Logical Investing For October 2015
This is the monthly monthly Logical-Invest newsletter for October 2015.
Strategy performance overview:
| symbol | close | year to date % ▴ | 3 month % | 1 month % | 1 day % | 60 day volatility | 60 day correlation | 3 month Sharpe | 12 month Sharpe | 36 month Sharpe |
|---|---|---|---|---|---|---|---|---|---|---|
| WORLD-TOP4 | 270.88 | 1.64 | -6.61 | -0.92 | 0.66 | 12.90 | 0.53 | -2.65 | 2.16 | 2.61 |
| AGG | 109.58 | 1.00 | 1.60 | 0.81 | 0.04 | 3.68 | -0.46 | 2.81 | 1.13 | 0.72 |
| UIS | 459.84 | 0.24 | -1.96 | 1.97 | -0.35 | 16.60 | 0.41 | -0.63 | 0.98 | 1.92 |
| BRS | 247.94 | -0.08 | -0.14 | 1.05 | 0.06 | 7.88 | 0.10 | -0.11 | 0.61 | 2.14 |
| TLT | 123.54 | -0.23 | 7.32 | 1.97 | -0.35 | 16.34 | -0.54 | 3.32 | 0.87 | 0.26 |
| GSRLV | 473.25 | -0.87 | -3.00 | -0.09 | 0.66 | 11.20 | 0.80 | -1.45 | 0.89 | 1.66 |
| BUGST | 209.64 | -3.96 | -2.21 | -0.07 | 0.15 | 6.24 | 0.75 | -1.89 | -0.07 | 1.52 |
| BUGLEV | 270.10 | -4.46 | -2.72 | 0.03 | 0.11 | 8.07 | 0.76 | -1.77 | -0.11 | 1.18 |
| GMRS | 3960.17 | -5.12 | -7.20 | 2.21 | -0.50 | 19.59 | 0.23 | -1.73 | 0.09 | 1.12 |
| SPY | 191.59 | -5.43 | -7.22 | -2.51 | 1.87 | 20.13 | 1.00 | -1.69 | -0.08 | 1.48 |
| UIS-SPXL-TMF | 5109.44 | -7.48 | -12.14 | 0.95 | 0.63 | 43.26 | 0.71 | -1.20 | 0.59 | 1.83 |
| MYRS | 535.49 | -8.56 | -14.86 | -2.07 | 0.72 | 27.07 | 0.51 | -2.27 | 0.33 | 2.05 |
| GSRAG | 450.30 | -13.02 | -8.72 | 0.39 | 0.50 | 19.89 | 0.65 | -2.05 | -0.76 | 1.30 |
| GMRSE | 5204.29 | -14.80 | -14.59 | 2.21 | -0.50 | 30.25 | 0.36 | -1.95 | -0.47 | 1.31 |
Symbols:
BRS – Bond Rotation Strategy
BUGST – A conservative Permanent Portfolio Strategy
BUGLEV – A leveraged Permanent Portfolio Strategy
GMRS – Global Market Rotation Strategy
GMRSE – Global Market Rotation Strategy Enhanced
GSRLV – Global Sector Rotation low volatility
GSRAG – Global Sector Rotation agressive
WORLD-TOP4 – The Top 4 World Country Strategy
UIS – Universal Investment Strategy
UIS-SPXL-TMF – 3x leveraged Universal Investment Strategy
AGG – iShares Core Total US Bond (4-5yr)
SPY – SPDR S&P 500 Index
TLT – iShares Barclays Long-Term Trsry (15-18yr)
Market comment:
The global investing markets had two really bad months with U.S. and global equities suffering between 9% to 18% losses.
Unfortunately, traditional safe haven assets did not help much. Long term treasuries and gold have been more or less flat for this period. Under normal circumstances such a market correction would have made them go up nearly 10%.
Going forward into October we now face a problem. If the stock market continues to go down, then treasuries and gold will probably just continue to be flat. If the stock market recovers, then treasuries will probably quickly go down.
So, the only way to profit is if you speculate on a stock market recovery. At the moment all asset trends point downward. This is a unique situation we have not seen in the last 10 years.
With September and October being historically the worst performing and most volatile months, I personally think we should not invest too much for next month. Better wait until November, because November and December are historically months with a good performance. This year it could well be that many portfolio managers will try to participate in such a window-dressing, year-end rally. If you stay invested, then the best strategies to be are the low volatility strategies like GSRS lv and the Top4 world country strategy. Here we still find sectors or countries which perform better than the average market. These Strategies are also balanced between treasuries and stocks.
For the cautious investors the defensive strategies like BRS, BUG and UIS are a good choice. I would not invest in the more aggressive strategies like MYRS, GSRS ag, UIS3x or GMRSE.
These last two months we had extremely high asset volatilities not seen since the 2011 market correction. This was partly because buying volatility through ETFs like VXX was nearly the only way to protect portfolios. ZIV suffered a lot and is nearly 25% down. There are however two positive things to note. The midterm VIX futures on which ZIV is based never went into backwardation. ZIV has always profited from a small contango roll yield.
The other interesting thing is the current behavior of ZIV. Normally ZIV behaves like a 3x leveraged SP500 ETF. A the moment the premium level is so high, that ZIV falls at the same rate as the US market. This means that the leverage to the upside is still about 3x, but to the downside only about 1x. This is an interesting fact for the brave investors which see ZIV more like a long term investment and which have time to wait until volatility comes down again.
With volatility at such high levels, the 3x leveraged UIS strategy suffers from rebalancing losses. If you currently want to use this strategy you should do it by shorting the inverse SPXS and TMV ETFs. In this case you would benefit from these rebalancing losses.
During times of high risk and diminished asset performance, reducing the amount invested to manage risk is considered a solid portfolio management practice. However, going totally to cash is not a good strategy for any measurable length of time, as cash is a deteriorating asset.
Our Strategies are designed to improve returns and/or reduce risk vs a buy & hold of the underlying assets. With the bad performance of all underlying assets, the strategy performance itself is challenged. Strategies like UIS continue to do quite well, with the switch between the S&P and treasuries substantially outperforming the US market this year. Other strategies, like World Top 4 are up YTD and will do well into any global recovery.
On another note, we have been busy developing some new strategies. We have an exciting new Nasdaq individual stock meta-strategy you will see later this month, and other significant strategy announcements, so stay tuned.
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