Seeking Alpha

varan's  Instablog

varan
196 Followers
17 Following
Send Message
Individual investor.
  • Monthly Trading Of MDY, MVV And UMDD 10 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.

    Basket

    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)

    VUSTX, MDY

    (2003-2012)

    16.3 (19.5)

    .88 (.39)

    17.5(7.9)

    VUSTX, MDY

    (1997-2012)

    17.2 (19.5)

    .92 (.43)

    18.3 (10.8)

    TLT, MVV

    (2007-2012)

    28.7 (26.4)

    1 (.37)

    32.6 (8.6)

    VUSTX, MVV

    (2007-2012)

    21.7 (34.6)

    .77 (.31)

    25.8 (1.9)

    VUSTX, $MVV

    (2007-2012)

    27.2 (32.8)

    .92 (.35)

    31.7 (6.1)

    VUSTX, $MVV

    (1997-2012)

    30.3 (32.8)

    1 (.4)

    34.2 (17.8)

    TLT, UDDM

    (2011-2012)

    48.6 (13.6)

    1.7 (.5)

    52 (12.9)

    VUSTX, UDDM

    (2011-2012)

    45.6 (13.6)

    1.7 (.5)

    48.9 (12.3)

    VUSTX, $UDDM

    (2011-2012)

    47.1 (12.6)

    1.7 (.5)

    50.5 (13.3)

    VUSTX, $UDDM

    (1997-2012)

    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.

    Themes: Leveraged ETFs Stocks: MDY, MVV, UMDD, TLT
Back To varan's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

This post has 10 comments:

Track new comments on this article
  •  
    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, 10:51 PM Reply Like
  •  
    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, 12:19 PM Reply Like
  •  
    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, 04:12 PM Reply Like
  •  
    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, 04:25 PM Reply Like
  •  
    Cool. Thanks for your response. Look forward to reading about more of your interesting ideas & backtests.
    11 Feb, 04:37 PM Reply Like
  •  
    Interesting background.

    So what do you think of ONXX? Recent pullback appears to be a buying opportunity.
    11 Feb, 04:41 PM Reply Like
  •  
    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, 05:54 PM Reply Like
  •  
    I agree - nice work Varan! I charted your TMF-MVV strategy here:

    http://bit.ly/YbDaCn

    It is quite a performer and does appear quite stable over time.
    9 Apr, 08:39 PM Reply Like
  •  
    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, 10:31 PM Reply Like
  •  
    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, 01:40 AM Reply Like
Full index of posts »
Latest Followers

Latest Comments


Most Commented
Posts by Themes
Adaptive Allocation, Adaptive allocation, Adaptive asset allocation, Adaptive Asset Allocation, Adaptive Asset Allocation , annually updated portfolio of dividend growth stocks, Asset allocation, Asset Allocation, Beating the market, Dividend Growth Investing, Dividend Growth stocks, Dividend growth stocks, Dividend growth stocks., Dividends, ETF, ETF trading strategy, Fidelity Select Funds, Hedged Portfolio, Leveraged ETFs, MLPs, Modern Portfolio Theory, paired-switching, permanent portfolio of dividend growth stocks, PIMCO funds, portfolio allocation, Portfolio Allocation, portfolio strategy, Portfolio strategy, Quarterly rebalancing, rebalancing, Sector Rotation, Trading volitilty ETFs, zero annual drawdown portfolio
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.