At the end of 2015, we made several changes to our portfolio.
1) The VXX/XIV component was dropped from our strategy to reduce trading cost. Trading cost has been a significant headwind for our returns due to the very small size of our portfolio.
2) The leverage of the SPY component was reduced from 3X to 2X. Even though using higher leverage can improve performance in the long run, higher leverage will also increase volatility and lead to larger drawdowns. 2X leverage will ensure compliance of our trading rules and reduce system wide risk.
Since inception in December 2014, the overall return of the portfolio has been ~ -20%. Of which, -13% was due to trading cost. Remainder of the loss came from the VXX/XIV component. The VXX/XIV strategy has become increasingly popular during the past two years. This led to higher volatility of the strategy. Combining with a generally up trend of the $VIX, the strategy has struggled since peaking in early 2015. The SPY strategy performed reasonably well with a small gain. The strategy switched to bearish mode in September, first time since 2012. The bond holdings of the component performed very well in Jan/Feb 2016 and help the strategy return to positive territory. The strategy has been in bearish mode for ~100 trading days, the third longest after only 2001-2002 and 2007-2009 bear markets. It remains to be seen if the current correction will develop into a full blown bear market.
Disclosure: I am/we are long $TLT.