Tactical Asset Allocation + HBPP an intriguing combo

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ochotona
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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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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Tue Jun 18, 2019 9:02 am

Awesome work D1984, I'll download the data and run it through portfolio visualizer when I have time. I think a three-way (Triple Momentum) contest would be useful also using min vol US, EFA, EM indices. I can try "take the best of each", or "take the top two of three". It should be informative.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Tue Jun 18, 2019 12:29 pm

USMV is god-awful overbought now. It's horrible. I'm not touching it no matter how FOMO.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Tue Jun 18, 2019 11:01 pm

So the bond choice is AGG for the backtest? I'll probably find a Vanguard bond mutual fund to test
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Tue Jun 18, 2019 11:30 pm

USMV and EFAV for the stock component, VBMFX and VFISX for the bond component 1992-May 2019

13.07 CAGR/11.54 Max DD Sharpe .49
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by D1984 » Wed Jun 19, 2019 1:12 am

Kbg wrote:
Tue Jun 18, 2019 11:30 pm
USMV and EFAV for the stock component, VBMFX and VFISX for the bond component 1992-May 2019

13.07 CAGR/11.54 Max DD Sharpe .49
If you want to take it back to 1990 you can use FFXSX (or maybe 80/20 or 85/15 FIGTX/CASHX rebalanced monthly or annually in PV and saved as a portfolio with a custom ticker symbol) as an alternative to VFISX since that only goes back to 1992.

I am working on getting data for what % of world market cap was US and what percent was other countries so as to be able to create a crude synthetic ACWI minimum volatility pre-1993 which can then be blended into the actual index starting in May 1993...that way ACWV can be compared against USMV as well.

EDIT: I just noticed that you said the Sharpe was 0.49. That seems awfully low for a portfolio with a 13.07% CAGR and an 11.54% maxDD; even a fund like Wellesley (VWINX)--which is no one's idea of a risky portfolio--had a Sharpe of 0.92 for 1992-present and it had a CAGR during this time period of just over 8% and a maxDD of 18.82%.

I'm just curious...what was the Sortino ratio of the USMV/EFAV DM portfolio?
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Wed Jun 19, 2019 7:23 pm

Agree on the SR...weird.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Thu Jun 20, 2019 8:06 pm

Shootout between VFINX Vanguard S&P500 mutual fund vs. USA MIN VOL index

1990-Present, Absolute Momentum, 12 month lookback only

VFINX CAGR = 11.30%, MAXDD = -16.3%, SORTINO = 1.23, 21 trades
USA MIN VOL CAGR = 11.94%, MAXDD = -11.5%, SORTINO = 1.76, 25 trades (didn't expect this)

Pretty cool, but the questions for me are... do you trust the index, and do you want to tilt toward that particular factor? Like I said, my spouse already owns it. Do I want to buy more? hmmmmm......
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Fri Jun 21, 2019 9:52 am

I think we all have to be cognizant of the fact that as soon as something gets turned into an investable product it becomes a mechanism for bringing efficiency to that element of the market. It will be interesting to see how it works going forward. The longer I’m around this stuff the more I become impressed with the S&P 500. Ultimately it’s a momentum fight amongst America’s most successful companies...that’s been a good combo and hard to beat.
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