leveraged portfolios (bonds, IRAs, hedge fund, margin)

[mathjak107]

we have had some interesting conversation albeit confusing discussions on using leveraged portfolios to reduces risk and increase gains ..

and noooo this isn’t about using margin or mortgage money ..

borrowing money and just buying more of a 60/40 only buys a bigger 60/40 . but it is still a 60/40 with all the draw down and gain limitations on a 60/40 .

buying more of just a particular holding then changes the allocation and is no longer a 60/40/.

so these leveraged efficient portfolios are done using derivatives, futures contract and options to create more power in what appears to be the same 60/40 allocation but on steroids .

there are quite a few different models out there .

these can be easily created today using the many leveraged funds out there .

leveraged meaning , thru various products if the market moves 100 points you move 200 or 300 points

couple that with risk parity assets and you can get some pretty wild results

i am experimenting with the carolina reaper version .

i will call it experimenting more then investing since i only committed 10k to it to see how it behaves

it consists of 3 etfs


20% UPRO, a 3X leveraged S&P 500 fund

13.33% TYD, a 3X leveraged Intermediate-Term Treasuries fund

66.67% in the aforementioned DBMF

there are other models

wisdom tree has one that mimics the work of cliff asness


WisdomTree’s US Efficient Core Fund (NTSX) is essentially Asness’s idea in investable form.

NTSX combines a 90% position in the S&P 500 and uses the remaining 10% to take positions in future contracts on various types of Treasuries designed to resemble a 60% allocation to bonds. NTSX is then a 1.5X leveraged fund that should act like a 90/60.


There's a little nuance to this portfolio, though, since it is “capital efficient,” which is the ability for an investment strategy to gain exposure to a particular market while using fewer assets. An investor could go all-in with NTSX, or else devote just $66.67 of actual money to mimic the performance of $100, which would then you give you an additional slice to allocate somewhere else.

These days, a 66.7% allocation to NTSX combined with 33.3% in iMGP DBI’s Managed Futures ETF (DBMF) is gaining a lot of traction and press as a quick and easy way to create a capital-efficient take on the 60/40 that gives you the extra boost of whatever your managed futures strategy can deliver on top of what you would have gotten from the 60/40.

Corey Hoffstein is often credited with this portfolio idea, though when I reached out to him, he also gave credit to Jake (@EconomPic) and the real person at Unrelated Nonsense, whose actual name I don’t know. This NTSX/DBMF combo is also reminiscent of the “return stacking” idea advanced by Hoffstein

so here is a little back test on the versions above along with the original article

https://www.riskparitychronicles.com...veraged-60-40/

[mathjak107]

one thing i saw yesterday happen is with the more than 500 point move in equities the portfolio smoothed that out to the point of being like watching paint dry

the highly leveraged upro etf was up a wild 4.05%

the highly leveraged etf TYD was also up a wild 3.94%

the managed futures etf DBMF was down .71%

based on the dollars allocated to each the portfolio moved up a smooth under 1% overall .

it really smoothed out considering the other two etfs move 3x what the market does .

so good or bad that big move was pretty smoothed out and tempered

[mathjak107]

interesting about the managed futures fund that is used dbmf



ETF Overview

DBMF is an active-managed liquid alts ETF run by Andrew Beer and Mathias Mamou-Mani from DBI Investments. Andrew was a Baker Scholar from Harvard Business School with over two decades of experience in the hedge fund industry. Andrew is an expert in the commodity futures and emerging market industry, and his expertise helped DBMF to outperform the market by 44.11% YTD. Even compared to other hedge fund-like ETFs, DBMF surpassed the category average by 28.53% YTD.

DBMF is one of the few high-quality liquid alts ETFs on the market. The main goal of DBMF is to operate like a hedge fund with long/short positions, various financial instruments such as future-based contracts, and allocations across different asset classes.


in 2022 the return of DBMF outpaced the S&P 500 index by 44.11%, contributed by the commodity long position and fixed income/currency short positions.

[moguldreamer]

Just a reminder to people reading this thread that results must be looked at over long periods of time, not short periods of time. The data show the superiority of these strategies over long periods of time -- but there is no law of nature that says these strategies must be superior in the short run.

