ACTIVE BALANCED.

  • INSTRUMENTS TRADED: Double Leverage S&P500 & US Gov't Bonds. Implemented using frequent traded mutual funds (Rydex or Profunds) or ETFs
  • TRADING FREQUENCY: Signals generated in the evening. You trade the following day

CONCEPT

Investors have heard about or have some form of exposure to 'balanced' mutual funds or strategic allocation plans where there is a static fixed allocation to stocks and bonds.  A popular ratio available in the industry is '60/40' where 60% of a portfolio is allocated to stocks and 40% allocated to bonds. The ACTIVE BALANCED strategy moves beyond the static portfolio allocation paradigm by dynamically shifting the allocation between the S&P500 and the 30 year US Treasury Bond depending upon market conditions.

The strategy uses multiple sub-models that generate independent signals which are aggregated to arrive at one top level signal for each asset. The various sub-models are designed to be conceptually unique and generate forecasts based on momentum and macroeconomic factors.

Typically the system will be allocated to both S&P and the T-Bond where the proportion of each asset with adjust several times in any given month. The chart below provides an illustration of how the allocations evolve through time. The net result is overweighting towards S&P during bullish environments and an overweighting towards T-Bonds during bearish environments. This is illustrated in the below chart:

IMPLEMENTING THE STRATEGY

This strategy is relatively easy to trade as the signals are updated in the evening for execution any time the following day.

The strategy is designed to trade double leverage S&P500 and T-Bonds. The recommended instruments to trade this strategy are the mutual funds offered by Rydex or Profunds. With a trading account directly at either fund company you will not incur any transaction costs and the funds are no-load and there are no penalties for frequent trading.

Trading the mutual funds would enable you to enter at the close of the day following the signal calculation day. This lag does not actually cause a deterioration in performance. However, if you must trade as soon as possible you can place MOO (Market On Open) orders for the corresponding ETFs in your stock brokerage account. Important note: because this is a daily trading active system, you will not receive email notifications of signal changes - you will need to log in once a day to check for new trades.

If you are unable to trade the system yourself due to time limitations or lack of comfort level, it can be auto-traded in your own account by a professional money manager. For details please visit our Auto-Trading page for details.

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