies, year-to-date : The NASDAQ 100  strategy with +14.54% return.   The 3x Universal Investment strategy with +12.06% return.  The BUG Leveraged strategy with +2.62% return SPY, the S&P500 ETF, returned +9.71%. Market comment: Despite tariffs, a flattening yield curve, Turkey’s currency collapse and the fear of contagion across emerging markets, the S&P 500 is yet again making new highs. The U.S. equity market has outperformed most other markets and asset classes. Part of this performance is due to real economic strength and solid corporate earnings but another part is due to U.S. dollar strength. As we have mentioned in the past, rising short term interest rates create fund flows from negative yielding currencies (Euro, Swiss franc) into U.S. assets.  Taking a world view, most developed (SPDW: -0.37%) and emerging equity markets (EEM: -7.78%), international bonds (PCY: -5.03%, IBND: -3.62%) and even Gold (GLD: -8.2%) are either flat or negative for the year. In contrast the dollar index is up (UUP: +4.82%). ETF Symbol SPY TLT EPP GLD EFA EEM FEZ ILF UUP YTD Return 9.71% -3.15% -1.96% -8.20% -2.30% -7.78% -3.65% -10.14% 4.82% Major ETF returns Year-to-date The yield curve has continued to flatten with the 2-year Treasury yield at 2.67%. Adding 28 years to maturity will only squeeze out an additional 0.35% yield, at 3.02%. Many analysts see this as a sign of a coming recession but as we have discussed in the past even after having an inverted yield curve it may take years for a recession to materialize. Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr 08/29/18 1.97 2.13 2.28 2.48 2.67 2.75 2.78 2.85 2.89 2.96 3.02 Daily Treasury Yield Curve Rates, U.S. Department of the Treasury In [...]

2018-09-01T08:00:23+00:00By |0 Comments

The Logical-Invest monthly newsletter for August 2018

Logical Invest Investment Outlook August 2018 Our top 2018 investment strategies, year-to-date : The NASDAQ 100  strategy with +8.56% return.   The 3x Universal Investment strategy with +5.99% return.  The Universal Investment strategy with +1.34% return SPY, the S&P500 ETF, returned +6.32%. Market comment: August starts with very much the same market preoccupations as the previous summer months: Fear of a trade wars and questions about central bank policy. The possibility of additional tariffs is holding back international growth and is keeping foreign markets weak, although there were some notable exceptions. The expectation the Fed will further increase rates has been replaced by fear of foreign central banks tightening policy. The Japanese central bank decided against a hike at this time but the possibility of such a move in the near future does raise the question about the Fed's hand being forced. Further short-term rate hikes could eventually lead to a flattening or even inversion of the interest-rate curve which in turn brings closer the possibility of a future recession. Emerging markets and Latin America have been hit hard these past months and in July we saw a bounce from oversold conditions: Brazil (EWZ) returned +12.6% while the broad Latin America ETF (ILF) was up +11.2.%. Emerging markets (EEM) was up +3.53%. On the safe-heaven assets side, Gold fell  by -2.24% while TLT, the 30 year Treasury ETF showed weakness at -1.43% for the month. ZIV, which we use at our MYRS strategy, was up +5.86%. This month most of our strategy were slightly positive or remained flat. The leveraged Universal Investment strategy (3x UIS) returned +2.87, the Maximum Yield strategy +1.57% while the U.S. sector strategy +1.05%. The biggest loser was the Nasdaq 100 strategy at -4% being particularly affected by losses in NFLX and FOXA. Cryptocurrencies bounced up from the critical 6000 levels and touched 8400, [...]

