Opinion on HFEA (55% UPRO 45% TMF)
Hey monkeys,
As some of you may be aware, this is a strategy (https://www.optimizedportfolio.com/hedgefundie-ad… for those not in the loop) devised by Hedgefundie from the Bogleheads forum in 2019 and he has been inactive for sometime. In Reddit, the subreddit is currently run by someone with payout from disability insurance (AFAIK) and he has been a big advocate for this strategy. No extra bananas for those that chuckled at a part of his portfolio imploding from leveraging on this leveraged strategy haha
As this is a pretty new strategy with minimal discussions on WSO (last being a post 2 months ago with no reply), I would look forward to see what are my fellow cadets view on it. This is particularly so as there are many positive views of leveraged ETF in this forum. Looking forward to the discussion
Disclosure: I do hold a position in this strategy as well.
Hi Deliveroorider, yes, I'm a bot, but I'm also good looking. Hopefully, these threads help you:
More suggestions...
I hope those threads give you a bit more insight.
I think that there is some promise in the strategy being viable, but one of the biggest issues is the fact that we are likely at the end of a 40 year bull run in the bond market. Risk parity only works well if the two investment vehicles are truly uncorrelated or negatively correlated, but both equities and long duration bonds can get killed by rising rates. Rates are going up, so that could harm both of the underlying indices. Just my thoughts about a potential threat, but not necessarily confident that the strategy won’t work or anything
Actually, I have the same sentiments... I took quite a while to convince myself to start a position in this strategy because of the issues of the rising rates and the assumption of the correlation.
It seems that this strategy relies heavily on post 1982 monetary policy pursued by the Fed and the furthest backtesting that anybody in the dedicated sub has done is to 1982.
With that being said, I am putting aside money that I can "throw away" like HedgeFundie so I guess I am just trying out this for fun and would want to know more qualified opinion from others. Thus, I started a thread as it is likely that there would be many that are more qualified than me in this forum.
FD - I am not invested in the strategy but I am curious about it (maybe from an invt standpoint, maybe just conceptually)
I think due to the leverage, this strategy has the possibility of being negatively affected by unknown unknowns not able to have been accurately modeled in backtesting. there have been ample blowups/spats of underperformance due to modelling errors, so my immediate reaction to a strategy that only works because of a backtest is caution. while a long only, unhedged, unlevered equity portfolio has unknown unknown risk (like an EMP taking out all systems or nuclear fallout putting us into the dark ages), those risks are also shared by the HFEA strategy
the other risk is that 100% of your equity exposure is in the S&P. if we go through another 2000-2010, you may not go bankrupt but you will underperform, so there could be some utility in diversifying within equities more
Why not just build out a full blown diversified portfolio. Equities: TQQQ, SPXL, URTY, EDC, EURL (Tech + Large cap S&P + Russel 2000+ Em. Market equities + Europe-ish equities), Fixed Income: TMF, UST, UJB (20+ years, 7-10years, High Yield). If you like, add in some commodity ones or REIT ones - you basically have a full blown, diversified portfolio w/ 3x daily leverage. Treat it much like an institutional, Yale Model, 60/40-esque type portfolio - tweak the allocations, rebalance, etc.
I had to laugh, as much as I deride holding 3x levered ETF's for the long term - it almost seems like a reasonable enough risk to take, say, a few grand in a ROTH IRA to see what happens. If you are willing to deal with the risks of the ETF's, fees, etc. it's not unreasonable for a small portion of the portfolio.
What gets me fired up - as I was in another thread on TQQQ - is that so often the 'risks' to these funds/strategies are dismissed out of hand. They are real, and I thought the OP's linked article did a good job of noting many of them, including markets simply not cooperating like they have the last decade or so.
yeah I don't care about someone's opinion if their only defense is "get serious old man, times have changed" which has happened to me on these forums. some very smart people who know a lot more about derivatives math have shared with me that the strategy could definitely work unless you get the scenarios I mentioned (prolonged sideways markets), and they also make the argument that 2x leverage could be a "safer" for buy and hold, unless you think we're on the cusp of another 10y low vol up and to the right run (in which case you can't have enough leverage)
since you're an intelligent bro, only engage if someone has an intelligent rebuttal. otherwise you're just wasting energy. I try to get people to expand on their points (because often times when I'm here I'm 50% or less focused on WSO and I miss something), but often times it's a lazy response and I just say "oh well" and move on
Commodi consequatur sequi similique. Cupiditate aut natus est est id corporis. Voluptas ea consequatur molestiae fugiat pariatur possimus.
Ullam ad debitis aut qui. Fugit debitis nihil alias et ducimus omnis. Mollitia dicta quae iusto voluptas aliquid. Perferendis animi est accusantium placeat dignissimos unde qui in.
Qui ut eligendi qui velit nemo aspernatur labore. Hic asperiores fuga eum sit.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...