[moguldreamer]

And while Mathjak's excellent summary above frames the issue in terms of "leveraged portfolios," the right way to look at this is that each of us has a single portfolio, not multiple portfolios. Each of us has just one portfolio that includes all of our assets: tax advantaged investment accounts (e.g. 401Ks and IRAs), regular taxable accounts, bank checking accounts & savings accounts (e.g., Chase and Wells Fargo), credit union accounts, fine art, rare coins, personal and investment real estate, real estate investment trusts, 1960s Muscle Cars, Treasury Direct accounts, precious gems & jewelry, precious metals (gold, silver, platinum, etc), precious metal funds, non-qualified deferred comp, etc etc etc etc.

That's the ASSET side of our individual unique personal ledgers.

Then there is the LIABILITY side of our individual unique personal ledgers - and for some of us, the liability side includes debt: residential mortgages, car loans, credit card balances that are not paid off each month, personal unsecured loans, margin loans, secured loans, etc.

When each of us makes the rational decision to maintain a substantial liability balance of loans (debt) while simultaneously owning assets (investments), that is called leverage. It isn't the exotic alphabet soup of synthetic derivatives, but it is leverage.

Leverage by itself is neither good nor bad; it just is. . Some people have a visceral response to debt (e.g., people who religiously listen to certain radio show hosts dispensing personal finance advice such as Dave Ramsey among others), but debt by itself is not necessarily a bad thing - or a good thing either.

[mathjak107]

Originally Posted by moguldreamer

Just a reminder to people reading this thread that results must be looked at over long periods of time, not short periods of time. The data show the superiority of these strategies over long periods of time -- but there is no law of nature that says these strategies must be superior in the short run.

and lots to go wrong with these kinds of funds on steroids.

the key to the one i am using is what the managed futures fund does as that actually has the most dollars in it .

the leveraged funds have had what typically would be called great performance the last two days .

but the managed futures which tends to run contrary to other assets grabbing them by the collar tempering down the volatility.

so today we show right now

upro up almost 1% for equities

tyd is up almost 2% on bonds

and managed futures which is long and short positions on different assets like a hedge fund is down .67%

so for such volatile holdings these are very tempered as a portfolio

up 1.25% since buying monday

[mathjak107]

Originally Posted by moguldreamer

And while Mathjak's excellent summary above frames the issue in terms of "leveraged portfolios," the right way to look at this is that each of us has a single portfolio, not multiple portfolios. Each of us has just one portfolio that includes all of our assets: tax advantaged investment accounts (e.g. 401Ks and IRAs), regular taxable accounts, bank checking accounts & savings accounts (e.g., Chase and Wells Fargo), credit union accounts, fine art, rare coins, personal and investment real estate, real estate investment trusts, 1960s Muscle Cars, Treasury Direct accounts, precious gems & jewelry, precious metals (gold, silver, platinum, etc), precious metal funds, non-qualified deferred comp, etc etc etc etc.

That's the ASSET side of our individual unique personal ledgers.

Then there is the LIABILITY side of our individual unique personal ledgers - and for some of us, the liability side includes debt: residential mortgages, car loans, credit card balances that are not paid off each month, personal unsecured loans, margin loans, secured loans, etc.

When each of us makes the rational decision to maintain a substantial liability balance of loans (debt) while simultaneously owning assets (investments), that is called leverage. It isn't the exotic alphabet soup of synthetic derivatives, but it is leverage.

Leverage by itself is neither good nor bad; it just is. . Some people have a visceral response to debt (e.g., people who religiously listen to certain radio show hosts dispensing personal finance advice such as Dave Ramsey among others), but debt by itself is not necessarily a bad thing - or a good thing either.

this is a concept i have tried to get across over and over .

many look at just the bit they have in retirement accounts and go i am 100% equities and have a 22% return when 75% of their money overall sits in cash instruments .

so the end result is they are peeing in the ocean over all and the growth meter shows little true growth in comparison to there total holdings .

[FL_Expert]

Any Sharpe over 1 piques my interest. Thanks for sharing, I’ll read in further detail when I get some time later.

[mathjak107]

it an interesting topic and when mogul brought it up in a discussion of 401k’s where it really wasn’t appropriate i thought about actually trying a version .

so if it doesn’t pan out its moguls fault. lol

it seems to me that the carolina reaper with its managed futures is a lot more subdued if the shorts move opposite then cliff asness’s ntsx version.

but it is capable of also greater gains if they move together as the longer term data shows.

ntsx is a one stop shopping etf incorporating cliff asness’s work as opposed to the roll your version with greater asset coverage and shorts with the carolina reaper

[moguldreamer]

Originally Posted by mathjak107

so if it doesn’t pan out its moguls fault. lol

According to mrs. moguldreamer, there are two types of things in this world:

• Things that are my fault, and
• Things that haven't happened yet.