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I have been dinking around with the Portfolio Visualizer web tools a bit. I came upon this combination of leveraged ETFs that are traded monthly using a Risk Parity allocation.
ETFs are: TQQQ QLD TMF TLT UBT UPRO



Start End Cagr
Timing Portfolio $10,000 $61,347 24.59%
Vanguard 500 Index Investor $10,000 $26,476 12.53%

Double the SPY CAGR since Jan., 2011 with about 2/3 of Max DD and Sortino Ratio above 3.

https://tinyurl.com/y4fj97o3
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The numbers appear great. But beware

Three of the eight years were blockbusters the rest were losers(weekly and monthly). Not easy to stay the course.

GD_
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Yes, that was a good period for equities. And the drawdowns are calculated only for end of month.
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On a more global level, I am happy to see some new ideas on this board.
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Interesting... what does "risk parity" mean / how calculated & used?
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I think risk parity means something like allocation based on absolute [eg., dollar] value with a measure of risk &/or volatility &/or correlation to other asset classes factored in. I don't know the other answers.
:-)Shawn
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A WWL list of Leveraged ETF's(Based on a modified WWL screen Criteria)

Symbol                    ETP Name                    Price     Net Assets      Leveraged    Geography  VOL(90d)    BAR      %B52wH    TR(3y)    TR(1y)   PP(13w)
Criteria: Leveraged/WWL EX. CO/GL Best 3o5 Best 2o5 Best 4o5 Best 4o6 Best 3o6 All
Matches: 97 66 42 41 19 15 14 14
DRN DIREXION DAILY REAL ESTATE BULL 3X SHARES $23.78 $44.2M 3x, Leveraged Domestic 43.5K 0.53% 9.91% 4.28% 39.37% 19.60%
URE PROSHARES ULTRA REAL ESTATE $73.43 $134.5M 2x, Leveraged Domestic 20.9K 0.10% 5.86% 9.73% 27.17% 16.44%
TECL DIREXION DAILY TECHNOLOGY BULL 3X SHARES $159.55 $780.0M 3x, Leveraged Domestic 359.1K 0.08% 8.21% 59.90% 25.37% 73.94%
ROM PROSHARES ULTRA TECHNOLOGY $122.10 $359.7M 2x, Leveraged Domestic 85.2K 0.06% 1.93% 45.68% 21.88% 43.79%
SOXL DIREXION DAILY SEMICONDUCTOR BULL 3X SHARES $189.26 $689.7M 3x, Leveraged Domestic 966.3K 0.10% 3.48% 96.16% 19.19% 114.15%
SPXL DIREXION DAILY S&P 500 BULL 3X SHARES $50.30 $1.0B 3x, Leveraged Domestic 6.4M 0.02% 10.26% 34.56% 14.48% 35.14%
UPRO PROSHARES ULTRAPRO S&P 500 $53.00 $1.4B 3x, Leveraged Domestic 5.9M 0.02% 10.25% 34.81% 13.98% 34.66%
SPUU DIREXION DAILY S&P 500 BULL 2X SHARES $54.89 $7.3M 2x, Leveraged Domestic 15.7K 0.09% 7.49% 24.83% 13.55% 22.81%
UDOW PROSHARES ULTRAPRO DOW30 $103.38 $520.5M 3x, Leveraged Domestic 1.4M 0.03% 10.41% 43.94% 12.95% 29.04%
SSO PROSHARES ULTRA S&P 500 $123.69 $2.6B 2x, Leveraged Domestic 2.1M 0.02% 4.94% 24.41% 12.36% 22.42%
DDM PROSHARES ULTRA DOW30 $48.59 $378.2M 2x, Leveraged Domestic 1.0M 0.02% 5.21% 29.88% 11.42% 18.83%
USD PROSHARES ULTRA SEMICONDUCTORS $50.65 $67.1M 2x, Leveraged Domestic 34.3K 0.07% 4.83% 55.51% 9.25% 61.73%
FAS DIREXION DAILY FINANCIAL BULL 3X SHARES $69.57 $1.5B 3x, Leveraged Domestic 1.8M 0.05% 11.40% 39.39% 9.07% 30.00%
UYG PROSHARES ULTRA FINANCIALS $43.50 $799.7M 2x, Leveraged Domestic 100.8K 0.06% 6.87% 26.05% 6.95% 17.88%


GD_
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Leveraged ETF's used for other than the short-term trading can be subject to drift & decay. That's 1 reason exchanges & brokers warn against them &/or require disclaimers be signed.
This person follows some & provides monthly updates:
https://seekingalpha.com/article/4252195-leveraged-etf-decay...
...excerpt...
"Where does the decay come from?

Most of the time, a leveraged ETF does worse than the underlying asset leveraged by the same factor. This relative decay has several reasons: beta-slippage, roll yield, tracking errors, management fees. Only the latter is predictable. Roll yield may be prominent for commodity ETFs (leveraged or not), but beta-slippage is usually the main reason for decay. However, it doesn't always result in decay. When an asset is trending with little volatility, a leveraged ETF can bring an excess return over the leveraged asset. You can click here to learn more about beta-slippage and examples.

The leveraged ETF decay looks like an invitation to short sellers. Click here if you want to know why it is a bad idea."

:-)Shawn
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There is no doubt about the tracking error computations as well as the fees deducted. However there is still a pyramiding effect from the leverage application when markets are trending up.

