Before getting into the portfolio, I know there is no free lunch with market-beating strategies. I am looking to see the potential pitfalls with a strategy like this.
Methodology
Using a traditional 60/40 model is a good way to reduce volatility, but it also reduces returns. To compensate, I used a leveraged version of the 60/40. Historically, leverage of 2x yields the highest returns. By making 70% of the portfolio a 2x version of the 60/40 model this brings the average up to 1.7x leverage. Keeping the leverage slightly below 2x keeps volatility under control.
Holdings
(quarterly rebalancing)
- 70% 2x 60/40:
- 42% SSO
- 28% UBT
- 30% 60/40:
- 18% VOO
- 12% EDV
Over the backtest period (which is a pretty short 10 years), this portfolio vs the benchmark experiences a lower max drawdown, comparable standard deviation, and ~60% higher returns.
Thoughts?
Submitted July 20, 2021 at 01:31AM by SorenLantz https://ift.tt/36NXtSk
