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Bruce,
It was a little late last night when you finished your series of posts
related to 'Trading mutual funds'.
Just want to thank you for your time and for the quality of the
information that you shared on this subject.
It seems clear to me that any serious look into trading MF's should be
done in the FastTrack area, and that as much effort might be required
to master MF trading as is required to master the trading of
individual equities.
Regards,
Phsst
--- In amibroker@xxxxxxxxxxxxxxx, "bruce1r" <brucer@xxxx> wrote:
> Now that we've look at an example of timing and selection, the
> logical question is whether they can be applied to stocks, ETF's, etc.
>
> 1. Timing - if you have a useful small-cap fund signal, it can
> obviously be applied to such stocks. Several of us have PT and PB
> models that incorporate it.
>
> Chuck had asked there is money to be made in trading ETF's. I think
> that there is in some cases. Let me give a simple example that I
> use. During the "buy" times of a signal, the Russell growth
> outperforms the Russell Value. As you probably know, the Russell
> 2000 can be segmented into these two components. Two ETF's, IWO and
> IWN track these components. They have marginally adequate volume and
> spreads. Actually, there is something more interesting that can be
> done if your brokerage can short the IWO during "sell" periods in a
> spread with long IWN. Value tends to outperform growth during the
> sell periods and the spread is low risk.
>
> 2. Selection - as Fred has noted, NCALPHA is a useful strategy for
> ranking some classes of stocks. I know that Gary has been doing some
> work in this area also. This is more of an intermediate strategy as
> Gary explained in his screen cam movie.
>
> Obviously, the current events issue is the various types of trading
> limitations that are placed on mutual funds. Many of the higher
> Alpha small-caps have either frequent trading restrictions or exit
> fees during the first 3-6 months. One example of the extreme cases
> is the BRSIX fund. If you sell within a short time of your buy, you
> will be banned from buying in the future. The way that most of the
> FT/Trade group is dealing with this is with hedging.
>
> Hedging is done by determining a hedge ratio that neutralizes the
> market component of the fund during the sell times. For you MPT
> types, this leaves you to make a little money on the positive Alpha
> of a good fund. This is done by first determining which Rydex or
> Profunds or Potomac fund is most highly correlated with the target.
> Then the hedge ratio is determined by maximizing the UPI of a trading
> result based on a signal. An augmented hedge is used to do this.
> Here's the idea. Assume that you have a small-cap fund X and the
> hedge ratio is 60/40. During the buys, you hold 60% X and 40% of a
> long Russell funds (UAPIX which is 2x, if you have a really good
> signal). During the sell times, you switch the 40% to a short
> RUssell funds such as POSSX. Because Rydex, Profunds, and Potomac
> encourage short term trading, you can do this very frequently. The
> only issue is that some brokerages impose a 1 day settlement, so it
> is better to do this with money at Rydex, Profunds, Potomac.
>
> Hope all of this helps-
>
> Bruce R.
>
>
>
>
> --- In amibroker@xxxxxxxxxxxxxxx, "bruce1r" <brucer@xxxx> wrote:
> > Let's get the question of system performance out of the way first.
> > Most of the more useful FT signals have been developed in Trade.
> > Most have been backtested into the mid 90's (although some go back
> to
> > 9/1/88 - the start of the FT database). The signals tend to fall
> > into two categories - basic and aggressive. Please understand that
> > I'm offering a a couple of data points only for illustration.
> >
> > 1. Basic timing -
> >
> > The basic metric is a signal called RUTVOL. It is a Russell 2000
> > based timing signal with volume confirmation. It has not been re-
> > optimized for many years. Here are the results from 9/1/88 -
> 11/5/03
> > with 1 day trading delay for the Russell to money market -
> >
> > Russell 2000 held - 9.05% CAR
> > Russell 2000 / RUTVOL - 16.63%
> > HRTVX (Heartland Value) / RUTVOL - 21.83%
> >
> > Many of the aggressive small-cap's didn't start until 94-97. One
> > example is Fremont Micro-Cap. Here are the results from 7/6/1994
> to
> > 11/5/03 with 1 day trading delay to money market -
> >
> > FUSMX (Fremont MicroCap) / RUTVOL - 30.02% MDD=19%
> >
> > 2. Aggressive timing -
> >
> > Here we are getting into the question of acceptable optimization,
> > robustness, etc. But one of the more robust, aggressive signals is
> > called FUBAR5. Some might find is premise and construction
> > controversial, but that is a story for another day. The results
> are -
> >
> > FUSMX / FUBAR5 - 41.41% MDD=8.7%
> >
> > A variation of it that uses shorting during longer term bear
> trends,
> > achieve significantly more.
