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In some recent work I have been attempting to better model how a leveraged ETF might have performed back in the 1950s and beyond. Most leveraged bond ETFs like TYD didn’t start until around 2009 as far as I am aware. Now obviously no matter what happened in the bast that isn’t indicative of what will happen in the future. However, I do find it helpful to use history as a teacher.

IEF Recreation

The first step was to mimic IEF. This is more difficult in my opinion than mimicking the S&P 500 since I wanted to use inputs that would go really far back into the future such as the 10 year treasury yield. Unfortunately, this fund is made up of a blend of 7-10 year treasuries. Regardless we can see that simply by taking the 10 year treasury yield and doing the proper bond calculations we can get a curve that is very close to the actual performance of IEF with dividends reinvested. I used the dividend adjusted values from tradingview.com for my inputs.

TYD Recreation

TYD is essentially a daily 3X version of IEF. It was started later, but we can see that for this particular period we can get a pretty close match simply by assuming no fees except for assuming a drag equal to 1 times the federal funds rate at that time.

Fee = 1X Federal Funds Rate

Fee = 2X Federal Funds Rate

Fee = 3X Federal Funds Rate

Best Way to Mimick TYD

To the best of my ability to tell the best way to mimic TYD for backtesting purposes is to assume a drag/expense of about 1X the federal funds rate at the time. It is hard to say for sure if this is accurate, but over this period it certainly gives the closest match to actual TYD. I don’t know exactly how leveraged ETFs are able to keep the costs this low, but so far it seems that they are. Part of me wonders if it could be offsetting swaps with short ETFs. For the most part you are then just matching investors and charging a small fee. I will continue to investigate what they are doing internally, but as of now this is a positive sign to see these funds doing so well at managing costs. It is certainly possible that this method only works in the period I have to compare to and that in other periods it is a terrible model. Regardless, I think it is interesting.

Full History Synthetic TYD

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In addition to this blog you can follow my live brokerage accounts anytime. The three links below will take you to a third-party website called collective2 where I record and publish my personal trading decisions. If you have questions let me know!

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

This is not investment advice. This website is designed to talk about investments but it is not designed to give you personalized investment advice. This site is generic and should not be used as the basis for any investment decisions. This is for entertainment and educational purposes only.

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

In an effort to better model how higher rates may affect leveraged ETFs and their ability to obtain low cost leverage I have been doing some backtesting for periods before and after the inception of SSO and UPRO. I have done this before, but am using a different method. Rather than assuming a roughly fixed cost for leveraged ETFs to obtain financing I am using the Federal Funds Rate plus a buffer. I imagine this would be a better simulation for environments with different borrowing costs. The method of calculation holds up very well over the periods that UPRO and SSO actually existed.

Synthetic UPRO (3X S&P 500 ETF)

Synthetic SSO (2X S&P 500 ETF)

See my Brokerage Accounts

In addition to this blog you can follow my live brokerage accounts anytime. The three links below will take you to a third-party website called collective2 where I record and publish my personal trading decisions. If you have questions let me know!

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

This is not investment advice. This website is designed to talk about investments but it is not designed to give you personalized investment advice. This site is generic and should not be used as the basis for any investment decisions. This is for entertainment and educational purposes only.

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

I have been having this discussion about how much rising interest rates will change the ability of leveraged ETFs to track their target benchmarks etc. Below is a chart summarizing some of the results.

1. In blue we have a curve showing the actual ADJ closing prices for UPRO.
2. Green shows starting with the closing price of UPRO on the first day. Then follows the growth of the SPY ADJ close returns for each day multiplied by 3 with no additional costs subtracted.
3. Orange shows the same as green but includes a consistent fee that was needed for the period to have the orange curve end with the same ending price as UPRO ADJ actual. The annual fee needed was 2.46033450515858%
4. Black uses the same format but instead of the fee needed to match it uses 2 x the cost implied for leverage using futures prices and the current S&P 500 dividend.
5. Red uses 2X EFFR as the fee.
6. The interest rates and dividend rate of S&P 500 are also graphed for reference.

So far it seems as though for my purposes neither method shows a large difference in results except over long period of course. However, for the sake of backtesting during the ultra high interest rates the Fed reached in the 70s/80s a method such as the EFFR could be useful since the futures data doesn’t go back as far.

You can see the data I used here.

See my Brokerage Accounts

In addition to this blog you can follow my live brokerage accounts anytime. The three links below will take you to a third-party website called collective2 where I record and publish my personal trading decisions. If you have questions let me know!

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

This is not investment advice. This website is designed to talk about investments but it is not designed to give you personalized investment advice. This site is generic and should not be used as the basis for any investment decisions. This is for entertainment and educational purposes only.

