VTI was still being used in Global Navigator+ while all of the other strategies used IWB. In efforts of streamlining and simplifying, I have changed Global Navigator+ ever so slightly by replacing VTI with IWB. There is virtually zero impact to past results or drawdowns, simply a housecleaning measure.

When naming the three Triad strategies which are differentiated only by the use of Smart Leverage, and 2X, and with 3X Smart Leverage I used Triad for the base strategy without any Smart Leverage. Triad+ for Smart Leverage using 2X, and Triad++ for Smart Leverage using 3X. I like this naming convention and adopted it to the other strategies as well.

LT Gain is now LT Gain+, LT Gain 3X is now LT Gain++, Global Navigator is now Global Navigator+.

Consistency in the naming.

The strategies (not Triad, it uses a different lookback and different risk off treasuries and bonds) went into treasuries for the months of February and March this year. During the month of February, treasuries didn't end the month terribly even though they underperformed the Russell 1000 most of the month, this chart below shows February 2022 for long duration treasuries and the Russell 1000. The treasuries lost about 1% less than the market.

March was far worse for treasuries. Traditionally the treasuries act as a flight to safety and provide safety and returns when stocks aren't doing well, this didn't happen the 1st half of the month as stocks went down, Treasuries were down equally, then as the equities recovered and made gains, the treasuries lagged tremendously. Treasury yields have seen some of the biggest increases in this short of a time and has been devastating for the price of treasuries and bonds, especially the longer duration ones.

This chart below, tweeted by Jim Bianco, shows the treasury returns year to date for all history available - this is the worst year on record so far. Just crazy, we've not seen this happen before.

The result is that we took a hit in March in the strategies like The Russell, Global Navigator, LT Gain, and LT Gain 3X. They went out of equities based on the model and ended up performing terribly in long duration treasuries.

TDL, Treasury Duration Limiter, is something that I came up with after that terrible treasury performance in March, the goal is to restrict the strategy to short duration treasuries when going long duration presents too high of a risk. I ended up making TDL operate on the 30 year treasury yield, subtract the 5 year treasury yield, and if the spread is less than 1% then TDL kicks in and the strategy would go into short term instead of long duration treasuries.

Recently, I have been looking into TrendXplorer's Generalized Protective Momentum, GPM, strategy - it is of interest to me, particularly in a retirement portfolio. I found myself thinking about the strategy and making a couple changes based on my perspective to see how it looked on historical data. In my making a few adjustments to GPM I found myself implementing a TDL type filter for GPM, and it dawned on me that it should also work well for the DMS strategies.

It is elegantly simple, and works better than the 30 year - 5 year treasury yields so I have swapped out the inner workings of the TDL filter. TDL now simply looks at the weighted lookback of long duration treasuries, my weighted lookbacks for the strategies are 25% of the 1 month return, 25% of the 3 month return, and 50% of the 6 month return. However, I wanted this to be faster acting and more protective, so I changed the weighted lookback to 50% of the 1 month return, 25% of the 3 month return, and 25% of the 6 month return.

If we are risk off for multiple months, TDL can kick in at any month end, maybe in February we start off in long duration treasuries, but TDL kicks in for March so then we switch to short duration treasuries. The way I have TDL set, if in April the new signal is for long duration treasuries - we stay in the TDL limited option until we go back into equities. It avoids switching back and fort from long to short treasuries for those times when it is many months, the returns are not hurt and volatility is lowered.

I wish I had come up with this originally, I had it in my head that the risk off asset should be restricted from an outside metric, but as always, price is usually the best metric available.

This additional filter, TDL, to the strategies will help to protect us any time the long duration treasuries may not be a safe place to park our investments. The reporting deck for May will be complete with the updated TDL.

The Triad Trio!

Triad is one of the newer strategies, and it has become one of my favorites. When I was originally designing Triad last year, I wanted to include both gold and or commodities as up to a 1/6th investment option, but I wasn't able to source commodities monthly returns back to 1980 so decided to just leave it with gold as the option. I recently was able to obtain the monthly commodities returns back to before 1980 and have implemented it into the strategy.

The strategy will invest 1/6th of the strategy into either gold or commodities, whichever has the stronger relative momentum, and if neither has positive absolute momentum, then that 1/6th is invested into our safety holdings, treasuries or bonds.

I've decided to make Triad a little more robust in regards to International equities, similar to Global Navigator. Recency bias has everybody looking away from International and at the US Markets, but historically up until about 12 years ago, International markets had the same historical returns as the US, and they tend to outperform when the US Markets are underperforming.

