Leveraged Sleep Well Portfolio

[Aeromir 8]

Kim posted a few article links about the Anchor portfolio at the Aeromir Forms so I thought I'd provide a few for the Sleep Well Portfolio (SWP) that we have so you can compare.

I don't know how active the Anchor portfolio is. The Sleep Well Portfolio is re-balanced once per week.

We compare the SWP to the 60/40 stock/bond or the Risk Parity (RPAR) portfolios but it compares well to the SPY. This is a chart of the unleveraged SWP versus SPY:

This is the draw down chart of SWP versus SPY

Maximum draw down is -10.1% since 2007.

This is the comparison of the 1x versus 2x versus 3x leveraged SWP

Wayne started the live signals at Aeromir on 29 Sep 2020 but he's been trading it with his personal capital for several years. He was creating portfolios like this for very high net worth clients when he worked at the hedge fund.

Since 29 Sep 2020, the 3x leveraged account went from $50,000 to the current $113,032, which is a +126% return in just over 7-months. Worst weekly drawn down on a weekly basis was -14.3% with the best one week gain of +24.5%.

 

[Alan 107]

Assuming one trades within a retirement account, since 2007 the 1x SWP appears to have grown close to 340% (about 11% annualized) with the indicated maximum drawdown of -10.1%.

 

Do you have backtested gain and drawdown stats for the 3x portfolio over the same period?

 

Edited May 9, 2021 by Alan

[Aeromir 8]

I'm pretty sure Wayne has that data. I'll ask him for it.

[betaboy3000 64]

Impressive performance through the March 2020 and 2008 corrections. 
The SWP site says it's an ETF-only portfolio. What are you using as hedges?  Fair question I think as it's obvious what we use for hedging here!

[No1KCfan6 4]

  On 5/9/2021 at 7:05 PM, Aeromir said:

I'm pretty sure Wayne has that data. I'll ask him for it.

And the 2X, please.😀

[Aeromir 8]

  On 5/10/2021 at 2:53 PM, betaboy3000 said:

Impressive performance through the March 2020 and 2008 corrections. 
The SWP site says it's an ETF-only portfolio. What are you using as hedges?  Fair question I think as it's obvious what we use for hedging here!

There are no hedges. It's a long-only strategy which was designed for retirement accounts. Wayne uses these six very liquid ETFs:

• SPY  (Large caps)
• TLT  (Bonds)
• GLD (Gold)
• UUP (U.S. Dollar)
• IWM  (Small caps)
• EEM  (Emerging markets)

As risk in equities rises, Wayne shifts out of equities and into other non-correlated assets (TLT, GLD and UUP). Rebalancing weekly moves the portfolio away from risk quickly enough to keep the portfolio draw down's low.

[No1KCfan6 4]

  On 5/10/2021 at 3:24 PM, Aeromir said:

As risk in equities rises, Wayne shifts out of equities and into other non-correlated assets (TLT, GLD and UUP). Rebalancing weekly moves the portfolio away from risk quickly enough to keep the portfolio draw down's low.

What about trading this in taxable accounts?  Also, can we have more stats about the 2X and 3X leveraged Sleep Well Portfolios?  Thanks.

Edited May 10, 2021 by No1KCfan6
correction

[Aeromir 8]

Stats from Wayne:

Leverage decoder:   (SPY TLT GLD UUP IWM EEM)

From Dec 2007 to present

2x leverage is roughly the same weekly standard deviation risk as the SPY.
SPY Compounded Annual Growth Rate (CAGR) in the same period was 9.54%

2x leverage (222122)
21.3% CAGR 
-19.78% Max draw down
+/-3.26% Weekly standard deviation

 

3x leverage (322133)
27.06% CAGR 
-23.4% Max draw down
+/-4.34% Weekly standard deviation
$100,000 Starting capital
$2,859,000  Ending capital

[Kim 8,035]

Most of the track record is backtesting, correct? Live trading is from Sep.2020 only?

