Using One Third 3X Funds for Some SACEMS Assets

A subscriber suggested implementing several Simple Asset Class ETF Momentum Strategy (SACEMS) asset class proxies with allocations consisting of one third triple-leveraged (3X) versions of the proxies and two thirds cash, thereby accruing the targeted risk asset returns plus some return on cash. Specifically:

• Whenever SPDR S&P 500 ETF Trust (SPY) is a winner, implement its portfolio position as one third Direxion Daily S&P500 Bull 3X Shares (SPXL) and two thirds cash.
• Whenever iShares Russell 2000 ETF (IWM) is a winner, implement its portfolio position as one third Direxion Daily Small Cap Bull 3X Shares (TNA) and two thirds cash.
• Whenever iShares 20+ Year Treasury Bond ETF (TLT) is a winner, implement its portfolio position as one third Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF) and two thirds cash.

Other SACEMS assets are unaffected, and the approach still uses past returns for SPY, IWM and TLT to determine winners. To investigate the suggestion, we compare performance statistics for SACEMS Top 1, equal-weighted (EW) Top 2 and EW Top 3 portfolios without (Base) and with (1/3 3X) the alternative strategy. Using monthly dividend-adjusted returns for Base SACEMS assets and for SPXL, TNA and TMF as available during July 2006 through October 2022, we find that: (more…)