Tactical Asset Allocation + HBPP an intriguing combo

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Kbg
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Sun Apr 28, 2019 10:15 pm

Ref the Great Depression...37% beats the 82% (IIRC).
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Mon Apr 29, 2019 6:21 am

Kbg wrote:
Sun Apr 28, 2019 10:15 pm
Ref the Great Depression...37% beats the 82% (IIRC).
Oh believe me, I take 37 over 82 any day. Same seen in 2008-2009... Crash severity cut by half. Then later Budd harshes on ya.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by pmward » Mon Apr 29, 2019 9:39 am

Yeah I think this kind of ties into our conversation over in the VP discussion. I think GEM (or any other quant strategy really) is fine as a VP, but I probably would not invest 100% of my equities in it. A quant strategy by nature will be a stock allocation that has a low correlation to the stock market. It's like a hedge fund, its biggest value is that it's an extra layer of diversification and tracking error. Sometimes that tracking error will work in your favor, other times it will work against you, but on the whole it works best when paired with a passive stock allocation to improve risk adjusted returns a'la MPT. I think pairing both together by using GEM in a VP is really a best of both worlds kind of situation. It probably will also help the tax situation, haha.

Looking at an 80% PP 20% GEM VP, it tracked the PP almost identically during the recession years, but in the heavy prosperity years of 2013 and up it has out performed by a decent amount, so it doesn't seem to be a bad strategy for someone that wants to keep the downside benefits of the PP with a bit more potential juice on the upside. Unfortunately, I wish we could get data further back than 2005: https://www.portfoliovisualizer.com/tes ... 0&total1=0
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Mon Apr 29, 2019 2:58 pm

I think it's important to put trend following in context (at least the long stock only model of it). You get most of and perhaps slightly more of the upside, will almost always under perform on a ST basis and in return you clip some left tail risk. That's it. The risk profile is often described as a put covered long position, which it is. The value of it (I think), is it seriously reduces sequence risk. Well, I also know enough market history to know assuming stock markets always go up is a pretty stupid idea in my view.

If you like beating the market, I suggest a different strategy. In fact, you should just assume that on any given day you are going to lag it.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by pmward » Mon Apr 29, 2019 3:04 pm

Kbg wrote:
Mon Apr 29, 2019 2:58 pm
I think it's important to put trend following in context (at least the long stock only model of it). You get most of and perhaps slightly more of the upside, will almost always under perform on a ST basis and in return you clip some left tail risk. That's it. The risk profile is often described as a put covered long position, which it is. The value of it (I think), is it seriously reduces sequence risk. Well, I also know enough market history to know assuming stock markets always go up is a pretty stupid idea in my view.

If you like beating the market, I suggest a different strategy. In fact, you should just assume that on any given day you are going to lag it.
Yes, I agree. Trend strategies tend to underperform in a bull market and outperform in a bear market. This is where the low correlation comes in, that can help risk adjusted returns with combined with other strategies that have different strengths and weaknesses (like buy and hold).
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Mon Apr 29, 2019 8:30 pm

Trendfollowing is tough, just like the HBPP is tough. Being different is not easy.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Tue Apr 30, 2019 8:53 am

ochotona wrote:
Mon Apr 29, 2019 8:30 pm
Trendfollowing is tough, just like the HBPP is tough. Being different is not easy.
Supposedly, only the tough strategies are enduring...I find any strategy is not tough so long as you "really" understand it mentally and emotionally to the point you can accept the times the sucky side of the strategy exerts itself.

