First weekly update on the Retail Dragon Portfolio. A new screenshot can be found here.
Overall, the portfolio was up 0.24% for the week. This was mainly driven by our commodity trend allocation. The SPY was -0.11% while the TLT was -0.21%. Overall the portfolio outperformed the 60/40 during Week 1.
That being said, I received a lot of feedback on the original post. Namely, the portfolio was far too conservative to be able to grow at the expected 15% over time.
I went back and look at Chris Cole's specific recommendation. It does appear he goes higher weight equities than we had originally allocated. Additionally, he uses leverage to achieve the target portfolio volatility of 15%. I was curious how this would work, so I ran some backtests using 3x leveraged ETFs for TLT, GLD and SPY. This backtesting is not perfect because we don't have a volatility component, but it proved to me you can get higher returns than the traditional 60/40 portfolio by using leverage.
- Chris Cole's Dragon Portfolio Allocations
- Backtest Allocation
- Backtest Performance
- Backtesting Website
Going forward, I will reallocate our Retail Dragon Portfolio to the following:
- 24% SPXL - 3x S&P 500 ETF
- 18% UGLD - 3x Gold ETF
- 18% TYD - 3x Long Duration Government Bond ETF
- 3% IWM Straddle - This represents 3x volatility component we were previously long. The goal is to match the leverage we are using in the other allocations.
- 36% GNR - GNR is a commodity producer ETF that tracks the S&P Global Natural Resource Index. I am treating this as a semi-leveraged play on commodities as we would expect the producers to outperform pure commodity plays. However, there is no leveraged ETF we can follow on this basket, so we are simply assigning double the portfolio weight. My thinking goes we have leverage from the producers. When combined with a 2x weight, we create an equivalent of ~3x leverage we have on our other allocations.
A note on Commodity Trend. There were many questions on Commodity Trend from the original post. Many people thought we were simply long commodities. This is not the case. The goal of this allocation is to be short or long depending on a trend following technique. For this portfolio, we plan to follow a simple 40/50 Moving Average cross over technique. Long when it's the 40 day moving average is higher. Short when the 50 day moving average is higher. You are free to use your own trend following technique if you want to customize our approach. The goal of this allocation is to capture the large moves commodities tend to have during periods of financial stress or strong recovery. For example, look at NYSE: TECK from 2007 to 2011. Imagine if you had a strategy that would benefit from going short on the downside AND long on the upside. This would have helped your portfolio out greatly even as equities and gold were performing poorly.
I will implement this when markets open Monday and will be tracking the new portfolio from scratch.
I look forward to hearing any comments or feedback on this approach moving forward.
Submitted May 02, 2021 at 08:16PM by saMAN101 https://ift.tt/3nHyuaZ
