Name: Amplified Upside

Thesis: This aggressive growth portfolio is designed to achieve high performance by algorithmically trading leveraged ETFs while limiting the downside risks of leverage through a trend-following approach.

Leveraged strategies amplify returns but also lead to large drawdowns. For example, SPXL, a triple-levered stock ETF held by our portfolio, has a 10-year annualized return of 22% through Dec 2023, compared to annualized returns of about 12% for the unleveraged ETF SPY. However, this high return comes with high risk. SPXL’s worst year was 2022 when it fell by 57% while SPY fell by just 18%.

We therefore combine leverage with a trend-following strategy. Trend following strategies invest in assets when they are moving upward, and avoid assets that are trending downward. In general, a goal of trend following is to avoid the worst drawdowns by pulling out of assets that are undergoing prolonged falls in value, leading to better risk-adjusted returns.

Our leveraged trend-following strategy thus attempts to harness the growth potential of leveraged assets during upward market trends while using trend detection to sidestep the worst downturns.

Portfolio construction: This portfolio invests in three assets, SPXL, TMF, and BIL. SPXL is a leveraged stock ETF, which aims to give triple the return of the S&P500 stock index each day. Similarly, TMF invests in assets that are expected to give triple the return of the ICE U.S. Treasury 20+ Year Bond Index each day. BIL is a short-term treasury ETF; its role in this portfolio is to be a safe asset.

We use a proprietary algorithm to detect when each underlying index is trending upward or downward. If an uptrend in an asset is detected, we invest in that asset. If a downtrend is detected, any existing position in that asset is sold, and the proceeds are invested in the portfolio’s other assets. If the above process does not result in a long position in either of TMF or SPXL, the portfolio allocates 100% of its weight to BIL.

Risks: This portfolio maintains exposure to the stock and bond markets and is therefore susceptible to the inherent volatility and potential declines associated with both of these markets. Additionally, this portfolio utilizes ETFs with high amounts of leverage, which greatly amplifies both potential gains and losses. In particular, this portfolio holds triple-levered ETFs, which should be expected to have much worse drawdowns than the indices that they track. While trend following has often helped limit these drawdowns in the past, it has not always worked to do so, and may not do so in the future. Investors in this portfolio should be aware that holders of leveraged ETFs are exposed to the possibility of the complete loss of all invested capital.

DASTA Investments reserves the right to update or modify the algorithm used to produce this portfolio.