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

Have you ever hear someone say something along the lines of “XYZ investment is dead/broken” only to see that investment/strategy recover shortly after. After the terrible returns of the stock and bond markets combined this last year I have seen numerous people act as though a balanced portfolio or investing in a mix of stocks and bonds is broken – as though you would be throwing money in a fire if you ever tried that again.

This is a natural reaction to drawdowns. It is painful to lose money. However, as a long-term investor I see it quite a bit differently. Just as a portfolio of stocks can drop in value then recover later a portfolio that is a mix of stocks and bonds can drop and recover later. There is no reason to abandon an investment or strategy simply because it is down in price. It should only be abandoned if the decline in price is a symptom of a true lasting problem. It works the same in reverse too. For example, if GameStop stock rockets up in price but the company’s actual sales and profit don’t increase then it is a fickle price move. It may be a big move, but it is without good reason. Likewise a drop in value that isn’t tied to a permanent problem will likely recover. Just as GameStop stock price has recovered back towards it’s business fundamentals.

See my Brokerage Accounts

In addition to this blog you can follow my live brokerage accounts anytime. The three links below will take you to a third-party website called collective2 where I record and publish my personal trading decisions. If you have questions let me know!

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

This is not investment advice. This website is designed to talk about investments but it is not designed to give you personalized investment advice. This site is generic and should not be used as the basis for any investment decisions. This is for entertainment and educational purposes only.

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

This morning I set my alarm for 7:15 local time because I wanted to be up in time to watch how the market moved in reaction to the CPI report. First, I have to apologize to my wife because I hit snooze an unloving amount of times. Then I woke up and saw the market had responded positively. I could feel my emotions get a little lift. Then as time progress the market dropped and I felt like I had really missed out as TMF was down while SVIX was up. I had swapped these just the other day making it much more frustrating. I then went to my office to get some work done. I did a bit of work then went to setup a tab to stream a video game I play called Overwatch 2. I did this just because there is a little in game reward for streaming the game.

I then proceeded to also play Overwatch 2 for about 5 hours or so – on and off while working. I probably only did about 3 hours of solid work so far today and about 5 hours of Overwatch. Now the work I did wasn’t trading. It was backend paperwork, taxes, clients, etc. I mostly only trade once a day except for some paper trading accounts and some goofing around money.

Anyways, despite being down about 1% this morning. After ignoring it and stepping away, I think it was better for my stress and the day ended up about 3% – as of now. In fact as of now TMF is doing a bit better than SVIX.

It is easy to let up days make you too happy and down days make you too sad. The truth is I want to do better about not letting it affect my mood. Regardless it is nice to win a day especially after such a hard year in 2022.

See my Brokerage Accounts

In addition to this blog you can follow my live brokerage accounts anytime. The three links below will take you to a third-party website called collective2 where I record and publish my personal trading decisions. If you have questions let me know!

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

This is not investment advice. This website is designed to talk about investments but it is not designed to give you personalized investment advice. This site is generic and should not be used as the basis for any investment decisions. This is for entertainment and educational purposes only.

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

Today the CPI report was mostly spot on with expectations. So what did the market do? It went up, then down, then up, then down, and who knows what it will do next. Even if you could know the CPI report ahead of time I think it is unlikely that you would be able to really beat the market. As traders we must remember that even if you know the news – which you don’t – you don’t always know the reaction. Obviously, knowing all news early could help some – especially for surprise events like volpocalypse. If you fool yourself into thinking you know what the news will be, don’t fool yourself into thinking you know what the reaction will be.

Today Ethereum touched its 200 day moving average. The 200 day and 50 day SMA are also currently in a slight uptrend. Obviously, anything could happen. However, if we get a bar close above the 200 day SMA I believe this would be a piece of evidence for some bullish movement.

Times like yesterday and today are great examples of the downsides of being an active investor.

For example, I was bond heavy going into yesterday. Bonds did terrible. Algo exits bonds. Bonds do great today. Algo enters bonds again. You can of course change the asset and the timeframe for any number of things and the general idea is the same, whipsaw will happen.

This is one of the many reasons why I think most people would be better off being passive investors. However, I think there is a place for active investing, especially when using leverage. This particular time it did not work out, but I do believe the algo rules are worth sticking to despite the fact that there are many days just like this.

Patience is a Virtue: https://collective2.com/details/123937705

My Roth IRA: https://collective2.com/details/142930966

Leverage and Patience: https://collective2.com/details/142544970

There is some big market news coming out this week and at this moment the VIX and S&P 500 are both up today. What has happened historically when these two move together like this?

This is an opinion article about gold mining on asteroids. I largely agree with the concepts of the article. It will likely be a long time before asteroid mining is economical or feasible. But it does seem wise to consider the concepts laid out in this article. I am a gold investor myself at the moment. BUT, gold does NOT have an immutable position as the best investment or currency for all-time and it is not a productive asset such as a business.

Giant asteroid has gold worth $700 quintillion. But it won’t make us richer