The SPY-TLT Universal Investment Strategy

Nov. 26, 2014 12:15 PM ETSPY, TLT, SPXS, TMV213 Comments
Logical-Invest profile picture


  • A simple and effective all weather SPY-TLT strategy.
  • Variable SPY-TLT allocations adapted to the market conditions.
  • 18% annual return and a Sharpe ratio of 1.66 for the last 5 years.


This paper discusses the simple but effective method of using adaptive allocations between stock market ETFs and Treasuries. This method has been developed to replace the 100% switching used in normal rotation strategies like the Maximum Yield Rotation and the Global Market Rotation strategies.

The real world is just not a 100% "risk on" or "risk off" world. Most of the time, the best allocation is somewhere in between. The new method can be adapted for nearly all types of rotation strategies and is significantly increasing the return to risk (Sharpe) ratio of such strategies.

The SPY-TLT Universal Investment Strategy is very simple but also very effective. I am sure, such a simple investment strategy will nearly always perform better than any manual asset picking.

The UIS strategy

Probably the most basic of all rotation strategies, is the switching strategy between the S&P 500 US stock market (SPY) and long duration Treasuries (TLT).

The SPY-TLT ETF pair is very interesting, because most of the time these two ETFs profit from an inverse correlation. If there is a real stock market correction, then Treasuries like TLT have always been the assets where money flows in, rewarding holders with nice profits. Now there are two possibilities to profit from this inverse correlation.

The first is a switching strategy, which always switches to the ETF that had the best performance during the previous 3 months. This really simple switching strategy between TLT and SPY gave you a 14.8% return during the last 10 years, with twice the Sharpe ratio (return to risk) ratio of a simple SPY investment.

Another strategy would be to invest 50% of your money in SPY and 50% in TLT and do a monthly rebalancing. This gave you 8.8% return during the last 10 years.

Now let's see, how

This article was written by

Logical-Invest profile picture
Logical invest is a pioneer in building transparent, rules-based investment strategies that you can trade in your own savings or retirement account.  Standard portfolios hold stocks and bonds. Sophisticated ones can hold Gold, Commodities, Foreign Bonds, even Volatility. We go one step further. Our portfolios allocate to dynamic, adaptive Strategies. It is as if you were invested into multiple hedge funds. And yet it simple to trade and extremely cheap.  How we can help you to achieve your financial goals: 1) SUBSCRIPTION SERVICE: Whether you have a 401(k), an IRA, a Roth IRA or SEP IRA or just a taxable account, we give you the tools to manage them using simple, cost-efficient and proven strategies. You will minimize discretionary decisions and difficult dilemmas, which can tire an investor. You are here for the long run. We can help you stay the course. FREE ONE MONTH TRIAL: 2) QUANTTRADER STRATEGY DESIGN SOFTWARE - NO CODING REQUIRED : Advanced users and professionals can tap into the power of our software and customize all aspects of our strategies, backtest variations and issue their own signals any time in the month. DOWNLOAD NOW: 3) MANAGED ACCOUNTS Run multiple Logical-Invest strategies under one Interactive Brokers account and have it managed for you by The Estate Planners Group. Starting at 0.79%, our fee included. READ MORE:

Disclosure: The author is long SPY, TLT. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (213)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.