In this post, I am suggesting something to do with Municipal Bonds. For a simple investor like me, Municipals Bonds, or Fix-income assets, is just another class of Credit and Debt for my Income fund. By buying or investing in Debt, you receive income as dividend payouts, in measures of Yield.

As mentioned, since the downgrade of US’s AAA rating to AA+, my portfolio had taken a hit, partly because I had at least 60% in equities, some of Asia and International Stocks. The rest were in Fix-Income. Then I had a bet, to diversify my Funds, lowering the % of Equities and increasing my Fix-income %. You can view that graph of portfolio breakdown in my previous post.

By buying a Municipal Bond Fund, a mutual fund managed by an Investment Firm, you are buying into a mixture of Munis issued by National states in the US. Nevermind the details, the fund trades like a stock on the NYSE. The payout of these mutual funds are Tax-exempt, so you get the full 100%, instead of getting NRA taxed on 30%.

Here, I’ll post a 4 different charts of different asset classes, sectors on equities, country macro and lastly Municipal Bond funds, compared to S&P500 Index. You can easily see how money flows to each asset classes, and investors?flocking to these safe havens. Also as a true portfolio diversification, it should contain a mixture of different Asset classes too.

Remember if you can’t beat the S&P500 index, or if the type of investments you’ve gotten into correlates to the Index, then it makes no sense to invest at all. It’s only market risk and timing you are dealing with, and diversifying nothing.

1. Corporate Bond Funds – very similar to S&P500

–

2. Equities with Multi-Sector Funds – correlated to S&P500

–

3. Country Macro Index Funds - Worst, but its performance shouldn’t be measured against it since its a Global index

–

4. Municipal Bond Funds – you decide

These charts are courtesy of Goggle Finance.

To sum up, not only is diversification within multiple stocks is important, but also across different asset classes, including high yield and safe havens. A conservative portfolio should be used for long term holdings, in times Debt and Euro Crisis.

Files under Portfolio Management | Leave a Comment | No Comments »

Since August I’ve made a few bets and portfolio adjustments. They were noted in my previous blog posts.

Some re-adjustments includes:

• Shifting assets away from US Treasuries
• Cutting of US Equities, moving towards International equities
• Buying ?other better graded Country Government Bonds
• Betting on Fix-income – Municipals Bond Funds (tax free)
• Added a little more on REIT

Breakdown

You’ll notice I have added 100% onto Municipals Bond Funds, after cutting out some US equities. The reason was explained in my previous posts when the US treasuries was downgraded. Not sure if the next payment, will Obama and their team of politicians discuss the issue of temporarily raising the debt limit again (though after the downgrade the yields were pushed even lower).

In terms of breakdown:

• Fix-Income / Debt instrument @ 64%
• Equities a.k.a stocks @ 27%
• REIT @ 9%

In my next post I will present some interesting findings and why I mentioned is was a good bet, and you’ll see thru the charts just how the money inflows and outflows are going, and the all-rounded way of diversifying in terms of different asset class as an Asset allocation based strategy.

Files under Monthly Fund performance | Leave a Comment | No Comments »

So with a few months of research, I’ve been through some of the pain of coming out good strategies be it short term speculative, trend trade, mean reversion, spreads, or just plain time based trading strategies.

These are just some products that are currently on my system:

• US markets Top 10 Volume (so the spreads are 1 cent away, with high volatility/beta though)
• US markets?Top 10 Volatility (must satisfy good spreads)
• Futures markets (Global Index, commodities)
• Correlated US Stocks

Some findings base on my systems:

• Good spreads and volume helped reduce slippages costs, based on Market orders
• Volatility means more trading signals, but does not necessarily means profits
• Futures can be traded like stocks with the same systems, but some trading basics got to be identified and applied.
• eg. Nikkei 225 Futures lacked the “Point” by point spread, instead they are traded with a 5 points per tick, making it hard for Alpha due to the spread.
• On the contrast, the Hang Seng Index futures are great way to trade, because of the tick value.
• Markets are definitely correlated. Systems are up on 20 hours a day, from 8:00am GMT +8 Asian time, to 5:00pm EST US Time.
• By running systems to handle the risk from Hang Seng to Nikkei, and over to Nasdaq and the S&P500 futures, including WTI Crude from Europe to US times, you can see some correlation when one market moves, so is the other, and how the algorithms act upon these information, intra day.
• On the opening bell from 9:30am – 10:00am EST, and on good days (prices are short squeezed onto the Long or Short side), returns can run up to $300-$500, and before 10:00am, it can capture quite a good day’s worth of profits. But so are the risks, when there’s only 10% of the time with such opportunity, and 90% probably losing up to $100-$200. This will be refined and optimized.
• Some of the Algorithm cannot detect what is a random price action and what is an ‘actionable’ trade. So some results are therefore random and something only the system can only manage, but cannot act upon by forecasting or prediction.
• Fortunately, some US Stocks can produce consistent results, even after trading a >5000 shares a day for many many days. o:-)
• For a typical day when all systems are used and all products are added, trades can run up to 500-1000 trades a day, and over a value of USD 2 Million worth of shares traded.
• Adding all up, however the Equity curve are still negative, and points in an inverted 45 degrees, with only about 25-30% of winning ratio and Average/Trade at a negative value

Ahh, some of these stuff are pretty good for record keeping, knowing what works and what not. Thinking back on the days where I had made a few hundreds on an intraday, it spook me to realize how much risk Im actually putting on to produce that kind of returns, that is always inconsistent. Now that the programming of these systems comes at a snap of my fingers, it’s quite easy to “optimize” and fine tune the results.

In my current phase, optimizing the systems for speed and efficiency is a top priority. Tweaking and playing around with the numbers so the magic happens; frequency of signals/trade goes down (reduces brokerage fees) while Profits goes up (cutting useless stuff away).

Also, I have introduce a new strat using pure mean reversion and short trend systems (to counter the mean reverts), and just this system alone is able to produce quite a good run.

So… 3 objectives to meet in 3-6 months time:

1. Trading of more products eg. Futures & Equities, essentially a system able to manage in excess of at least USD 1 Million
2. Average profit per trade > 50 cents, or the Win/Loss ratio > 40% for consistency of at least 100,000 trades over 3 months.
3. Sharpe ratio > 3

Cool, what a post. Next, I’ll be updating my fund performance on my asset allocation base strategies and how they are doing over the past 2 months… (glancing over Municipals Bonds, it was a good bet and a good add to my portfolios since the S&P downgrade in August 2011 =:)

Files under Algorithm Trading, Gambling and statisical theory, Managing Risk | Leave a Comment | No Comments »