Hi folks,
There are several changes to the strategies for April, want to get this out a little before the month is over to give time to take it all in before making any investment changes for April 2021. The goal is to improve the strategies both in terms of strategy components used and their liquidity, and the actual strategies and offering a great selection of strategies which encompass the spectrum from conservative to [extremely] aggressive. Getting all these changes implemented at once and then we’re done for a while.
I have also attached a copy of the reporting deck with results through this morning, March 30, 2021 - the month is not completed and investments for April may still change until the month has finished. DO NOT use the deck for seeing which strategy component to be invested in for April, rather, look at the strategies, the Metrics, charts, etc. With all the changes outlined before, it may help to see it the deck with these new changes.
Dual Momentum Systems
Strategy Changes for April 2021
Strategy Changes for Improved Liquidity
Higher net worth investors have made me aware of the importance of liquidity/tradability when investing large amounts into a strategy. If you, for example, are placing a trade for $25,000 or $500,000 into an ETF, it’s not likely an issue for any of the ETF’s in these strategies. If, however, if you are fortunate enough to be placing a trade for $1,000,000 or $2,500,000 or more then the liquidity of several of the ETF’s become an issue even with careful trade execution.
Neither USA S-M-L nor MAX PAIN are suitable for large allocations because the 3X leveraged ETF's for S&P MidCap 400 are not liquid enough. The Treasuries ETF used in some cases aren't as liquid as they could be.
UMDD in MAX PAIN will be replaced with MIDU. This is still not liquid enough for large retail investors (without very care trade execution), but a better choice for the rest of us. These two ETF’s perform virtually identical, moving to the more liquid option.
The Vanguard Long Term Treasury ETF VGLT used in several strategies is being replaced with TLT which is far more liquid. These two ETF’s perform virtually identical, moving to the more liquid option.
MAX PAIN previously used TYD for some months when in Treasuries, it will now use EDV for improved liquidity.
Strategy Deletions and Additions
When Smart Leverage was introduced (going into leveraged ETF’s after an outsized drawdown in the market) it didn’t fit perfectly with the original The Russell because the Russell MidCap Value (a component of The Russell) has no leveraged ETF available. The Russell MidCap Value is being replaced with the Russell 2000 which has a liquid 2X version so that all the base components in The Russell can now be leveraged up when Smart Leverage is triggered. This change reduces the CAGR on historical results just less than 1%, but the Ulcer Index is reduced by over 40%; a worthwhile trade off.
USA S-M-L is gone! It is a great strategy and have my own capital committed to it. But it isn’t friendly for large portfolios so I am replacing it with a more aggressive version of The Russell which is also very good. While the new, more aggressive version of The Russell has 2% lower historical CAGR than USA S-M-L, it also has an Ulcer Index that is more than 30% lower. This swap of strategies makes sense because The Russell XXL can accommodate small fry's to big fish investors who like this aggressive strategy, USA S-M-L only fit the small fry investor. The Russell XXL is far less volatile than USA S-M-L and has excellent risk adjusted performance.
The Russell XXL is unleveraged most of the time which helps account for it's low volatility and high risk adjusted performance metrics. Smart Leverage is successful in capturing more upside when the odds are in our favor. The Russell XXL is going to have a large allocation in my personal portfolio.
Historical results show The Russell XXL invested as follows:
62% of the months in unleveraged equities
8% of the months in 3X leveraged equities
6% of the months in 3X Long Term Treasuries
24% of the months in Extended Duration Treasuries (unleveraged)
The Russell OG (OG = original before Smart Leverage) is back! I am bringing back the original The Russell strategy which has the components: Russell 1000, Russell MidCap Growth, Russell MidCap Value as a non-leveraged strategy. It is very conservative, it does not incorporate Smart Leverage yet handily outperforms the S&P 500 over time with far less drawdown. It has terrific return and performance metrics This is a great strategy for anybody who isn’t comfortable with the leverage that Smart Leverage introduces to the strategies.
The Russell is the newer strategy with Smart Leverage, The Russell OG is the original strategy without leverage and it retains using the Russell MidCap Value while the newer The Russell swaps out MidCap Value for the Russell 2000.
Reporting Changes
I am taking the Combo strategy out of the reports. The charts and tables are too crowded. It was nice to be able to show various combinations of the strategies. But by looking at the Metrics pages you can make an intelligent choice about which strategies you may want to combine in your personal portfolio by looking at the CAGR, Ulcer Index, and various risk adjusted performance metrics.
If you're conservative but maybe a bit moderate, then combine mostly Global Navigator and The Russell OG with some The Russell.
If you can handle some volatility in your portfolio and will sleep at night occasionally being leveraged up when the odds are in your favor, then go with predominantly with the new The Russell XXL, maybe add some Global Navigator and or The Russell OG with it to moderate.
If you are an investing psychopath devoid of emotion during otherwise painful drawdowns and only want the highest possible returns then go 100% MAX PAIN.
The Reporting Deck now includes investor size appropriateness ratings for the strategies. Classifications are:
Whale = Strategy allocation > $2,500,000
Big Fish = Strategy allocation of $500,000 - $2,500,000
Small Fry = Strategy allocation up to $500,000
PRELIMINARY March 2021 DECK