View as an RSS Feed
Simple High Yield/Municipal Bond Tactical Strategy For A Rising Rate Economy
- This strategy is a tactical bond strategy based on low duration moving averages. The strategy has the potential for moderate growth (~11-12%) with low maximum drawdown (~4%).
- Two ETFs are utilized in the strategy (HYLD and HYMB) that have the potential to perform well in a rising rate environment.
- Each ETF is assessed using low duration moving averages. A cash safety net is used if both ETFs are in the risk-off mode.
- If both ETFs are in the risk-on mode, a final analysis is performed to determine the best ETF. Alternatively, one can invest 50/50 between the two ETFs.
- Backtest results using ETFreplay show the overall potential of the methodology.
Improved Defensive Measures For Simple Equity-Treasury Hedge Strategies
- There is a need to take a defensive posture in equity-treasury hedge strategies (presented in previous articles) during times when equity markets and long-term treasury markets are both bearish.
- This article develops such a defensive sub-strategy that is used in conjunction with previously developed hedge strategies that do well in all other market conditions.
- The defensive sub-strategy consists of tactically getting out of the short positions when moving average ratios are crossed.
- Backtested results to 2000 using proxies show the defensive sub-strategy is effective and gives equity-treasury hedge strategies a way to be successful in all market conditions.
- It is recommended that this defensive methodology be used in conjunction with the equity-treasury hedge strategy that shorts SPXS and shorts TMV in a 50%/50% split with monthly rebalancing.
Benefits Of Short Selling Inverse Leveraged ETFs
- Comparisons are made between holding long positions of leveraged ETFs and shorting inverse leveraged ETFs of the same family.
- The following cases are presented: 1) long SSO and short SDS versus SPY, 2) long SPXL and short SPXS versus SPY, and 3) long TMF and short TMV versus TLT.
- Shorting an inverse leveraged ETF with periodic rebalancing significantly increases growth in bull markets compared to buying and holding a leveraged ETF or an unleveraged version of the ETF.
- When combined with simple tactical methods such as moving averages or momentum, drawdown can be significantly reduced in short inverse leveraged ETFs, while maintaining high growth.
Simple Tactical Methods Incorporated Into An Equity-Treasury Hedge Strategy
- This article is a sequel to a previous SA article on simple equity-treasury hedge strategies that rely on the negative correlation between treasuries and equities in general.
- In this article, simple tactical modifications have been made to the original strategy to protect it against bear treasury and bear equity markets when they occur at the same time.
- The bond part of the strategy (TMF) and the equity part of the strategy (SPY or SSO) switch to cash (SHY) in bear markets.
- For the TMF/SPY strategy, the optimum split is 25%/75%. Backtesting to 2009 shows a CAGR of 18.0% and a maximum drawdown of 8.4%.
- For the TMF/SSO strategy, the optimum split is 35%/65%. Backtesting shows a CAGR of 26.7% and a maximum drawdown of 12.7%.
Quarterly Tactical Strategy Backtested To 2003: CAGR Over 28% And Consistent Positive Returns
- A quarterly Tactical Asset Allocation Strategy has been developed for a basket of eight mutual funds plus a cash mutual fund.
- Backtested results (2003-present) are: CAGR=28.7%, maximum drawdown=19.1%, positive returns every year, and beat the S&P 500 every year except 2013 (25.6% vs. 32.3%).
- The same strategy is tested with ETF replacements, all having very high correlation with their corresponding mutual fund.
- Backtested results (2010-present) with the ETFs accurately duplicate the results with the mutual funds, giving confidence in the ETF representation of the strategy.
Simple Hedging Strategies Employing A Short TMV Position
- Simple buy-and-hold hedge strategies (with rebalancing) are discussed that employ a short position of TMV.
- The four strategies consist of a short position in TMV combined with 1) a long SPY, 2) a short SH, 3) a short SDS, and 4) a short SPXS.
- The strategies are backtested to April, 2009, and show CAGRs of 21.1%, 22.7%, 39.7%, and 54.5% respectively.
