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  • Monthly Trading Of MDY, MVV And UMDD 13 comments
    Feb 10, 2013 1:08 PM | about stocks: MDY, MVV, UMDD, TLT

    The basic strategy is to switch between TLT and MDY (or its leveraged variants, MVV or UMDD) on the first trading day of each month on the basis of their performance during the immediately preceding month (e.g. for January 2013, use the performance during the period 11/30/2012 thru 12/31/1012).

    However, the dates of inception of all these ETFs are quite recent, and so any definitive conclusions on the performance of the strategy on the basis of the limited data are not quite warranted. To supplement the back testing, we can (i) use VUSTX, and (ii) construct synthetic leveraged variants (the synthetic version of MVV is named $MVV in the following table, and, likewise, $UMDD is the synthetic version of UMDD).

    The following table lists the major performance metrics for various combinations of the ETFs and time periods. We have listed the performance of the pairs (MVV, TLT) and (MVV, VUSTX) for the same periods to estimate the difference in performance due to replacement of TLT by VUSTX. Likewise the data for (MVV, VUSTX) and ($MVV, VUSTX) for the same periods indicate the accuracy of the derived data for synthetic version of MVV. Taken together, the data provide some indication of the reliability of the extrapolation to the maximum time period (1997-2012) of the performance of the pair ($MVV, VUSTX). Similar comments apply to the other pairs.

    Year to date, the returns of (MDY, TLT), (MVV, TLT), and (UMDD, TLT) have been 5.8%, 12.3% and 18.75%, respectively, and in all of the cases TLT was not held for either of the two months of this year.


    CAGR (Monthly Drawdown)

    Sharpe Ratio (Kelly Fraction)

    Mean Annual Return (95% Lower Bound)

    TLT, MDY (2003-2012)

    15.9 (22.9)

    .8 (.37)

    17.9 (6.9)



    16.3 (19.5)

    .88 (.39)




    17.2 (19.5)

    .92 (.43)

    18.3 (10.8)

    TLT, MVV


    28.7 (26.4)

    1 (.37)

    32.6 (8.6)



    21.7 (34.6)

    .77 (.31)

    25.8 (1.9)



    27.2 (32.8)

    .92 (.35)

    31.7 (6.1)



    30.3 (32.8)

    1 (.4)

    34.2 (17.8)



    48.6 (13.6)

    1.7 (.5)

    52 (12.9)



    45.6 (13.6)

    1.7 (.5)

    48.9 (12.3)



    47.1 (12.6)

    1.7 (.5)

    50.5 (13.3)



    39.4 (47.6)

    .96 (.39)

    48.7 (20.2)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: MDY, MVV, UMDD, TLT
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Comments (13)
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  • nickaz99
    , contributor
    Comments (24) | Send Message
    Thank you Varan. I have followed your posts on paired-switching for some time and appreciate your work. Have you done the above with small cap ETFs as well? This strategy is not for the faint of heart with the massive swings up and down but it is intriguing.
    10 Feb 2013, 10:51 PM Reply Like
  • varan
    , contributor
    Comments (5688) | Send Message
    Author’s reply » I agree. This post was prompted by some recent articles on SA on the subject of leveraged ETFs. The purpose was to present all the results in their full glory to underscore many landmines on the path to riches when dealing with these ETFs. I am not advocating one strategy or the other, but just presenting the results.
    11 Feb 2013, 12:19 PM Reply Like
  • BinaryLeverage
    , contributor
    Comments (39) | Send Message
    Nice work Varan. I am trying to replicate the results just for fun. Do you have any more detailed data? Monthly returns for one of the pair sets would be great.
    11 Feb 2013, 04:12 PM Reply Like
  • varan
    , contributor
    Comments (5688) | Send Message
    Author’s reply » I get all the data dynamically from Yahoo, and so, unfortunately,
    I do not have any of the data.


    Thanks for your interest.
    11 Feb 2013, 04:25 PM Reply Like
  • BinaryLeverage
    , contributor
    Comments (39) | Send Message
    Cool. Thanks for your response. Look forward to reading about more of your interesting ideas & backtests.
    11 Feb 2013, 04:37 PM Reply Like
  • varan
    , contributor
    Comments (5688) | Send Message
    Author’s reply » Interesting background.


    So what do you think of ONXX? Recent pullback appears to be a buying opportunity.
    11 Feb 2013, 04:41 PM Reply Like
  • BinaryLeverage
    , contributor
    Comments (39) | Send Message
    Could be.


    I have never spoken with anyone there but it appears to be a well-run company. They have a solid onc. focus with decent products in reasonably attractive markets. Also seem to have good clinical development programs supporting their marketed products. The upcoming PDUFA date for Stivarga may move the price but probably not by that much. Q4/2012 results later this month will have more bearing on things I would think. Also Kyprolis clinical data later this year will have real impact on company's potential. One could certainly convince oneself that the price may find support in the high $60s/low $70s.


    Every pharma company claims that building a world class oncology BU is a key part of their strategy so ONXX may be an attractive target. If Takeda was willing to buy Millennium seems likely that someone would look at ONXX.
    11 Feb 2013, 05:54 PM Reply Like
  • ChiefSurfer
    , contributor
    Comments (3) | Send Message
    I agree - nice work Varan! I charted your TMF-MVV strategy here:



    It is quite a performer and does appear quite stable over time.
    9 Apr 2013, 08:39 PM Reply Like
  • varan
    , contributor
    Comments (5688) | Send Message
    Author’s reply » Wow! if you can stand the drawdowns.


    I just tried TMF, UMDD and MVV together, buying the best one every month.


    Amazing. 2900% total return in ten years if the whipsaws don't kill you. Who needs Buffettology? dump the dividend growth stocks!
    9 Apr 2013, 10:31 PM Reply Like
  • mpd3892
    , contributor
    Comments (21) | Send Message
    Varan, have you tried looking at other times to buy to see what impact it might have on performance? I've seen studies that suggest buying equities on the last trading day or even 5 trading days before the end of the month can boost returns. Any thoughts?
    11 Apr 2013, 01:40 AM Reply Like
  • dxb_investor
    , contributor
    Comments (106) | Send Message
    do you add back dividend when calculating the best performer?
    17 Sep 2013, 07:00 AM Reply Like
  • Ryan Lynne
    , contributor
    Comments (18) | Send Message
    Hey Varan,


    Just trying to reconstruct your results quickly in Matlab...


    "The basic strategy is to switch between... on the first trading day of each month on the basis of their performance during the immediately preceding month"


    For 'performance' did you just use the highest return for the previous 20 trading days without taking into account any volatility measures?


    4 May 2014, 05:47 AM Reply Like
  • varan
    , contributor
    Comments (5688) | Send Message
    Author’s reply » Yes, I just use adjusted close data from Yahoo Finance, which incorporates the dividends.
    4 May 2014, 09:59 AM Reply Like
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