This article from Seeking Alpha gives some interesting information about the longer term holds and returns. I have not done the calcs to be exact on the numbers but consider that if the 3X ticker only gives 2.5X return, compounding for several years can leave an ending balance many multiples higher than the B&H balance. The article has some interesting links to long term research papers and some interesting graphs of final returns.

The Trading Strategy That Beat The S&P 500 By 16+ Percentage Points Per Year Since 1928
https://seekingalpha.com/article/4226165-trading-strategy-be...

With that title, the article attracted many comments, some are worthwhile to read. The author has several other interesting reads published at Seeking Alpha.
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Another example of leveraged funds using Risk Parity.

UOPIX ULPIX VUSTX

Dec 1997 - Mar 2019

https://tinyurl.com/yy4qvq8h

Timing Portfolio $10,000 $69,506 10.05%
Vangua 500 Index $10,000 $33,211 6.11%

Apologies for formatting.
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I think risk parity means something like allocation based on absolute [eg., dollar] value with a measure of risk &/or volatility &/or correlation to other asset classes factored in...

The general notion is to weight things based on the inverse of their recent price volatility.
You have big weightings in things that have steady prices lately and small weightings of things that have shown price volatility.
The goal is to have each position contribute a relatively constant amount of price volatility to the overall portfolio.
Ignoring correlations, of course.
Sometimes the strategy includes a cash or fixed income component, so equity allocations may be reduced when the whole market gets volatile.
There are fancier weighting formulas and sundry extensions, but that's the general idea.

The deep problem with this is that risk is best defined as the answer to the questions: How likely are you to have permanent capital loss on this position, and how big might that be?
Price volatility isn't in that definition, which is why price volatility is not a useful proxy for risk in the real world.
It does however make math easy, so it is very popular among academics, which makes it popular among sales pitches by investment managers.
And many investors prefer smooth portfolio valuations to safe portfolios.
This is the main reason funds are so popular, since averaging across positions gives smoothness.
Most investors would be aghast to see what the prices of their actual holdings are doing, but it's hidden behind the screen of the fund's reporting.
There are far more equity funds than equities these days.

On a much more pragmatic level, past price volatility is not always a good predictor of future price volatility.
Sometimes something goes bump in the night. With a sudden lurch in prices, usually down, the measured volatility spikes on lots of things.
The formulas they use can trigger big selloff when there is a dip in the market, selling at the new lower price, and all those funds (bazillions worth) are in the same positions.
As they sell, they trigger each other's rules to sell more and more.

The amount of money tracking risk parity these days certainly dwarfs, say, the amount of money using "portfolio protection" strategies in 1987.
When a whole lot of money follows the same formula, and that formula is based on recent prices, sometimes things get interesting.

Jim
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Just for fun...I have some data that is a simulation of TMF AND UPRO back to 1955. Risk parity changes with time and for the things Jim notes I tend to use very long term calculations as to the ratio applied. Usually this gets you a ratio of long treasuries to stocks of low 60s/high 50s to high 30s/low 40s...so let’s go 60/40 for our simulation.

1955-1982 CAGR 3.22/DD -71.09
1983-2018 CAGR 18.58/DD -50.08

Whole period 11.65 CAGR

There are several caveats on the data that I won’t post, but I have no reason to doubt the main finding...interest rate direction makes or breaks this strategy. Lastly, both assets’ MaxDD is 90%+...
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PS...if someone is going to do this, throw some gold into the mix or something that goes up when interest rates go up.
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I'm glad to see someone calling attention to Logan Kane. His articles on the SeekingAlpha web site have been remarkable. I suspect many of them would appeal to mechanical investing fans. Articles like this one on how to use probability to make bets with the deck/market is in your favor.

https://seekingalpha.com/article/4230171-apply-card-counting...

But that article you cited on how leveraged ETFs are not just one day or one week tools really opened my eyes. Glad to see it referenced.
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The formulas they use can trigger big selloff when there is a dip in the market, selling at the new lower price, and all those funds (bazillions worth) are in the same positions.
As they sell, they trigger each other's rules to sell more and more.

The amount of money tracking risk parity these days certainly dwarfs, say, the amount of money using "portfolio protection" strategies in 1987.
When a whole lot of money follows the same formula, and that formula is based on recent prices, sometimes things get interesting.


To wit: Q4 2018! Now not just a herd, a robotic herd following a single central mind. (Borg?)

FC
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Sometimes something goes bump in the night. With a sudden lurch in prices, usually down, the measured volatility spikes on lots of things.
The formulas they use can trigger big selloff when there is a dip in the market, selling at the new lower price, and all those funds (bazillions worth) are in the same positions.
As they sell, they trigger each other's rules to sell more and more.

The amount of money tracking risk parity these days certainly dwarfs, say, the amount of money using "portfolio protection" strategies in 1987.
When a whole lot of money follows the same formula, and that formula is based on recent prices, sometimes things get interesting.

Jim


When investors or investment managers follow a similar strategy then the strategy alone can become a market moving factor. Risk Parity is only one strategy with influence. The quarterly rebalancing of the 60/40 portfolios is something that the large iBanks anticipate. And then there are the various moving average strategies based upon 200 dma which change allocations of funds. When the investment mandate of funds requires fixed allocations to asset classes there are going to be people trying to front run those trades.

Probably not a lot of institutional money following the $NAHL or the tpoto Two Ratios methods.
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