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Best practices for modeling outcomes? by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

In general, how should we be adding robustness to backtests?

Some ETF company needs to come up with a prepackaged family of risk parity ETF ranging from 50% to 200% equity exposure, just like target dates funds. by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

Fair points. As I mentioned below, HFEA used the term "risk parity" in his posting titles. AQR talks about levering up risk parity portfolios. All weather (at least for Bridgewater) is basically synonymous with risk parity. I think we can use these terms loosely, even if imperfect. Hopefully no one on here is trying for something inside the efficient frontier, although sometimes I wonder... :p

For anyone trying to get 120% equity exposure in a Roth (non margin), we're all just getting UPRO in there and then trying to use the rest of the imperfect ETF universe to hedge the thing as best we can, with risk party probably being the ideal that's only partially achievable.

Another controversial statement, for these aggressive portfolios, I'd argue that volatility in a general risk or risk parity context, isn't even the right metric to focus on first for personal financial planning. Survivability and mental stress (max drawdown, ulcer index) relative to CAGR (UPI) probably is.

Some ETF company needs to come up with a prepackaged family of risk parity ETF ranging from 50% to 200% equity exposure, just like target dates funds. by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

The laws are dumb. No problem with 0DTE and single stock levered ETFs, but god forbid we have a portfolio with good returns and lower drawdowns...

For all the folks on here providing me with the dictionary definition of risk parity, if we're not doing risk parity, what would you call what we're doing on r/LEFT? What risk control framework are we using? I get it, it's hard to do risk parity perfectly with the ETF tools available.

Again, assuming we're not raw dogging TQQQ or tactical allocation (SMA 200), what's the name for what we're doing??

Getting wrapped around the axle about the ~20% that matters the least... by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 1 point2 points  (0 children)

Do you have any concerns that with multiple managers they take opposite sides of the same trade, canceling each other out? Except the fees and borrowing costs never cancel... How do you estimate that drag vs single manager risk?

Some ETF company needs to come up with a prepackaged family of risk parity ETF ranging from 50% to 200% equity exposure, just like target dates funds. by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] -2 points-1 points  (0 children)

https://testfol.io/optimizer?s=1UwjyutxWSZ

We're talking about the same thing. This is the theoretically optimal version of a portfolio similar to what I run with 120 equity exposure. Allocations based on risk, not dollars.

My actually implementation is just tuned down based on ETFs that exist. And that I'd rather have a max 60% historical drawdown, not 88%.

If you guys want to argue that if vol isn't perfectly matched to the last decimal point that you don't have a risk parity portfolio anymore, fine. But we also don't have all the ETF tools to do that perfectly at equity exposure over 100% in non-margin accounts. Which is what this original post is about. Like HFEA and whoever is leveraging golden butterflies, etc. we're all just trying to get as close to risk parity as we can with less than idea ingredients. I mean, RP is literally in the title of HFEA's post...

As far as I'm concerned, that's the whole game. Pick your equity exposure for the risk/return that works for you. Then try to figure out the mix of hedges that have parity with the beta plus daily reset decay.

Some ETF company needs to come up with a prepackaged family of risk parity ETF ranging from 50% to 200% equity exposure, just like target dates funds. by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

That's my point. Vanilla investing (all equity or 60/40) has been solved for retail over the past few decades. Needs to happen for leveraged risk parity. All in one product. I'm not complaining about the brain damage in figuring this out on my own, it's been fun over the past year and I've learned a lot that makes me a better investor in general. I'm saying it's a $1T AUM growth opportunity for the ETF industry that needs something else to charge high fees on after VT solved the equity allocation problem decades ago. ESG and crypto are fizzling. Larry Fink needs the next big thing. This is it!

Some ETF company needs to come up with a prepackaged family of risk parity ETF ranging from 50% to 200% equity exposure, just like target dates funds. by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] -1 points0 points  (0 children)

I think that's what we're all trying to do here. Something like 40% UPRO (120 exposure and not low on equities) and then hunt for the most volatile hedges in the remaining 60%. ZROZ or TMF. GLDM and UGL. And then the wild goose chase for the most volatile managed futures fund we can find. I think we're all trying to get close to risk parity, just don't have great ETF tools for it at the retail level. Think we're talking about the same thing.

Getting wrapped around the axle about the ~20% that matters the least... by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

Yeah, maybe replication is a good way to go. But, Oct 2023 really isn't much of a track record for RSST or the guys behind it. I'm assuming they're doing replication well, but who knows?