Kinda Zenish...and personally it took me a long time to get there.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by pmward » Tue Apr 30, 2019 9:12 am

Hedging your bets helps a lot too. Going 100% all in on any one strategy can be stressful. But if you place one strategy alongside another that is either uncorrelated or at least has a low correlation, then it does help smooth things out quite a bit. This is why hedge fund investors are not recommended to choose just one hedge fund, they recommend picking multiple strategies that have different strengths & weaknesses and let the whole become greater than the sum of its parts. This is also obviously a big key to the PP. Diversification is as much a mental hack as it is a risk adjusted return hack. The only real weakness to diversification is you can be subject to FOMO. Concentrated bets have the potential to make more money, but they also have the potential for greater losses. An individual stock can triple its value in a year, and it can also go to 0 overnight.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sat Jun 01, 2019 6:38 am

GEM is in S&P 500 stocks, which could be ETFs SPY, IVV, VOO, or SCHX. This is valid for June. It's quite possible this changes in a month to bonds.

By the way, for Schwab investors, there are now two good aggregate bond choices which trade for free: Schwab SCHZ and iShares AGG. Many iShares ETFs now trade for free, which is nice.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by HappyMan » Sat Jun 01, 2019 7:10 am

Good to know about iShares. Schwab seems to be working hard

GEM's rolling 12-month return is -5.47%.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sat Jun 01, 2019 7:16 am

Some other strategies have **cough** "made a change" **cough** this month, but the info is copyrighted so I can't say any more.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Sat Jun 01, 2019 10:25 am

It’s interesting running this strategy not using the all or nothing method, tranching and different mutual funds. There is quite a bit of variation. I’m on a 5 week cycle due to trading frequency limitations and I think one account is (us/int/bnd) 90/0/10 and another 60/10/30 with the rest in between.

Update - this week's account moves to a classic 60/40.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by HappyMan » Sun Jun 02, 2019 10:14 pm

ochotona wrote:
Sat Jun 01, 2019 7:16 am
Some other strategies have **cough** "made a change" **cough** this month, but the info is copyrighted so I can't say any more.
Is this the latest one that you signed up and which one you were able to backtest so many centuries?
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by InsuranceGuy » Sun Jun 02, 2019 11:12 pm

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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Mon Jun 03, 2019 5:33 am

HappyMan wrote:
Sun Jun 02, 2019 10:14 pm
ochotona wrote:
Sat Jun 01, 2019 7:16 am
Some other strategies have **cough** "made a change" **cough** this month, but the info is copyrighted so I can't say any more.
Is this the latest one that you signed up and which one you were able to backtest so many centuries?
All the way to 1492
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by HappyMan » Mon Jun 03, 2019 5:37 am

InsuranceGuy wrote:
Sun Jun 02, 2019 11:12 pm
HappyMan wrote:
Sat Jun 01, 2019 7:10 am
Good to know about iShares. Schwab seems to be working hard

GEM's rolling 12-month return is -5.47%.
Not all strategies are created the same. My modified version of GEM has a rolling 12-month return of +11.4% (unlevered).
Unless you are willing to share signals on a regular basis, it is hard to follow your version.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by InsuranceGuy » Mon Jun 03, 2019 9:27 am

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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Thu Jun 06, 2019 8:30 pm

I am trying to make peace with whipsaws. I looked at using 10-mo MA to go in and out of the S&P500 and intermediate Treasuries since 1987, so 32+ years.

18 whipsaws, median return of that set of whips was -2.08% compared to buy-and-hold. 17 of 18 whipsaws had a return equal to or less than 0%. Some year had three whips.

And yet, the method worked great on every measure people say they care about. But it's low on the "I feel great after my trade last month" measure.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sun Jun 16, 2019 10:21 am

iShares has a set of lower volatility ETFs which could produce better GEM signals which are less "whippy" than using regular S&P 500 and ACWI ex-US ETFs. These are USMV and ACWV. Let's compare them to VOO and VEU. Unfortunately, the history is very limited, only spans 2013-2019.

USMV/ACWV CAGR 13.19%, maxDD -7.56%, 5 trades

VOO/VEU CAGR 7.94%, maxDD -14.04%, 10 trades

The link to the backtest is here.

