Summary
- Objective: balanced growth
- Type: mean-variance optimization
- Invests in: ETFs tracking stocks, treasuries, gold
- Rebalancing schedule: monthly
- Taxation: 90% short-term capital gains
- Minimum account size: $3,000
TuringTrader’s Straight Four aims to continually beat the 60/40 benchmark while at the same time offering lower drawdowns. The strategy uses mean-variance optimization to shift its asset allocation between stock market indices, treasuries, and gold. Straight Four rebalances monthly, typically adjusting the weights of only three ETFs. This schedule equates to meager maintenance requirements, appealing to investors with a busy lifestyle.
Performance
This table shows the portfolio’s key performance metrics over the course of the simulation:
The following chart shows the portfolio’s historical performance and drawdowns, compared to their benchmark, throughout the simulation:
This chart shows the portfolio’s annual returns:
The following charts show the Monte-Carlo simulation of returns and drawdowns, the portfolios 12-months rolling returns, and how the portfolio is tracking to its benchmark:
Asset Allocation
The portfolio last required rebalancing after the exchanges closed on @last-rebal@. Due to fluctuations in asset prices, the exact allocations vary daily, even when no rebalancing occurred. The current asset allocation is as follows:
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Strategy Rules
The operation of Straight Four can be summarized as follows:
- trade ETFs tracking the S&P 500, the NASDAQ, long-term U.S. Treasuries, and gold
- evaluate the performance of various asset weights over a lookback period of approximately three months
- reduce exposure based on historical volatility
- rebalance once per month, picking the combination with the best modified Sharpe Ratio
Straight Four is a close relative to LogicalInvest’s Universal Investment Strategy. We have enhanced the strategy by adding more asset classes and reducing risk exposure through a volatility-overlay.
Diversification
Straight Four diversifies across three major asset classes. This diversification manifests itself in a beta of around 0.4. Even in bullish periods, the portfolio rarely invests much more than 60% in the stock market, keeping the portfolio balanced and well-mannered.
Returns & Volatility
Straight Four beats the 60/40 benchmark in many years and offers additional upside in times of recession. Further, the portfolio wins over the S&P 500 when contemplating the full economic cycle.
The chart above shows how Straight Four‘s rolling returns exceed those of the 60/40 portfolio in most periods. As a result, Straight Four continually expands its lead over the benchmark.
Account & Tax Considerations
Straight Four trades frequently and regularly triggers taxable events. The portfolio rarely holds assets long enough to qualify for long-term treatment of capital gains. With these properties, the overall tax-burden is undoubtedly higher than for a passive 60/40 portfolio. However, because of its significantly higher returns, Straight Four may still add value to taxable accounts.
Straight Four invests in no more than three ETFs at a time. The strategy should function as intended with as little as $3,000 of capital.