r/letfs
Critique/Advice on Risk-Adjusted UPRO/TQQQ Portfolio
Author seeks feedback on a portfolio using 25% UPRO/TQQQ and a 210-day SPY SMA filter to mitigate drawdowns and maximize returns.
- Leveraged ETFs like TQQQ/UPRO can significantly outperform non-leveraged funds like SPY when combined with a trend-following strategy.
- Using a 210-day SMA filter on SPY effectively mitigates maximum drawdowns by rotating out of high-risk assets during downtrends.
Hi, have been exploring this sub for a few months now and backtesting some portfolios/ideas and was hoping to get some input from others on what they think about this strategy.
I'm not claiming it's better or worse than anything else out there, just that I find it to be a simple allocation to follow and stick to monthly while returning a bit more than a standard non-leveraged fund like SPY (e.g. a general all equity ETF) while mitigating drawdown a bit from the max without a strategy.
Assets:
- RSSB
- RSST
- GDE
- UPRO, TQQQ, or a mix
Each asset section a simple 25% weighting. I am undecided on UPRO, TQQQ, or a combination of the two. Will explain assuming simple UPRO 25%.
Filter/Strategy:
Each month, check if spy price > spy 210 day (e.g. roughly 10 months). If it is, then stick with my 25/25/25/25 split. If below, rotate the high-risk sleeve (UPRO/TQQQ etc) back into RSSB.
Rebalance annually if weights have drifted significantly (as an add on to the SMA filter).
Questions:
Curious on:
- What is the best way to use testfol.io to simulate some of these mixes back to at least 2000? My attempt is here (2000-2012) but I doubt it's optimal - see Notes below. I've tested some other time periods as well, this is just the one I hyperlinked. Any feedback welcome here, this was just my first attempt and I'd like to keep refining it.
- Back testing simulation aside, curious on input to this mix and what people would do for the highly-aggressive portion - UPRO, TQQQ, or a mix? I did explore 2x as well but was seeing 3x perform mostly equal or a bit better in terms of return unless I made a drastic error.
- Also considering loading up my TFSA fully on the risky sleeve and the rest in non-reg but poses a bit of pain to rebalance/follow SMA trend because of capital gains if I do this. Also open to input on this since I'm basically all cash right now.
Notes:
- I'm using SPY?L=# to mimic 2x/3x so I can test further back time periods.
- Using KMLMX?L=2 and SPYTR?L=2 at 12.5% each to mimic RSST 25%. Not sure if this is best.
- If I do this in my TFSA and am only potentially changing my positions monthly my trading costs to use this strategy should be near zero since my broker charges nothing for ETF buy/sell (aside from tiny ECN fees) and capital gains tax shouldn't trigger in TFSA. Hence set to 0%.
- Link for 2012-2024 period
Again I'm just learning about this stuff in my free time so I'm certain there are things I am missing or doing wrong - very open to input! Thanks :)
The thing I'd check first is your actual equity beta in each state. The SMA filter only governs the UPRO sleeve, which is a quarter of the book. The rest rides through no matter what. Roughly: RSSB ~0.25 equity, RSST ~0.25, GDE ~0.225, then UPRO stacks ~0.75 on top, so risk-on you're sitting around 1.45x. Rotate UPRO into RSSB and you only drop to ~1x. Not cash. So the trend signal de-risks way less than a classic 200d-to-cash system would, since most of your equity is in the stacked sleeve that never flips.
Not saying it's wrong. Just that your drawdown cushion is mostly the gold/MF/bond overlays doing the work, not the SMA. On UPRO vs TQQQ I'd lean UPRO for the trend version, the Nasdaq concentration makes the whipsaw worse on every false signal imo...
On the strategy:
Really
like the stacked plus a bit of 3x setup.
Others
will disagree but I'm not a fan of just picking QQQ as an index and committing to it indefinitely. Although it's heavier in tech it's a bit of a random index, we don't know in what percent of the future it will outperform, it would have significantly increased time to recover to stay in it during the lost decade. Personally I want a strategy that has the option to invest in it when it makes sense, but will rotate to another index when it doesn't. If that resonates with you maybe consider looking into momentum strategies, they have a very long history of good performance. You are already using a form of absolute momentum by only investing in 3x if the asset is performing well. You could consider adding relative momentum and letting your strategy choose between 3x SPY and 3x QQQ for the risk portion. If you like the idea you could even add in the option for other indices e.g. some emerging markets in case of a lost decade situation.
You may already know some of this but on the backtest:
You
can use e.g. SPYSIM to extend back further. Rather than having to simulate discrete time periods you can run a very long one and look at the rolling metrics tab to see when it out and underperformed. You have your rebalance set to daily when you said yearly which may be effecting results. If you run a separate simulation of your version of RSST you will see that it hasn't tracked RSST very well, the technique of adding the holdings in your case at 25% each for 50% total and then doing -CASHX of 25% will probably be better.