The conventional ETFs spend a lot of trades thrashing around, whipsawing, and doing damage... and that encompasses two important periods of volatility... late 2015/early 2016, and late September 2018 really to the present. The volatility managed ETFs give market returns, but are just a lot quieter, which is exactly what Gary Antonacci says Dual Momentum needs... it does not work well with volatile ETFs. So, here are some calmer products, and Dual Momentum seems to act better using them. Ironically, I bought USMV for my wife, but buy-and-hold. I just didn't think to DM test it.

So in the future I will be reporting the use of GEM Dual Momentum using USMV and ACWV. When I think about how much aggravation these ETFs would have saved me had I been using them in Dual Momentum mode... well, you know the story in investing, it involves regrets and remorse.

USMV trades free at Schwab, ACWV does not. AGG trades for free at Schwab now, which Gary uses.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by HappyMan » Sun Jun 16, 2019 5:42 pm

ochotona wrote:
Sun Jun 16, 2019 10:21 am
iShares has a set of lower volatility ETFs which could produce better GEM signals which are less "whippy" than using regular S&P 500 and ACWI ex-US ETFs. These are USMV and ACWV. Let's compare them to VOO and VEU. Unfortunately, the history is very limited, only spans 2013-2019.

USMV/ACWV CAGR 13.19%, maxDD -7.56%, 5 trades

VOO/VEU CAGR 7.94%, maxDD -14.04%, 10 trades

...

USMV trades free at Schwab, ACWV does not. AGG trades for free at Schwab now, which Gary uses.
Cool! Thanks for sharing.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by D1984 » Sun Jun 16, 2019 9:47 pm

ochotona wrote:
Sun Jun 16, 2019 10:21 am
iShares has a set of lower volatility ETFs which could produce better GEM signals which are less "whippy" than using regular S&P 500 and ACWI ex-US ETFs. These are USMV and ACWV. Let's compare them to VOO and VEU. Unfortunately, the history is very limited, only spans 2013-2019.

USMV/ACWV CAGR 13.19%, maxDD -7.56%, 5 trades

VOO/VEU CAGR 7.94%, maxDD -14.04%, 10 trades

The link to the backtest is here.

The conventional ETFs spend a lot of trades thrashing around, whipsawing, and doing damage... and that encompasses two important periods of volatility... late 2015/early 2016, and late September 2018 really to the present. The volatility managed ETFs give market returns, but are just a lot quieter, which is exactly what Gary Antonacci says Dual Momentum needs... it does not work well with volatile ETFs. So, here are some calmer products, and Dual Momentum seems to act better using them. Ironically, I bought USMV for my wife, but buy-and-hold. I just didn't think to DM test it.

So in the future I will be reporting the use of GEM Dual Momentum using USMV and ACWV. When I think about how much aggravation these ETFs would have saved me had I been using them in Dual Momentum mode... well, you know the story in investing, it involves regrets and remorse.

USMV trades free at Schwab, ACWV does not. AGG trades for free at Schwab now, which Gary uses.
Don't the underlying indexes on these go back to 1988 for the US one and 1993 for the All-Country World one? If MSCI creates an index they usually have full monthly total return data for it available free on their website. I know PV can't test indexes directly (unless they are already saved as portfolios with custom assigned ticker symbols) but wouldn't it be possible to manually test these at least back to 1994 given the underlying indexes?
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Mon Jun 17, 2019 5:42 am

"The iShares Edge MSCI Min Vol USA ETF seeks to track the investment results of an index composed of U.S. equities that, in the aggregate, have lower volatility characteristics relative to the broader U.S. equity market."

It's not a generic index, it's proprietary. They don't even name it. BUT...

Paul Novell has synthetic USMV data going back to 1999, he tells me USMV works fine for tactical asset allocation schemes. Woo-hoo!
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Mon Jun 17, 2019 8:12 am

If someone will find where the data is and post it here (link to) I’ll run the backtest and post results.

And thanks..,very interesting twist.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Mon Jun 17, 2019 1:48 pm

Kbg wrote:
Mon Jun 17, 2019 8:12 am
If someone will find where the data is and post it here (link to) I’ll run the backtest and post results.