2018-08-01T13:20:34+00:00By |2 Comments

PRIPPS and KID compliant ETFs for European investors

U.S. based ETFs are still unavailable for E.U. based investors due to the PRIPPS/ KID regulation discussed in the previous note. In this article we will list some alternative European based ETFs that could be used to follow a few of the Logical Investment strategies. So far the alternative ways to trade LI strategies as a EU citizen are: A. Try to qualify for professional status with your broker under MiFID II rules. Guidelines may differ amongst brokers. The Client declares to fulfil 2 out of the 3 conditions set forth below. - Carrying out transactions, in significant size, at an average frequency of 10 transactions per quarter over the previous four quarters; -T he size of the portfolio exceeds EUR 500,000, whereas portfolio is defined as including cash deposits and financial instruments; - To work or have worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions to be entered into. B. Use CFDs to trade the equivalent ETFs. Downside is cost of borrowing which may eat into long term profits. Upside is you can leverage your position. C. Use E.U. based equivalent ETFs. Here is a list of some useful ETFs trading at the London exchange. Original US ETF E.U. based Equivalent Exchange Currency Full Name SPY CSSPX LSEETF USD ISHARES CORE S&P 500 TLT IDTL LSEETF USD ISHARES USD TRES 20PLUS YR PCY IEMB LSEETF USD ISHARES JPM USD EM BND USD D JNK IHYU LSEETF USD ISHARES USD HY CORP USD DIST TIP IDTP LSEETF USD ISHARES USD TIPS AGG IUAG LSEETF USD ISHARES US AGG BND USD DIST GLD IGLN LSE USD ISHARES PHYSICAL GOLD ETC D. Use options or Futures This is possible for our UIS and GLD-USD strategies. Using Futures may not [...]

2018-07-07T10:35:33+00:00By |2 Comments

The Logical-Invest monthly newsletter for July 2018

Logical Invest Investment Outlook July 2018 Our top 2018 investment strategies, year-to-date : The NASDAQ 100  strategy with +13.13% return.   The 3x Universal Investment strategy with +3.03% return.  The Universal Investment strategy with +0.72% return SPY, the S&P500 ETF, returned +2.52%. Market comment: General investor sentiment is quite bearish. The most recent AAII Investor Sentiment survey shows only 28% of investors believe the markets will do well in the next 6 months, while 40% are bearish and 30% are neutral.  No wonder, as the topic of upcoming tariffs and trade wars dominated media. Furthermore, the Federal Reserve raised its target for the federal funds rate to a range of 1.75%-2.00% and upgraded the anticipated number of future rate hikes to four for 2018, reflecting a hawkish bias. Both events caused the dollar to surge further as investors fled emerging markets for the safety of interesting bearing U.S. cash. It was not a good month for foreign markets. Current central bank interest rates. Anyone tracking pre and post crisis rates will find this picture quite odd with Australia and New Zealand offering lower returns than the dollar. Table courtesy of fxstreet.com China (FXI) fell by -6.7%, Brazil (EWZ) by -8.5% while the broad emerging markets ETF (EEM) was down -4.53%. Gold fell again this month by -3.6% while TLT, the 30 year Treasury ETF was slightly up at +0.64%. The big winner for this month was Mexico at +6.8% probably due to positive expectation for the newly elected president. ZIV, which we use at our MYRS strategy, was up +6.9 percent by June 15th only to loose as much in the second half, finishing the month at -0.56%. SPY was slightly up at +0.56%. The month's best strategy was the Nasdaq 100 which held two winners, namely NTFLX (+11%) and Amazon (+4%). The two Universal Strategies, did not track each other [...]

2018-07-01T06:02:50+00:00By |0 Comments

U.S. ETFs unavailable to European investors: PRIPPS and KID

If you are a European investor and using Interactive Brokers (U.K.) as your broker you were in for a surprise this past week: Most major U.S. ETFs like SPY, TLT, GLD are unavailable for trading to retail traders. From justETF:  "The culprit is PRIIPs – a set of EU investment regulations designed to protect consumers (PRIIPs stands for Packaged Retail Investment and Insurance Products). PRIIPs require fund providers (including ETFs) to produce a Key Information Document (KID) that enables investors to compare the risks, rewards and costs of different investment products. European-domiciled UCITS ETFs were ready with their new KIDs when PRIIPs came into force alongside the MiFID II rules at the beginning of 2018. However US-domiciled ETFs did not comply and, as they mostly serve the US market, producing EU-approved information at their own cost is not a priority." We hope that this is a temporary problem and that a solution will be found. Until then we are looking at CFD's as an alternative for Europeans traders using LI strategies. Contracts Of Difference are available at IB U.K. for most major U.S. ETFs. The spreads and commissions are at par with the ETFs themselves ($0.01 spread, $0.05 commission) so they seem like a viable choice although there is a financing charge (current USD rate +1.5%) for holding positions overnight. Here is a snapshot of some major ETFs and their respective CFDs: You can read more about CFD's here: https://www.interactivebrokers.com/en/index.php?f=1170 If you have any comments or feedback please post them at the forums: https://logical-invest.com/forums/topic/european-markets/

2018-06-22T12:11:58+00:00By |22 Comments