Quantbase Leverage Flagship
Built to capitalize on broad economic growth and hedge against downturns by rotating into a 3x leveraged S&P position when the market shows signs of growth, or a short-term T-Bill position when the market shows signs of crisis.
Fund
703.27%
vs
Benchmark
184.33%
Fund Holdings
The fund rotated into bonds due to signals indicating high volatility and a dropping market.
Fund details
Stats
4.17/5
Risk score
Max draw down (of range)
Daily Sharpe (of range)
Daily Volatility (of range)
Monthly Volatility (of range)
23.00%
Correlation to S&P (total)
Description
Follows a highly cited research paper (see key considerations) which tests and validates a fairly straightforward strategy: Employ leverage in good times and bonds in bad times. This strategy has had consistent returns since before the great depression but following it as an individual is difficult, which is why we offer it.
Key Considerations
This strategy comes from a quant research paper focused on a long-run leveraged strategy to survive downturns as large as the Great Depression
There are two main parts to this strategy -- the moving averages determine when to be in the market or not, and the leverage amplifies upside/downside in either case
Of note, this strategy remained flat during the Great Recession -- while the S&P dropped over 50% and just buying and holding the leveraged S&P ETF dropped almost 99%, this strategy suffered a max drawdown of near 10% from 2008-2010
Because leveraged ETFs use financial derivatives to give you 3x or 2x leverage to the underlying, they don't always fully track the index -- the return of leveraged funds for periods longer than a single day will be the result of its return for each day compounded over the period. What this means that, in general, in a rising market, a 3x leveraged instrument would likely deliver more than 3x returns, but in a sideways or falling market, a 3x leveraged instrument would underperform its underlying by more than 3x. For example, if the S&P goes up 5% over a week, a 3x ETF might not go up exactly 15%. This is especially important in high-volatility markets, where leveraged ETFs may underperform their expected returns due to the compounding effects detailed earlier. In a very general sense, the reason for this is that tracking restarts at the start of each trading day -- 3x ETF performance is based on the daily move of its underlying 1x, and not on the 3x ETF's share value itself.