> >
> > Another major toolset deals with selection. Admittedly, I'm about
> to
> > gloss over some issues such as survivorship, and others, but let's
> > say that we used NCALPHA for fund selecton instead of just trading
> > FUSMX in the example above. The parameters are - hold 3 funds, min
> > hold 5 days, max rank held = 6.
> >
> > FUSMX / RUTVOL - 34.8% (compared to 30.02 w/o selection)
> >
> > Now, can you use these signals for other things, such as stocks,
> > ETF's, etc. Yes. More in the next post.
> >
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "bruce1r" <brucer@xxxx> wrote:
> > > I thought that I offer a primer on FT then get to some specific
> > > trading questions. First, let's separate the FastTrack world
> into
> > > four topics -
> > >
> > > 1. Mutual fund trading
> > > 2. FT as a tool
> > > 3. Trade
> > > 4. Community
> > >
> > > Mutual fund trading may seem conservative to some, but it is just
> > > another class of issues that range from conservative to
> > aggressive.
> > > Much of FT evolved out of agressively trading Fidelity Selects.
> To
> > > that end, the FT program has alway concentrated on pair
> switching -
> > > trading from one fund to another based on a buy/sell signal.
> Long
> > to
> > > MM is just a special case.
> > >
> > > FT for Windows is the current incarnation of the tool that is
> > bundled
> > > with the mutual fund data. FT provides "clean" data on funds
> > (which
> > > is no small feat) that is back adjusted for distrbutions in a
> > timely
> > > manner. The tool is a Windows program in architecture, but not
> in
> > > look and feel. Be that as it may, the tool offers some very
> unique
> > > capabilities for ranking, manipulation of user defined families,
> > > switching, etc.
> > >
> > > Trade is a language developed Ed Gilbert that is an impressive
> > piece
> > > of work that is free. It is vector programming language (like
> > AB),
> > > but with calculations extended to families of funds/stocks, is
> > better
> > > described as a matrix processor. It is very fast, and allows
> > > indicators, timing signals, and trading models to be developed
> very
> > > quickly. Frankly, until AB, I hadn't found anything close, and
> > like
> > > Fred, I've used many of them.
> > >
> > > All of this came together into a community of people from varied
> > > backgrounds. They concentrated on market timing and fund
> selection
> > > and developed techniques that may have lacked the rigor of
> > academia,
> > > but JUST WORKED ! In 1997, Don Beasley catalyzed this group by
> > > developing a "Dominant Market Theory" that focused on the Russell
> > > 2000. This turns out to be a very useful tool for timing.
> Others
> > > expanded on this idea. Don Bell, who is very prolific, has
> > developed
> > > a myriad of timing signals for small-cap funds, junk bonds,
> tech's,
> > > etc. Werner Gansz developed the basic Russell signals and also a
> > > program called NCALPHA that is the tool of choice for ranking
> funds
> > > relative to an index based on non-correlated Alpha (which can be
> > > thought of as the stock picking skills of the fund manager).
> > >
> > > Next - how is it used, what are the results?
> > >
> > >
> > > --- In amibroker@xxxxxxxxxxxxxxx, "bruce1r" <brucer@xxxx> wrote:
> > > > Chuck - I think that I might be one of the people that Fred was
> > > > referring to in an earlier post who comes from this FT/Trade
> > world
> > > > and also has some experience with Amibroker. I am "stuck"
> > > somewhere
> > > > for the next day and will have some time to post an overview
> and
> > > > hopefully answer a couple of your questions. If you bear with
> > me,
> > > > I'll go until the board tells me to stop. Here are the
> bullets -
> > > >
> > > > 1. The FastTrack community drew a group of people together over
> > > many
> > > > years who have done a body of very impressive work on selection
> > and
> > > > intermediate term timing. I've become familiar with the depth
> > and
> > > > excellent quality of your work, and think that you would find
> it
> > at
> > > > least interesting.
> > > > 2. The work was focused on funds, particularly small cap's
> > because
> > > of
> > > > their trend persistence, Alpha, and lower volatility.
> > > > 3. Much of the work is transferrable to stocks as Gary S. has
> > found.
> > > > 4. There are approaches to working around the fund trading
> issues
> > > as
> > > > Fred has mentioned.
> > > > 5. For whatever its worth, I've imported/ported much of the
> work
> > to
> > > > Amibroker.
> > > >
> > > > I'm off to dinner. More later.
> > > >
> > > > Bruce R.
> > > >
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