The chart above shows how there are periods when the International markets have outperformed the US markets. Triad now capitalizes on this situation. Similar to how Triad now invests in the stronger of gold or commodities, it will put 2/6th of the strategy into either the Russell Mid-Cap Value or International, whichever has the higher relative momentum. If neither of them have absolute momentum, then the 2/6th goes into the best performer of the bonds/treasuries.

The 2/6 allocation into the Russell 1000 remains unchanged.

Triad+ is the same as Triad, but adds Smart Leverage and will go into 2X S&P 500 instead of the Russell 1000 when going back into equities after a 15% or larger drawdown in the Russell 1000. This position is held until a natural change of investments in the strategy up to 1 year at which time the position is closed and we would de-leverage into the Russell 1000.

Triad++ is the same as Triad+ but the 2/6th position that would go into the Russell 1000, with Smart Leverage in Triad++ it would go into 3X S&P 500.

Even using 2X and 3X leverage with the 2/6th position the risk adjusted returns on the strategy are phenomenal, and for me it becomes a single strategy that fits more needs without having to combine multiple strategies. Note that leveraged equities do present a risk, a terrible month in the markets is amplified if in leveraged assets. This is not investment advice.

Going forward with the May Reporting Deck, all three Triad strategies will be included.

You can download the Fact Sheets for all three Triad strategies here.

I am really excited for the Triad offerings and am using them heavily myself. Please pay attention to the MAX Leverage of strategies. Triad++ has a 166% max leverage on it's own. the 2/6 position will effectively become 6/6 in Triad++ when it goes into UPRO. Triad always has at least 1/6 in treasuries/bonds, I personally don't consider that a 1:1 leverage the same as equities, but I didn't want to downplay the overall effective leverage all the same.

Happy Investing, geez, especially in this environment. If the couple people I follow who's opinions I respect are correct, we could see a really big drop still to come in the equities markets. Dual Momentum Systems strategies have had some whipsaw this year, and got caught in long duration treasuries in March, but they should fare well if faced with a large drawdown in the markets, and get us back in when they have some positive momentum.

After the drop in March 2020 the markets went pretty smoothly up through late 2021, it was a long run which made for large gains. An investor with a more risk averse portfolio would have been more modestly invested than the market, and possibly feeling a bit of FOMO during that boom time. However, we have had a bit of a drawdown since late 2021 and now that more moderate portfolio is looking pretty good and there is currently no FOMO when you are not going down nearly as much as the markets.

When putting your portfolio together, it is a good idea to take the full market cycle and the possible swings that you may incur into account, consider both the good and the bad times. For example, it would be easy to look at the LT gain 3X strategy and it’s excellent risk adjusted metrics, say to yourself - that’s for me! 100% allocation to it (I had somebody tell me this in email just the other day.) And while the use of Smart Leverage improves the chances of not suffering a massive drawdown - it is still entirely possible. Think back to 2008, we had a period of time that did well in the middle of the drawdown. The DMS strategies happened to not go back into equities until around May 2009 but let’s play devils advocate and say that maybe the market had enough of a rise in the middle of the huge down trend that it triggered a buy signal and if you went in at that time with 100% at 3X leverage and let’s say for arguments sake that the market dumped 20% the next month, you would now be looking at a 60% drawdown in your portfolio in just one month. This is an entirely feasible possibility even though in all the many years of backtesting it never has. Let’s face it, as we are this year seeing the largest drawdowns in bonds that have ever happened, shit does happen.

I find backtesting strategies to be a really good idea to see how events of the past effect the strategy, going back in time to kick the tires. But a backtest doesn't mean that the worst is behind us. To paraphrase Meb Faber, "your largest drawdown is always ahead of you." And while on the topic of backtesting to kick the tires, I have stated it before but be want to reiterate that I do not tweak the strategies so that it they handle past events better. I have no interest in trying to make them look better over the backtest, I put my money into these strategies and am not trying to fool anybody, myself included. Enhancements to the strategies evolve over time, adding Smart Leverage and Treasury Duration Limiter, "Necessity is the mother of all innovation" comes to mind. I have added these items with the goal of improving future performance and reducing volatility. What I do not do is tweak things to avoid a certain drop in the past, or take advantage of something - that is not what these strategies are about.

I appreciate low drawdowns and high risk adjusted metrics. This is why all of the Model Portfolios now shown in the Reporting Decks (even the current Model Aggressive Portfolio) has an allocation to Triad+, it is a low volatility strategy with superior risk adjusted metrics. There is a larger allocation to Triad+ in the more conservative Model Portfolio's, but still a 30% allocation to it in the Model Aggressive Portfolio. For all the Model Portfolios I show the average leverage and the maximum leverage. The Model Aggressive Portfolio currently shows an average leverage of 114% (from 1980 forward) and a maximum leverage of 220%. These two numbers tell you that on AVERAGE the strategy is not usually leveraged, but when it is, it has a 220% allocation which is significant. Don't allocate to this thinking the leverage is 114%, that is the average, normally there will be no leverage at all, but at times it will be nearly 220%.

