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Read my free eBooks “The Investment Blueprint” and “The Meta Strategy” filled with insights that empower you to be a successful independent investor.
Exclusive content: everything to make you a better investor is freely available on my blog, but I reserve complete access to the detailed rules of my core systematic strategies for basic and premium members.
The monthly newsletter “The Meta Strategy ETF Portfolio” details two market-beating, tactical ETF portfolios, that I use to invest my own money. The goal is to be invested in the stock market by default and to use systematic signals to avoid the largest part of bear markets.
My model portfolios are very easy to follow, with low maintenance and turnover — this, and the fact that they invest only in 1 or 2 of the lowest cost, broad market ETF at any given time, makes my portfolios a very inexpensive active, long-term strategy.
Start digging into the details of the Meta Strategy here.
View a sample of the monthly Meta Strategy ETF Portfolio newsletter here.
The idea to combine long term investing and active swing trading to improve returns is at the core of the weekly newsletter “The Meta Strategy Derivatives Portfolio”.
An up-to-date Probability Dashboard shows likely future stock returns over different time horizons. Portfolio exposure to the market can be adjusted accordingly, following market swings lasting 1 to 8 weeks.
Premium members have access to all reports in the Member Area and will receive a publication notice in a weekly email.
View an edition of the weekly Meta Strategy Derivatives Portfolio report here.
I discuss many of the basic ideas of my work in an appearance on the BETTER SYSTEM TRADER show.
How to identify high probability markets using “edge stacking” techniques — David Steets
The show is now available on all podcast platforms.
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Historical backtest for ETF model portfolios
Both model portfolios use the same signals, but invest in different instruments:
The defensive portfolio invests long-only in regular broad asset class ETF or cash.
The aggressive portfolio uses 2x leveraged equity ETF (returns are likely to be higher, but drawdowns will double as well) and is allowed to use inverse equity ETF (that have positive returns, when the market goes down) in the worst market conditions.
A 15-year backtest, followed by two years of actual investment performance (06-2003 to 12-2020), reveals the advantages of the Meta Strategy Defensive (red) and Aggressive (blue) ETF Portfolios over a buy-and-hold portfolio. Specifically,for the Defensive Portfolio, losses in the worst bear markets were reduced, while overall returns were improved by 1% annually over the S&P 500 (grey).
This smoother ride can go a long way toward curing the sleepless nights of 2008/09 and March 2020.
These lower drawdowns clear the way for a responsible use of leveraged and inverse ETFs to enhance performance. The Aggressive Portfolio (blue) more than doubled the annual return of an investment in the S&P 500 in the backtest, generating 16,70% vs 6,73% annually and leading to 3,6x more money earned over the 15-year backtest period (not including dividends or transaction costs) and all with fewer that two allocation changes per year, on average.
For comparison, I included the performance of a buy and hold investment in a 2x leveraged S&P 500 ETF (green). Here, the lethal volatility of untamed leverage becomes apparent: an 83% drawdown in 2008/09, but an outperformance over the S&P 500 over the whole backtest period nonetheless.
Investors seeking a different return / risk profile from the model portfolios can simply mix them with a safe, short-duration treasury bond ETF. For example, the Meta Strategy Defensive ETF Portfolio can be expected to lose, on occasion, around 25% from its highs (in extreme circumstances, such as the crash of 1987, losses might even be worse) half the maximum drawdown of the stock market. Investing only half of the available capital in the portfolio will reduce the maximum drawdown to around -12,5%, but can be expected to yield only half the return of the stock market.
Likewise, mixing the two ETF portfolios will result in a performance that lies somewhere between each one’s individually.
Backtested results are hypothetical and NOT an indicator of future performance.