[Aeromir 8]

  On 5/10/2021 at 7:24 PM, Kim said:

Most of the track record is backtesting, correct? Live trading is from Sep.2020 only?

The live trading at Aeromir started 29 Sep 2020. The results shown are back tested.

Wayne has been trading the Sleep Well Portfolio for four years. The results are nearly identical to the back tested data.
Wayne is quite careful about curve fitting. The back tests use macro economic data that is fixed and applied to his allocation calculations. Each day in the back test has no future knowledge.   The results at Aeromir with the live trading are mirroring the back tests pretty closely.  We did benefit from a decent move higher with the market, but the win percentage is almost dead on to the back test win percent.

[Kim 8,035]

So this is basically a market timing system?

[Aeromir 8]

  On 5/10/2021 at 7:32 PM, Kim said:

So this is basically a market timing system?

I wouldn't characterize it like that. Wayne bases his allocation percentages on the four macro-economic environments:

• Rising business growth and rising inflation
• Rising business growth and falling inflation
• Falling business growth and rising inflation
• Falling business growth and falling inflation

Wayne plugs in the various economic data elements he uses into his spreadsheet to determine the current allocation percentages across the six ETFs.  It's not looking at the ETF price data at all.

[CJ912 136]

That sounds a lot like the approach Bridgewater takes in their all weather portfolio. Is it based on their ideas?

[Aeromir 8]

  On 5/10/2021 at 7:43 PM, CJ912 said:

That sounds a lot like the approach Bridgewater takes in their all weather portfolio. Is it based on their ideas?

It is very similar. Wayne really likes Ray Dalio.  Bridgewater is massive ($160 billion AUM??) and can't re-allocate weekly. That's probably the biggest difference between Wayne's Sleep Well Portfolio and the All Weather Portfolio. Of course Wayne developed his own equations and forecast models but it's a similar idea.

[Kim 8,035]

It doesn't really matter what the criteria is. It could be fundamentals, momentum, pricing, TA etc. Once you rotate between different ETFs, you are aiming to time the market. Not saying it's good or bad, just need to be aware what the system is.

This is for example compared to a system like Anchor that is in the market 100% of the time. 

Also when comparing returns, it's important to compare apples to apples. Anchor uses around 50% (1.5x) leverage. Using 3x leverage would probably produce much higher returns but also higher drawdowns.

[CJ912 136]

  On 5/10/2021 at 7:46 PM, Aeromir said:

It is very similar. Wayne really likes Ray Dalio.  Bridgewater is massive ($160 billion AUM??) and can't re-allocate weekly. That's probably the biggest difference between Wayne's Sleep Well Portfolio and the All Weather Portfolio. Of course Wayne developed his own equations and forecast models but it's a similar idea.

Actually Bridgewater reallocates nearly daily. They trade a lot of different instruments to keep their in line with portfolio guidelines. I used to see their daily transactions in a previous job....

[Aeromir 8]

  On 5/10/2021 at 7:47 PM, Kim said:

This is for example compared to a system like Anchor that is in the market 100% of the time. 

Also when comparing returns, it's important to compare apples to apples. Anchor uses around 50% (1.5x) leverage. Using 3x leverage would probably produce much higher returns but also higher drawdowns.

The SWP is also 100% invested in long ETFs all of the time.

I took a seminar with George Fontanills in Vegas many years ago. George said the first thing he asked when someone showed him a new trade idea was "how much can I lose."  Examining risk factors (draw down, profit factor, Sortino and Sharpe ratios) are critical. You have to balance your investing time horizon and portfolio size to how much risk you're willing to take.

If a trading system you're evaluating can have a -20% draw down, are you ok with that happening as soon as you start trading/investing with it live?  Will you continue on with it after that drawdown? 

You don't want to lose any sleep for any trading/investing system.  If you aren't comfortable with the draw down, consider using a smaller size to make any loss from a draw down something you can live with comfortably.