And thanks..,very interesting twist.
Novell didn't share the data with me, but he did plug the synthetic USMV data into his proprietary model and ran in it place of SPY, and it was better. The GEM public model is also better 2013-2019. I also looked at the Invesco vs. iShares min vol ETFs, and iShares were far and away better. Yup, this is a cool twist.

In fairness to myself... I bought USMV buy-and-hold for the Mrs. before all of this 2018-2019 volatility erupted. But now that we've had the short VIX trade destroyed, and the Christmas 2018 end of the world, plus the late 2015 thing, I think we have some nice views into how the ETF performs under stress. It works as designed.

The only thing I worry about has been voiced publicly, and I think it's happening now... when things go pear-shaped, everyone piles into USMV. Everyone gets on the same side of the boat. It's way oversold now, possibly a bad deal if you buy it today.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by D1984 » Mon Jun 17, 2019 11:33 pm

ochotona wrote:
Mon Jun 17, 2019 1:48 pm
Kbg wrote:
Mon Jun 17, 2019 8:12 am
If someone will find where the data is and post it here (link to) I’ll run the backtest and post results.

And thanks..,very interesting twist.
Novell didn't share the data with me, but he did plug the synthetic USMV data into his proprietary model and ran in it place of SPY, and it was better. The GEM public model is also better 2013-2019. I also looked at the Invesco vs. iShares min vol ETFs, and iShares were far and away better. Yup, this is a cool twist.

In fairness to myself... I bought USMV buy-and-hold for the Mrs. before all of this 2018-2019 volatility erupted. But now that we've had the short VIX trade destroyed, and the Christmas 2018 end of the world, plus the late 2015 thing, I think we have some nice views into how the ETF performs under stress. It works as designed.

The only thing I worry about has been voiced publicly, and I think it's happening now... when things go pear-shaped, everyone piles into USMV. Everyone gets on the same side of the boat. It's way oversold now, possibly a bad deal if you buy it today.
Ochotona, kbg,

I checked the underlying index for these ETFs; it appears that they are all based on regular minimum volatility indexes from MSCI and are not proprietary; see:

https://www.ishares.com/us/products/239 ... tility-etf


https://www.ishares.com/us/products/239 ... tility-etf


https://www.ishares.com/us/products/239 ... tility-etf


Go to any of these links, choose the "Key Facts" tab, and see what the underlying benchmark index is.

I have downloaded the appropriate indexes from the MSCI website and uploaded a zipped file of them to:


http://www.filedropper.com/msciminimumvolindexes


The US minimum volatility index goes back to mid-1988 and the ACWI minimum volatility index (which includes all the countries of the world including the USA and everywhere else) goes back to mid-1993; I also included the EAFE minimum volatility index (which underlies the ETF EFAV) and which goes back to mid-1988 as well; you can either use this to backtest a EAFE-US minimum volatility DM back to 1990 or--provided you can figure out how to weight EAFE vs US each year depending on roughly how much of the world's market cap the US was vs the EAFE--use it to create a quasi-ACWI minimum volatility index back to the late 1980s for a US-ACWI minimum volatility DM (using the EAFE + US "synthetic ACWI index" until mid-1993 and then the actual ACWI one after that); otherwise the US-ACWI minimum volatility DM will have to start in 1995 since the ACWI min vol index starts in mid-1993 and 1994 was the first full year to give you twelve months of returns to look at.

BTW, I checked (just from mid-2017 onwards to May 2019) both the monthly MSCI US min vol index returns vs USMV and the monthly MSCI ACWI min vol index returns vs ACWV; the monthly correlations on the returns were 0.9990 for the US one vs its underlying index and 0.9971 for the ACWI one vs its underlying index (in other words an almost perfect correlation in both cases); I think that shows that these ETFs are indeed based on these indexes, track them fairly well, and as such said indexes can safely be used to extend the backtest before 2013 and even before 1999.
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