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TuringTrader’s Four-Fifteen

Summary

  • Objective: aggressive growth, optimized for tax-efficiency
  • Type: trend-following strategy
  • Invests in: complex and leveraged ETPs trading stocks and bonds
  • Rebalancing schedule: daily
  • Taxation: 40% short-term capital gains
  • Minimum account size: $5,000

TuringTrader’s Four-Fifteen aims to combine the advantages of tactical asset allocation with tax efficiency. This proprietary TuringTrader strategy uses complex leveraged ETPs to hedge its stock market exposure, depending on the current market regime. While technically, Four-Fifteen follows a daily rebalancing schedule, it changes its asset allocation only infrequently, resulting in meager maintenance requirements. These properties make Four Fifteen an excellent choice for investors with taxable accounts.

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 Four-Fifteen can be summarized as follows:

  • during bull markets, hold S&P 500
  • during bear markets, hold 60% S&P 500 and the remainder in triple-leveraged inverse S&P 500, and triple-leveraged U.S. Treasuries
  • switch between market regimes using TuringTrader’s Market Vane indicator

Thanks to using an inverse-leveraged ETP to hedge the exposure to the S&P 500, Four-Fifteen can hold onto 60% of S&P 500 shares throughout. In doing so, the strategy combines tactical asset allocation with tax-efficiency.

For a detailed discussion of the inner workings, investors are encouraged to read our background article.

Diversification

While Four-Fifteen may hold up to three ETPs at a time, its net exposure toggles between only two asset classes: the U.S. stock market and U.S. Treasuries. This concept of serial diversification successfully avoids concentration risks. However, holding only a single asset class at a given time results in a tail risk identical to that of the respective asset class.

Based on Monte-Carlo simulations of historical returns, Four-Fifteen‘s risk profile is almost identical to that of a passive 60/40 portfolio.

Returns & Volatility

Four-Fifteen handily beats the 60/40 benchmark in most years. As a result, the strategy continually gains over its benchmark, with only brief periods of underperformance.

Account & Tax Considerations

To meet its tax-efficient objective, Four-Fifteen is severely limited in its trading activity. We specifically designed the strategy to be used in the context of a meta-portfolio, namely All-Stars Tax-Efficient.

Four-Fifteen trades infrequently, on a schedule set by Market Vane. These trades only affect 40% of the portfolio value, leading to a tax burden similar to that of a passive 60/40. The strategy works best in taxable accounts. If tax-efficiency is not of significant concern, other portfolios most likely offer better risk-adjusted returns.

To hold up to three ETFs with their required weighting, Four-Fifteen requires a minimum investment of $5,000.