- Maximum drawdowns are 9.0%, 8.7%, 14.4%, and 20.1% respectively.
- Arguments are presented that show that large drawdowns seen in the bear markets of 2002-03 and 2008 can be avoided with these hedge strategies.
Conventional Hedging May Not Work In A Rising Rate Environment
- A new hedging strategy has been developed that should work in both decreasing and increasing rate environments.
- The new strategy employs a tactical methodology that chooses the best treasury ETF in any given semi-monthly period.
- ETFreplay results are shown for three cases backtested from 2010-present: 1) SPY alone, 2) SPY with conventional hedging, and 3) SPY with the new hedging strategy.
- The results show that in 2013, a year marked with rising rates and poor treasury performance, the new strategy shows significant improvement over conventional hedging.
2 Tactical Municipal Bond Strategies For Non-Qualified Retirement Portfolios
- This article presents two tactical strategies employing tax-free (income), municipal bond ETFs, and is best suited for non-qualified (taxable) retirement accounts.
- The first strategy selects (semi-monthly) the top-ranked ETF based on relative growth and volatility.
- Limited backtesting (2009-2014) shows this strategy could produce 13% annual growth (no taxes on income) with a maximum drawdown of only 5.5%.
- A second tactical strategy is presented that uses the tax-free municipal bond ETF HYMB.
- This strategy uses short duration moving averages, and has the potential of giving annual returns of 13% with a maximum drawdown of only 2.0%.
Tactical Unified Bond Strategy With High Sharpe Ratio
- A tactical Unified Bond Strategy (UBS) has been developed that has the potential of providing good annual growth (>14%) with a maximum drawdown of 4%.
- The UBS is composed of three different bond sub-strategies previously published that employ different tactical parameters and ETF universes.
- The sub-strategies utilize different asset classes of bond ETFs in order to produce good performance in varying market conditions including rising interest rates.
- The UBS (with proxies) has a backtested annual growth of 16.6% and a Sharpe Ratio of 2.4 from 2008-present.
- The UBS (using actual ETFs) has a backtested annual growth of 14.4% and a Sharpe Ratio of 3.4 from 2012-present.
Tactical Strategy Recommendations For March 17, 2014
- In this article, I am posting the March 17th ETF recommendations for 12 tactical strategies I have developed and presented in Seeking Alpha articles.
- These strategies are based on relative growth, relative volatility, and moving average tactical methods, and have been backtested using ETFreplay software.
- I have been tracking these strategies since January 2014, and the results for 2014 including total return and volatility are presented for each strategy.
Improvements To Tactical Bond Strategy For Rising U.S. Interest Rates
- This article presents an improved tactical bond strategy based on a previously-developed strategy.
- This new strategy should be profitable for retirement portfolios in a rising U.S. interest rate environment.
- The strategy features low volatility, annual growth of 15-17% based on backtested results, and built-in risk mitigation methods.
Tactical Bond Strategy For Rising Treasury Rates
- This article presents a tactical bond strategy that is appropriate for conservative retirement portfolios.
- The strategy features low volatility, annual growth of about 12% and built-in risk mitigation methods.
- I will also discuss ETFs suited for the current rising rate market environment.
- Unified Tactical Strategy: Annual Growth>20%; Drawdown<9%; Sharpe=1.85
- Conservative Bond Strategy Returning 12% Annually And 3.5% Maximum Drawdown
- Tactical Strategy Using Fast-Growing Equity ETFs
- Going More Defensive: ETF Recommendations For February 3, 2014
- Tactical Asset Allocation Strategy Using Schwab-Free ETFs
- Super Simple Savings Strategy For Retirement Portfolios
- Unique Application Of Moving Day Average To High Yield Bond ETFs
- Tactical Asset Allocation Strategy For Conservative Investors
- Tactical Asset Allocation Strategy For More Aggressive Investors
New Tactical Asset Allocation Strategy To Grow Retirement Savings At Reduced Risk
Jan. 6, 2014 • 73 Comments