The Model Portfolios are not intended to be a one size fits all, but an example of how the strategies can be combined for an improved overall allocation. One person my look at the Retirement portfolio and say it is far too aggressive for them. Maybe they want 70% Triad and 30% cash. Another person maybe with large retirement balances may be see the Model Aggressive Portfolio as not nearly aggressive enough since they have a large buffer. If you want to see the stats for a specific combination of strategies shoot me a note and I'll run it if I have a minute.

Risk tolerances are very personal, only you know what is too much risk for you. I have a rather modest risk tolerance, which is in part how I ended up looking to systematic strategies and developing the DMS strategies - I don’t like the volatility and large drawdowns that come along once in a while when holding the market. Even holding a dozen or more individual securities can have far more volatility than say IWB. I don’t think that individual investors (or professionals) can sustainably pick companies that outperform the market. This is why most professionals and virtually all retail investors are substantially outperformed in terms of raw gains by the market over time. I am also very results oriented, so if the strategies are underperforming the market - I have to remind myself that this will happen, we will catch up in the bad times, and accelerate with smart leverage after the bad times, this isn’t a daily, monthly, quarterly or even annual game - we will win it over the longer run.

With the bond bull market over (or nearly over), the S&P being too much for most people to buy and hold, and the 60/40 looking very out of favor in the current bond environment - a systematic investing approach, like the strategies offered here at DMS seems more rational than ever.

Please reach out with any questions, share with your family and friends, allocate appropriately.

MAX PAIN is a strategy that was billed accurately from my perspective, I described MAX PAIN on the website as:

I don't believe I ever sugar coated the strategy with it's impressively high returns, the Ulcer Index is insane and the risk adjusted metrics terrible. When talking about MAX PAIN I have been up front and open about the nature of the beast. Recently I posted that the strategy was on the bubble, meaning that I was considering pulling it from the line up. This months impressively terrible results have pushed me to remove it. MAX PAIN is down 22.58% this Month to Date, and currently is in a 42.38% drawdown. While the current drawdown is not out of the ordinary when looking at the history for MAX PAIN, it simply isn't something that I think has broad appeal, or should have broad appeal, and I do not feel that it is responsible for me to "promote" it by including it in the strategy line up.

I take pride in the excellent risk adjusted returns for all of the other DMS strategies, this is what I focus my energies on, not on the gonzo MAX PAIN type strategies which ultimately has delivered amazing returns, but not without insane volatility along the way. It is time to reflect that in the reporting and strategies that are presented.

If you want to follow MAX PAIN moving forward you can do so from this PortfolioVisualizer link, free accounts will be able to view monthly results after the fact.

Not long ago I did a post about how TAA does against fixed allocation strategies like 60/40 and Golden Butterfly. It is time to update the data now that we have Triad+ in our arsenal.

In the original post I said:

It is easy to see why people like allocations that are rebalanced annual. Whether you invest in a 60/40 allocation, All Weather, Permanent Portfolio, Golden Butterfly or others - the appeal is near market returns over time without the highs and lows. We prefer technical asset allocation which generally may have a change of investment at the end of any given month. Are we rewarded for the more 'fiddling' with our investments than those who invest in an allocation that is only rebalanced annually? Let's take a look.

I ran results on PortfolioVisualizer for Golden Butterfly, 60/40, and Permanent Portfolio, results here. From 1992, as far back as I could get the results, through Jan 2022, Golden Butterfly has the best combination of returns and maximum drawdown. Because Golden Butterfly took the Gold out of these three, I will compare it to the DMS strategies which never use any leverage, that is Triad and The Russell OG. These two DMS strategies may have a change of investment at the end of every month, Golden Butterfly is a buy and hold that is rebalanced annually. How do they compare?

- - -

In this updated post I am comparing the traditional 60/40 balanced portfolio and Golden Butterfly against a single DMS Strategy, Triad+. Let's see how it looks over the long run. And please keep in mind that Triad+ was really designed to outperform going forward, it was pure joy to realize it outperformed in the past as well.

The metrics and chart speak for themselves, Triad+ is a really special strategy which I am rather proud of. Not only is the downside and volatility limited, but the upside is more unbridled, it makes for a terrific strategy on it's own, or used in a combination of strategies.

All respect to Tyler for his Golden Butterfly, and understanding that there are people who don't want to have to potentially change their allocation at any given month end, however, we see that there is a nice upside for that small barrier to entry. Do not forget that going forward, as Golden Butterfly remains in long term treasuries, the spread in performance may continue to increase because Triad+ never uses long term duration treasuries, ever!