[Wayne K. 3]

  On 5/10/2021 at 7:47 PM, Kim said:

It doesn't really matter what the criteria is. It could be fundamentals, momentum, pricing, TA etc. Once you rotate between different ETFs, you are aiming to time the market. Not saying it's good or bad, just need to be aware what the system is.

This is for example compared to a system like Anchor that is in the market 100% of the time. 

Also when comparing returns, it's important to compare apples to apples. Anchor uses around 50% (1.5x) leverage. Using 3x leverage would probably produce much higher returns but also higher drawdowns.

Hi everyone,

Tom told me he was posting here on behalf of Aeromir and there was a discussion about The Sleep Well Portfolio. Kim I have heard great things about your systems, So let me start off by saying that I have much respect for you. 

What you said about market timing is true. The Sleep Well Portfolio (SWP) is timing the market. Unlike most timing models though, it is not binomial on only equities, meaning its not in or out, it is more about choosing the highest probable assets for the given macro environment. The SWP is also not a options strategy. It was originally designed for the passive cash that is degrading in value not being used in strategies like your own. 

Option have inherent leverage already built into them and have absolute risk and time risk. This is all very different than an ETF long only strategy like the SWP, that only has the risk of absolution if all markets were reach 0. The SWP was designed for the accounts that might not have options permission or just don't want options exposure. Your Anchor trade is brilliant, and is very good at capturing the exposure it is designed for, so I would not attempt to compare the two at all. 

I am glad that there is questions and the idea of diversifying with non options based stats is a hot topic. =)

May your assets grow and you Sleep Well,

WK

[No1KCfan6 4]

  On 5/10/2021 at 9:14 PM, Wayne K. said:

Hi everyone,

Tom told me he was posting here on behalf of Aeromir and there was a discussion about The Sleep Well Portfolio. Kim I have heard great things about your systems, So let me start off by saying that I have much respect for you. 

What you said about market timing is true. The Sleep Well Portfolio (SWP) is timing the market. Unlike most timing models though, it is not binomial on only equities, meaning its not in or out, it is more about choosing the highest probable assets for the given macro environment. The SWP is also not a options strategy. It was originally designed for the passive cash that is degrading in value not being used in strategies like your own. 

Option have inherent leverage already built into them and have absolute risk and time risk. This is all very different than an ETF long only strategy like the SWP, that only has the risk of absolution if all markets were reach 0. The SWP was designed for the accounts that might not have options permission or just don't want options exposure. Your Anchor trade is brilliant, and is very good at capturing the exposure it is designed for, so I would not attempt to compare the two at all. 

I am glad that there is questions and the idea of diversifying with non options based stats is a hot topic. 😃

May your assets grow and you Sleep Well,

WKx

What's the minimum to put into trade for each portfolio, i.e., SWP 1X, SWP 2X, and SWP 3X?  Also, I would assume you could trade them in a taxable account, just more taxes to pay?

[Wayne K. 3]

Great question. Because the higher leveraged ETFs have smaller share prices it allows for a smaller account. The smallest I have live tested a 3x and 2x was with $2k. As for the 1x, to maintain incrementality I have found it best to keep the account above ~$15k.

[No1KCfan6 4]

  On 5/10/2021 at 9:41 PM, Wayne K. said:

Great question. Because the higher leveraged ETFs have smaller share prices it allows for a smaller account. The smallest I have live tested a 3x and 2x was with $2k. As for the 1x, to maintain incrementality I have found it best to keep the account above ~$15k.

Oh, I can do that.  Thank you!  P.S.....Sounds too good to be true.  Well, is it??? LOL

[Kim 8,035]

  On 5/10/2021 at 8:28 PM, Aeromir said:

The SWP is also 100% invested in long ETFs all of the time.

