Logical Invest
Investment Outlook
January 2016
Market comment:
With December 2015 behind us, we have now ended one of the most challenging investing years. The US stock market ended flat for the year. All other assets like precious metals, bonds, commodities and emerging markets gave negative returns. For the past 20 years, including the 2008 subprime crisis year, we always had at least one asset group going up considerably (10% or more).
Here is an interesting article about 2015: http://www.bloomberg.com/news/articles/2015-12-28/the-year-nothing-worked-stocks-bonds-cash-go-nowhere-in-2015
For trend following strategies this meant trying to intelligently switch from a ‘worse’ to a ‘less worse’ asset class. Except for the U.S. dollar index, there was no well performing asset for the strategies to ‘hop’ on.
The big exception was the stock-picking Nasdaq 100 strategy. It seems that even if a whole market is flat, there are still some high-flying company stocks. The Nasdaq 100 strategy did successfully catch some of those and out-performed the market. We hope this will continue in 2016.
One reason for 2015 being such a difficult year, was the strong U.S. dollar. Against the Euro, the US$ was up nearly 11%. Commodities and precious metals were hammered down to levels unseen since the 2008 crisis. All foreign assets in our strategies had to bear an equal 11% loss if they were not currency hedged. This was a huge drag for all strategies with global assets, like World Top-4 countries, Global Market Rotation Strategy, Sector Rotation, BUG. It seems that since Draghi’s latest ECB minutes the strength of the dollar has at least normalized a little bit. Although it is near impossible to make statistically good predictions about currency trends, we do think global strategies will recover and do better in 2016.
Another problem for trend followers was that the 2015 trends were not due to market cycles or economic strength. They were dictated by FED and ECB decisions. These decisions could turn around a market 180° within minutes. We fear that this situation may remain the same for 2016. The U.S. market will probably, again, speculate on how many rate hikes will finally occur in 2016. This may create a difficult investing environment. Wether it does or not, we remain convinced that the only way forward is to invest with a strategy rather than just picking one fixed asset class.
For 2015 the SP500 ETF (SPY) was slightly better than the UIS strategy return. However, the risk of investing only in SPY was much bigger. Just look at the month of December. SPY had a drawdown of 4.5% compared to 2.5% for the UIS-hedged strategy, which balances SPY against treasuries. So, holding SPY alone bears nearly twice the risk in case of a market correction.
For 2016 we introduced the new Gold-Currency strategy. We believe that it is time to invest in Gold, partly because of it’s very low correlation to the stock market, but also because commodity prices seem to be so low that there is not much downside risk anymore. If gold is currency-hedged, then most of the risk of an even stronger US dollar is eliminated. Combining the somewhat conservative Gold strategy with a stock picking strategy like Nasdaq 100 may be a good choice for 2016. More conservative investors can combine the Gold-Currency strategy with the UIS strategy.
We won’t speculate where the bond market and bond strategies will go in this coming year. We do think it is unlikely to make much money with bonds in 2016.
As much as we don’t like to make market forecasts, we think that years like 2015 are an exception and probably only due to the fact that this was the year when US rates finally changed direction. We are hopefully that real trends will emerge and our strategies will ride on them.
We also want to point out that you may at any time switch between strategies. Just send us a quick email.
We wish you a prosperous and successful 2016.
From Logical Invest, January 2015
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: 1/1/2016 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| NASDAQ 100 | 995.42 | 20.09 | 11.62 | 1.01 | -1.23 | 13.57 | 0.57 | 6.36 | 2.00 | 3.57 | |
| SPY | 203.87 | 1.23 | 6.74 | -1.73 | -1.00 | 15.28 | 1.00 | 3.13 | 0.12 | 1.77 | |
| UIS | 461.79 | 0.66 | -0.03 | -0.87 | -0.13 | 9.99 | 0.43 | -0.02 | 0.08 | 2.00 | |
| AGG | 108.01 | 0.48 | -0.59 | -0.19 | 0.27 | 3.30 | -0.18 | -1.00 | 0.18 | 0.62 | |
| WORLD-TOP4 | 265.29 | -0.46 | -2.75 | -3.10 | -0.67 | 12.63 | 0.54 | -1.18 | -0.05 | 2.39 | |
| BRS | 246.80 | -0.54 | -0.74 | -1.55 | -0.16 | 6.71 | 0.46 | -0.67 | -0.10 | 1.76 | |
| GSRLV | 474.67 | -0.57 | 0.52 | -1.50 | -0.35 | 7.98 | 0.51 | 0.37 | -0.09 | 1.41 | |
| TLT | 120.58 | -1.79 | -1.98 | -0.30 | 0.45 | 12.80 | -0.26 | -0.90 | -0.17 | 0.30 | |
| MYRS | 562.53 | -3.95 | 4.37 | -2.15 | -0.56 | 26.18 | 0.56 | 1.03 | -0.26 | 1.61 | |
| BUGST | 208.00 | -4.72 | -0.87 | -0.81 | -0.28 | 3.75 | 0.77 | -1.25 | -1.13 | 1.31 | |
| BUGLEV | 268.02 | -5.20 | -0.88 | -0.72 | -0.29 | 3.97 | 0.73 | -1.19 | -0.95 | 1.09 | |
| UIS-SPXL-TMF | 5038.50 | -8.76 | -2.51 | -3.84 | -0.85 | 25.10 | 0.38 | -0.55 | -0.40 | 1.92 | |
| GMRS | 3778.44 | -9.47 | -4.85 | -6.98 | -0.79 | 16.92 | 0.55 | -1.56 | -0.91 | 0.58
|
Symbols:
BRS – Bond Rotation Strategy
BUGST – A conservative Permanent Portfolio Strategy
BUGLEV – A leveraged Permanent Portfolio Strategy
GMRS – Global Market Rotation Strategy
GMRSE – Global Market Rotation Strategy Enhanced
GSRLV – Global Sector Rotation low volatility
NASDAQ100 – Nasdaq 100 strategy
WORLD-TOP4 – The Top 4 World Country Strategy
UIS – Universal Investment Strategy
UIS-SPXL-TMF – 3x leveraged Universal Investment Strategy
AGG – iShares Core Total US Bond (4-5yr)
SPY – SPDR S&P 500 Index
TLT – iShares Barclays Long-Term Trsry (15-18yr)