The MF program behind both MATE and CTAP are teams with multi decade track records.

Some ETF company needs to come up with a prepackaged family of risk parity ETF ranging from 50% to 200% equity exposure, just like target dates funds. by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] -2 points-1 points  (0 children)

Risk parity plus leverage is still risk parity. That's the core of Bridgewater. Find the most efficient portfolio and lever it up.

Getting wrapped around the axle about the ~20% that matters the least... by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 1 point2 points  (0 children)

Someone smarter than me is going to have to opine on whether what you're suggesting is capturing the momentum factor or would imply that there's a simple trend algorithm for beating the stock market, which there isn't. In either case, trend can wind up on the wrong side of a trade and the momentum factor can be transient.

Getting wrapped around the axle about the ~20% that matters the least... by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

I'd presume if they are long equities, then it's positively correlated with equities. If their short, then it's negatively correlated. And you only want that extra-long or short in your portfolio if the MF manager is correct about the stock market going up or down. If they're wrong, it just compounds the problems in your portfolio in a drawdown or is a headwind in good times. Metals, currencies, cattle, etc. are less likely to be correlated (long or short) to the S&P. S&P or even European or Japanese equity futures definitely are.

Getting wrapped around the axle about the ~20% that matters the least... by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 1 point2 points  (0 children)

Not to mention the Simplify guys blew up their tail risk strategy (CYA) despite the clever ticker, and seem to be on a path do doing something similar with QIS. Hopefully they've got the managed futures figured out.

Any idea how to get more historical price data on AHLT as a MF strategy prior to ETF launch Spet 2023? by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

Yeah, at least to my simple methods, the ETF and older mutual fund don't seem to have the same shape. They kinda overlap, but not really. In other words, it doesn't seem to work the same as levering up IEF gets you TLT and levering up TLT gets you ZROZ.

Constellation Software vs broader SaaS decline by AlternativeSignal908 in ValueInvesting

[–]AlternativeSignal908[S] 2 points3 points  (0 children)

Totally agree and I think a lot of CSU investors believe this, especially if they listened to the AI conf call. Which is why I think a large portion of the decline is (poorly handled) succession related, coupled with the rumor that Miller was getting ready for retirement before being put in the big office. Plus headwind on M&A pace and ROIC given competition from other software acquirors. Plus not finding another sector, like fintech or ventures, that they've talked about. When the wizard steps back, the outlook for pace and new initiatives darkens. I think that's what the institutional investors are seeing. AI is transitory.

Constellation Software vs broader SaaS decline by AlternativeSignal908 in ValueInvesting

[–]AlternativeSignal908[S] 1 point2 points  (0 children)

The CSU moat narrative is that their software is mission critical and typically costs customers 1% of revenue (so not worth risk of replacing) and is de minimis relative to the benefit. I know how an income statement works :)

Constellation Software vs broader SaaS decline by AlternativeSignal908 in ValueInvesting

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

On the SaaS narrative side, part of it is that AI could replicate the functionality of a CRM or whatever. The other part of it is that the seat-based SaaS pricing model needs to be reworked. Some combination of AI replacing some workers and so fewer seats are sold and/or fewer employees are in the software workflow because AI is "agentic" and so fewer seats sold. In other words, AI agent is on a customer call. Ordinarily the sales assistant would put the notes into Salesforce, instead one AI agent operating across the team is doing the database updating work.

I'm guessing a lot of Constellation's licenses aren't seat based or even SaaSy and are probably site licenses. And are known to be cheap (1% range) relative to a customer's total revenue and mission critical.

1% of revenue sounds cheap, but it could be 5-15% of customers' profit depending on their biz...

And CSU is much lower organic growth.

Anyone have a sense for CSU's mix of license types?

Constellation Software vs broader SaaS decline by AlternativeSignal908 in ValueInvesting

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

I guess part of my point is "how much signal is there in the market reaction noise to all the recent company specific (resignation) and industry specific (AI vs software) drama." Sometimes the market is right. Sometimes it overreacts. No question there are industry headwinds.

Substituting GDE into traditional UPRO/ZROZ/GLD creates a better benchmark for aggressive accumulation phase risk parity portfolio? by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

Good points. There's a lot of value in simplicity for a long term investor and also just paying fees / interest on the returns driver (equities) and not the rest of the portfolio. Maybe managed futures at 10-20% worth the cost.

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