I took a seminar with George Fontanills in Vegas many years ago. George said the first thing he asked when someone showed him a new trade idea was "how much can I lose."  Examining risk factors (draw down, profit factor, Sortino and Sharpe ratios) are critical. You have to balance your investing time horizon and portfolio size to how much risk you're willing to take.

If a trading system you're evaluating can have a -20% draw down, are you ok with that happening as soon as you start trading/investing with it live?  Will you continue on with it after that drawdown? 

You don't want to lose any sleep for any trading/investing system.  If you aren't comfortable with the draw down, consider using a smaller size to make any loss from a draw down something you can live with comfortably.

Couldn't agree more Tom. 

This is why we always recommend to start small with any system. You never know when the next drawdown will come. 

[Wayne K. 3]

  On 5/10/2021 at 9:45 PM, No1KCfan6 said:

Oh, I can do that.  Thank you!  P.S.....Sounds too good to be true.  Well, is it??? LOL

Keep growing your assets and when you hit your first million, position minimums will be a thing of the past. 🤑

As you stay consistent with good strategies like what Kim publishes, it will be no time before you start looking for other places to put spare capital. #TheSleepWellPortfolio

[DubMcDub 123]

  On 5/10/2021 at 9:41 PM, Wayne K. said:

Great question. Because the higher leveraged ETFs have smaller share prices it allows for a smaller account. The smallest I have live tested a 3x and 2x was with $2k. As for the 1x, to maintain incrementality I have found it best to keep the account above ~$15k.

@Wayne K., I presume from this comment that your method of achieving "leverage" in the 2x and 3x leveraged models is by investing in levered ETFs? I see that the strategy does not use options, and since it's retirement account suitable, I assume it also does not require margin trading. 

[Wayne K. 3]

  On 5/10/2021 at 11:29 PM, DubMcDub said:

@Wayne K., I presume from this comment that your method of achieving "leverage" in the 2x and 3x leveraged models is by investing in levered ETFs? I see that the strategy does not use options, and since it's retirement account suitable, I assume it also does not require margin trading. 

You are spot on!

[johnny.dollar 6]

Sounds kinda like this guy's product: https://www.volatilitytradingstrategies.com/    Notice VTS only publishes charts with claimed returns, it doesn't show the trade history.

 

So what is different? Can you give example trades?

[Aeromir 8]

We show the entire trade history for subscribers.  Here's a link with the current history but it doesn't show the actual trade allocations:

https://my.aeromir.com/go/c.sleep-well-performance

I blurred out the last 5-weeks of allocations, but this is the view from inception that the subscribers have access to:

 

 

 

 

 

[betaboy3000 64]

  On 5/10/2021 at 3:24 PM, Aeromir said:

There are no hedges. It's a long-only strategy which was designed for retirement accounts. Wayne uses these six very liquid ETFs:

• SPY  (Large caps)
• TLT  (Bonds)
• GLD (Gold)
• UUP (U.S. Dollar)
• IWM  (Small caps)
• EEM  (Emerging markets)

As risk in equities rises, Wayne shifts out of equities and into other non-correlated assets (TLT, GLD and UUP). Rebalancing weekly moves the portfolio away from risk quickly enough to keep the portfolio draw down's low.

 

@Wayne K.

Can you give us any insight into how you are timing the mix?  Are you using volatility triggers on the different assets? Economic indicators? Presumably it's something quantitative or you wouldn't be able to backtest it. 

Thanks for any insight.

 

[Wayne K. 3]

Great Question!

The SWP considers the 4 cycles of macroeconomics regarding Inflation and Growth. With those variables in mind, we allocate for those environments. The assets are chosen for their fundamental relationships to the variables mentioned. I then overlay risk metrics for how they are correlating to each other, the variance of that correlation. I then fractalize their individual risk... (volatility, upside to downside volatility ratio, and momentum). All of that is normalized and outputted to the final allocations seen by you. 

Hope that helps, reach out to me any time at wayne@aeromir.com