Global Trend
This is an algorithmic, trend following strategy that only holds one ETF at a time:
- S&P 500 (SPY)
- International Small Cap (SCZ)
- 2x Long Term US Treasuries (UBT)
Overall, it’s done a good job navigating the prior two recessions and was defensive during recent huge down months like December 2018 (trade wars) and March 2020 (coronavirus).
Drawdowns
The max drawdown is around -23% which is much lower than the S&P 500’s during this time.
Note: these are month-to-month drawdowns, day-to-day drawdowns could have been lower.
Rolling Returns
Calendar year returns are great but how does it look over a random 12 month period?
Some things to note on the chart below:
- Outperformance is measured by the distance above the S&P 500 line: early 2000s, 2009, 2012, etc
- 1999 was probably an outlier year, don’t expect to double your money every year
- Very rarely is the model underperforming its benchmark: briefly in 2010, a little in 2013 and 2017 (amazing years for the market)
- When the model is at its worst, it’s usually just tracking the S&P
Historical Positions
The strategy has spent a fairly equal amount of time allocated to each asset which means returns aren’t the result of one single ETF. View historical positions here.
% of time spent in each asset class
Trading Statistics
This isn’t really a “trading” strategy but here’s how it looks if you treated each month like a trade and bet the same amount per month (not reinvesting profits):
Really the only important metric on here for us is the upside and downside capture.
Basically, how much of the benchmark are you capturing?
Global Trend “captures” about 88% of the S&P 500’s upside but -11% of the downside (meaning, on average, it makes money when S&P 500 is down).
Both models capture almost all of the S&P’s upside but virtually none of the downside.
In other words: riding trends up but not down.
Market Correlation
There’s almost zero correlation to the market: the R² is just 0.01.
This means about 1% of the strategy’s returns can be explained by movements in the S&P 500.
For reference, the correlation between stocks and bonds has been about -0.08 since 1987.
Using different leveraged ETFs
You can see how increasing the leverage factor on the different ETFs affected risk and return.
Depending on your risk tolerance and time horizon you may want to follow Global Trend signals but use an ETF with more leverage (like SSO or UPRO).
SPY = S&P 500
SSO = 2x S&P 500
UPRO = 3x S&P 500
SCZ = Small Cap International
EFO = 2x International (all cap, not just small cap)
UBT = 2x Long Term Treasuries
TMF = 3x Long Term Treasuries
Official performance on the site is measured using SSO, SCZ, and UBT.
For most of 2021, Global Trend was 100% allocated to the S&P 500.
It's easy to look at this and immediately want to use UPRO but be aware of the volatility. You would've had several quick 10-20% drawdowns this year.
The model is great at avoiding big catastrophes like Covid, the Tech Bubble crash and the 2008 Global Financial Crisis but pullbacks in uptrends are unavoidable. Be prudent using leveraged ETFs.