TuringTrader's Four-Fifteen

Key Facts

  • momentum strategy
  • tax-efficient
  • using complex leveraged ETPs
  • re-balanced daily

Tags

premium
etfs
leveraged
momentum
tax-efficient
daily

Summary

Four-Fifteen is a proprietary momentum strategy by TuringTrader.com. We first introduced the strategy in February 2021.

Four-Fifteen aims to combine the advantages of tactical asset allocation with tax-efficiency. To do so, the 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 low maintenance requirements.

Performance

The chart above shows the portfolio's historical performance and drawdowns, compared to their benchmark, throughout the simulation. The chart below shows the portfolio's annual returns:

This table shows the performance metrics for TuringTrader's Four-Fifteen:

Asset Allocation

The portfolio last required rebalancing after the exchange's close on n/a. Due to fluctuations in asset prices and portfolio values, the exact allocations vary daily. The current asset allocation is as follows:


- Delayed Data -

TuringTrader.com, Four-Fifteen: A tax-efficient strategy

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Review

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.