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This trading system tries to reproduce the 'Sleep Well' Bond Rotation Strategy developed by Frank Grossmann (http://www.logical-invest.com/)
The strategy switches, on a monthly basis, between 5 different ETFs, either on a Top1 or Top2 approach:
. AGG - iShares Core Total US Bond (4-5yr)
. BOND - PIMCO Total Return ETF
. CWB - SPDR Barclays Convertible Bond
. JNK - SPDR Barclays High-Yield Junk Bond (4-7yr)
. TLH - iShares Barclays 10-Year Treasury (9-11yr) U.S. Treasury Bonds
During market corrections, the strategy invests in SHY - Barclays Low Duration Treasury (2-yr) U.S. Treasury Bonds
The strategy was backtested for the 2008-2014 period and with Top2 selection it has an annual return of 16.87%, a maxDD of 6.47 and a Sharpe ratio of 1.51 (72.73% of trades are profitable).
Mechanics similar to GMR: Standardization of returns and volatilities, then weighted ranking and switch to cash above correlation treshold.
Performance for 20 year backtest with mutual funds:
. VUSTX - Long term government bonds
. PRHYX - High Yield bond
. PRCIX - Intermediate bond
. VFIIX - Intermediate government bond
. FNMIX - Emerging government bond
. FCVSX - Convertible bonds
. RPIBX - International bond
is in process. 20yrs backtesting trading system and parameter heatmat located on google drive: 3) Strategies - Idea collection\005_V1.00_Grossmann - Sleep Well Bond Rotation Strategy_AH
V1.0:
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Improvement ideas:
- currently not very stable on return lookback period, include MA on returns?
- Alternative set of ETF´s, look at ideas from docs on google drive
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
