- mean-variance optimization strategy
- invests in ETFs tracking stocks, treasuries, and gold
- rebalances weekly w/ possible daily exit
Mach-1 is a proprietary premium strategy by TuringTrader.com, introduced in April 2021. We updated the portfolio in April 2022 for lower volatility.
Mach-1 aims at aggressive investors wishing to continuously beat the S&P 500 while avoiding most of the benchmark's downturns. The portfolio evaluates the current market regime and switches between separate bull and bear-market strategies to achieve its objective. In bull markets, Mach-1 invests in ETFs representing various U.S. stock market indices. The bear-market strategy invests in ETFs representing U.S. treasuries of multiple maturities and gold.
Mach-1 rebalances weekly, typically adjusting the weights of only three ETFs. However, in fast-moving markets, it may exit the bull-market strategy any day. This schedule equates to moderate maintenance requirements, compatible with a busy lifestyle.
The operation of Mach-1 can be summarized as follows:
- in bull-markets, trade ETFs tracking the S&P 500, Nasdaq-100, Dow-Jones Industrial Average, Russell 2000, S&P MidCap 400, and S&P SmallCap 600 indices
- in bear-markets, trade ETFs tracking U.S. Treasuries with 7-10 year and 20+ year maturity, and gold
- switch between bull- and bear-market regimes based on TuringTrader's Market Vane indicator
- evaluate the performance of various asset weightings over a lookback period of approximately three months
- rebalance every week, picking the combination with the best modified Sharpe Ratio
Mach-1 is a close cousin of our Mach-2 portfolio but without leverage. The strategy's mechanism is closely related to LogicalInvest's Universal Investment Strategy. We enhanced the strategy by adding more assets and switching between separate bull- and bear-market strategies.
Mach-1 fully invests in one or more broad indices tracking the U.S. stock market in bullish markets. During bear markets, the portfolio switches to the safety of U.S. treasuries and gold. With these properties, Mach-1 is well diversified in terms of company risk but relies on serial diversification to avoid steep losses.
Our simulation shows a beta of approximately 0.35, indicating successful tactical asset rotation. Nonetheless, investments in Mach-1 have a tail-risk equivalent to the S&P 500.
Returns & Volatility
Mach-1 beats the S&P 500 benchmark in most years with only brief periods of underperformance. The mean-variance optimization helps to manage portfolio volatility, while the market-regime filter helps to avoid deep drawdowns.
Thanks to this active management, Mach-1's portfolio volatility is 28% lower than that of the S&P 500. Further, the portfolio's downside is about 56% lower than buying and holding the benchmark. As a result, Mach-1 beats the stock market's returns while successfully limiting drawdowns to levels acceptable to conservative investors.
Account & Tax Considerations
Mach-1 is an aggressive strategy. Therefore, we believe that Mach-1 is best used in the context of meta-portfolios, namely All-Stars Weekly.
Mach-1 trades frequently and regularly triggers taxable events. The portfolio rarely holds assets long enough to qualify for long-term treatment of capital gains. However, Mach-1 may still add value to taxable accounts because of the portfolio's upside over buy-and-hold.
Mach-1 invests in no more than three ETFs at a time. The strategy should function as intended with as little as $5,000 of capital.
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:
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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:
The portfolio last required rebalancing after the exchanges closed on . Due to fluctuations in asset prices, the exact allocations vary daily, even when no rebalancing occurred. The current asset allocation is as follows: